What's killing the newspaper business? Advertising competition.

This may be a banal insight, but I hadn't quite put the pieces together until recently.

Firstly, realize that the bulk of newspaper revenue doesn't come from subscriptions or newsstands. It comes from selling ads.

Thought experiment: Suppose all newspapers cease printing and are henceforth only available electronically. Further suppose that anyone who might wish to read a newspaper has a laptop, Kindle DX, or other good way of accessing them. Why will the ad revenue for these electronic papers never reach the ad revenue they once got in print?

Compared to their portion of the print-with-ads market (shared with magazines and the yellow pages, mostly), newspapers are only a small corner of the web-with-ads market. There are very many new, high-traffic websites that run ads.

The market for ad revenue has limits. Companies who advertise only wish to field a certain portion of revenue for it. Often, competition with the products and services of other companies will cause them to advertise more, but only to a point. Eventually, there are diminishing returns and neither they nor their competitors will increase ad spending.

Electronic newspapers now have to compete in a wider advertising market, meaning a smaller chunk of available ad revenue will be directed at them than was the case when they had a relatively large portion of the print ad market.

Additionally, major newspapers require a substantial staff for quality reporting and editing. Any website that can get traffic with lower operating costs is at a competitive advantage and can afford to offer web ad space at lower rates than newspapers would prefer.