To show the declining power of newspapers and the exponential power growth of the Internet, you only have to say “Craigslist.” A new study conducted by Robert Seamans, assistant professor of management and organizations at NYU, and Feng Zhu, of Harvard Business School, reveals that the revenue generated for the local papers from their classified advertising from 2000 to 2007 plummeted billions of dollars–money which was instead invested by consumers for advertising on Craigslist. The researchers claim that classified ad buyers saved roughly $5 billion by posting their ads on Craigslist.
Seamans said, “Our study demonstrates how media companies respond to shocks from technologically disruptive entrants in different industries. This study provides some insights to media moguls who will face future industry shocks and are pushed to re-evaluate their business models.”
The study found that there were several ripple effects affecting the newspaper industry from the drop in classified ad revenue, including a 20.7% drop in classified-ad rates, a 3.3% increase in subscription prices, and a 4.4% decrease in circulation.