Borrell Report: Who will benefit as local ad spending nearly doubles online in next few years?
Hard on the heels of last month's State of the News Media 2011 report comes consultant Gordon Borrell's annual benchmarking of local online audience and advertising.
The Borrell Associates report, issued late last week, has at least three hot headlines.
"Pure-play" Internet companies like Craigslist and Monster have stopped growing share of market. This will come as welcome news to newspaper companies and broadcasters, who watched the pure-play's Internet advertising share grow from virtually nothing in 2000 to 48 percent last year.
Borrell attributes the leveling off to weaker companies folding during the recession, some churn among advertisers, and newspapers and broadcasters successfully partnering with the thriving digital-only companies.
He sees a number of legacy companies -- especially those concentrated in big metro areas like McClatchy, New York Times Co. and Washington Post Co. -- well into a transition in which digital has reached 20 percent of more of total advertising revenues and will continue double-digit year-to-year growth.
If Borrell is right, this marks a third phase in how newspapers have fared in the digital era. Earlier on they held share, growing as quickly or more quickly than the total local online advertising pie. By the mid-2000s, they began losing share quickly. Now, and in the near future, they should be back to holding their own.
Less cheering is that mobile may drive another big increase in digital's share of all local advertising by 2015. Newspapers' ad prospects in that developing medium are uncertain as yet.
Borrell forecasts that digital local ad spend will grow from $13.5 billion in 2010 to $24 billion in 2015, passing print newspapers for the largest share.
The "Top 6" local online companies in ad revenue have abundant local content -- but none of it is news. Instead, the ads and associated shopping information are the content.
This confirms a thesis both my State of the Media colleagues and Borrell have advanced for some years -- that many Internet users looking for a product or service have no interest in accompanying news content. The ads are, in effect, "unbundled" from news.
Borrell's methodology classifies Google, Yahoo and some others as national companies (while counting their advertising as part of the pure-play share). So his Top 6 in ad revenue are, in order, AT&T Yellowpages.com, Autotrader.com, Groupon, CareerBuilder, Yellow Pages Group of Canada and Monster.
Legacy news sites, including Gannett, New York Times, McClatchy, Tribune, Hearst and The Washington Post, appear further down in his Top 20 listing.
Of particular note, Borrell writes, are Autotrader.com and Groupon. "In 44 of more than 200 markets we track, Groupon or Autotrader.com generates more revenue than the largest local newspaper, TV or radio online operation in that market."
Groupon came from nowhere in just two years to be the number three local online ad revenue company. Borrell notes that both Autotrader.com and Groupon continue to grow quickly and predicts either or both will probably pass AT&T Yellowpages.com in revenues sometime in 2011.
In both newspaper and TV sites there is "a canyon" developing between those growing digital sales quickly and those still at the starting line and losing share.
Borrell sites several factors in the widening gap. The biggest one, he suggests, is that nearly all the most successful companies have a staff dedicated to digital sales. Most of the companies languishing still rely entirely on legacy sales staff to sell digital as well.
Especially at newspapers, size of market is important too. Borrell finds that newspapers under 50,000 circulation typically get less than a 2.5 percent share of all local online advertising. Those with more than 50,000 circulation typically are getting an 11.5 percent share.
With boosts from targeting, collaboration and forays into video, Borrell sees the industry's online revenues, stalled over the last three years, nearly doubling in the next five.
TV sites grew Internet sales by 14 percent in 2010, Borrell found, but still typically trail newspapers in digital.
There are interesting exceptions, however. The Borrell study identifies 22 markets in which a TV site beats the daily newspaper site in local audience. Typically these are relatively mature operations that have been developing their sites in a serious way for a decade or more, like KSL-TV in Salt Lake City or WRAL-TV in Raleigh-Durham.
Radio sites, the report finds, are still negligible players in most markets.
Borrell emphasizes throughout that pure-plays and legacy media, after years of saying nasty things about each other, are now finding mutual interest in teaming up. The pure-plays have discovered that they lack the local sales force and promotional ability legacy media can provide. Legacy media get access to technology along with additional traffic and ad revenue in these combinations.
In all, it is an upbeat picture of continued online ad growth over the next five years in which legacy companies can expect to participate much more robustly. Except for those stalled at the gate, that is.