It is old news that newspaper print advertising -- all manner of classified in particular -- has been declining for several years. Now, however, the sunny side of the industry story, robust online growth, has quietly developed a case of progress interruptus too.
The rate of newspaper online advertising growth, previously running 30 to 40 percent a year, fell to about 20 percent in the first half of 2007. Then, it slowed even more in the third quarter.
Media Post
recently collected these newspaper online growth rates from third-quarter financial reports:
- Gannett (excluding USA Today): 7.5% (compared with 21 percent in the third quarter of 2006)
- Tribune: 9 percent (compared with 28 percent a year earlier)
- McClatchy: 1.4 percent (compared with 16.3 percent)
- Dow Jones: 8 percent (compared with 13 percent)
- E.W. Scripps: 19 percent (compared with 40 percent)
What is going on here? Part of it is simple math. As the online base grows bigger, very high rates of growth are harder to sustain. The same dollar gain that was a 33 percent improvement one year, for instance, becomes only a 25 percent gain the next year.
But this so-called “law of large numbers” is not the whole story. As for the rest, "it is all to do with classified upsells," analyst
Paul Ginocchio of Deutsche Bank Securities, wrote me in an e-mail. Classifieds are the leading edge of the bleeding in print advertising, with losses substantially worse than even pessimists had forecast for 2007. Unfortunately, as Ginocchio notes, classifieds typically make up about 70 percent of the typical newspaper site’s online ad revenue.
The industry understands that diversifying that base will be necessary to keep growing online. But that takes a number of years, not a few months.
It is the new version of an old problem. For online to rescue the newspapers, I suggested in
a January 2005 Poynter Online column, would require at least a decade of 33 percent growth and enough new initiatives to counter the inevitable rise of unforeseen competitors (not to mention continued pressure from Google, Monster and Craigslist).
Now the industry will need to reinvent the fast-growth-on-a-small-base model. That means growing the smaller portion of the current mix -- local and national display -- plus making huge strides in high-potential areas like local search and local video, where newspapers barely have a beachhead. It probably also means inventing entirely new businesses with new revenue streams.
I am hearing three main scenarios for a second-stage booster to online growth. They are not mutually exclusive; the industry could regain some momentum from any mix.
The Yahoo Deal and Nationally Networked Ad Buys A huge consortium of more than 200 newspapers entered into a partnership with Yahoo a year ago and most now are working with the company’s Hot Jobs service. Some companies like Lee -- growing about online about 50 percent this year -- are bucking the slow-growth trend as a result.
However, architects of the arrangement, like Dean Singleton of Media News and Robert Decherd of Belo, have been promising that the real action will kick in mid-2008 when technology is in place to allow Yahoo to sell national ads on a common platform in any combination of the member papers.
The logic behind the arrangement is powerful. Through the years, the industry has a miserable record facilitating print buys for national advertisers across a large group of papers. Online has presented the potential national advertiser with an even worse tangle of multiple contacts and varying specifications. The Yahoo deal, if it works as promised, sweeps that barrier away.
At a June investors' conference, Lincoln Millstein, senior vice president of digital at Hearst,
offered this example of the opportunity created: Nike or McDonalds could easily place the same ad on local high school online sports reports all over the country.
Analyst Ginocchio is among neutral observers who believe in the deal’s potential. In a September report he forecast that it is likely to generate 20 additional percentage points in year-to-year online growth when fully operational.
The waters were muddied slightly earlier this month with
news that several participants and non-participants in the Yahoo consortium are considering a separate national online sales effort. It came as a reminder that the revenue split between the newspapers and Yahoo has never been announced and may still be under negotiation. But however the overlapping plans sort themselves out, the new proposal highlights how big an opportunity may be there.
The New Frontier: Local Search and VideoAmong a half-dozen firms measuring and forecasting online ad growth, Gordon Borrell and his
Borrell Associates are one of the best known -- and most bearish on newspaper prospects.
Borrell sees nearly all local online ad growth over the next five years in two formats: search and video. Video is tiny as yet but expected to more than double in volume this year, according to a Borrell report published in February 2006. Local search is bigger but newspapers are getting little of that action compared to Google and other non-news sites.
The even-worse news in Borrell’s report is a forecast that the current newspaper bread and butter of banners and classified listings will not just stall but fall to less than half its current dollar volume in 2012 (see chart). That amounts to a prediction that pay for listings will give way to fees for placement at the top of search listings on the Google model.
Long story short, Borrell said in a phone interview, unless the industry learns some new tricks fast, "newspapers are basically screwed."
But without much fanfare, a number of newspapers are exploring and developing both local search and local video. One of the larger examples is
The Atlanta Journal Constitution’s
Kudzu.com, now expanding Craigslist-style to many other markets. A smaller paper going the same route is the
Evening Post of Charleston South Carolina, with
PalmettoBizBuzz.com, billed as a guide to 200,000 local businesses.
These look nothing like newspaper sites; they are all about shopping with no news. There is some content, though, in the form of user reviews. If you are looking for
a veterinarian in the Charleston area, four reviewers say Dr. Jim Southard at Air Harbour Veterinary Clinic is your man.
Local online video is even harder to find. By Borrell’s estimate only about half of newspaper sites have the enabling technology. You are most likely to see such ads in the larger categories like jobs and autos. A car dealer may include its own message with some stock test drive footage. A hospital recruiting nurses might offer a two-minute video about what a great place it is to work.
Curiously, in the modest current market in the low $100 millions, newspaper sites are outperforming television sites by better than two to one. But expect television sites to follow aggressively if online video grows anywhere near to Borrell’s prediction of $5 billion in 2012.
Online users may be most familiar with the pre-roll 15-second spots touting national brands that you must view before seeing a video news clip. Borrell sees local online going a different direction with longer-form information videos dominating -- perhaps even full-blown infomercials.
New Ventures -- "Jobs to Be Done"People have been saying for years that newspaper organizations need to pick up their game in thinking up and executing outside-the-box business ideas. About 18 months ago, a study titled
"Newspaper Next" went a step further and gave the industry a guide to getting better at innovation.
In shorthand, the prescription was to target audiences, especially non-newspaper readers, figure out information jobs they needed to get done, then design quick and cheap products and services to meet the need. In time, through trial and error, the theory goes, newspapers could build a stable of these little businesses that collectively would add up to a new revenue stream.
Despite objections from some purists who wonder if this is a distraction from journalism, many organizations are giving Newspaper Next a try. If advertising growth is going to be in highly targeted messages, newspapers need to be players in that arena. Even trying and failing, if the costs stay low, can help the organization train to get “nimble,” the current buzzword.
Newspaper Next already has one bona fide success, sites targeting busy moms. There is a natural content base of listings for camps, after-school activities and the like. Moms are good prospects to chat with other moms. Once such a site develops a participative repeat audience, it can serve a local advertising base for particular goods and services. Many Gannett papers and others picked up the idea and launched such sites in the last year.
It is early to judge how good newspaper organizations can get at this and whether resulting revenues will be big enough to help. How many good ideas are out there? How many of those really have revenue possibilities? (See sidebar for an inside view from Stephen Gray, managing director of Newspaper Next).
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Add it all up, and we have a new set of particulars to the running recent story on the industry. There is considerable hope over time -- especially if you blame some of the current advertising trouble on cyclical factors. There is not going to be a real estate bust on the heels of a real estate boom forever.
However there is no reason to look for a full turnaround in a year or even two. In newsrooms, that will translate to hold-downs and, some places, more rounds of cuts. Plus the resources and focus of newspaper organizations will tilt even more to the new stuff and perhaps to ventures that have nothing much to do with journalism but everything to do with the financial muscle to support it.
In reading this, it sounds like all the "traditional" methods...
