Borrell predicts digital revenue will rise 30% next year at some newspapers

Gordon Borrell, newspaper reporter turned digital advertising analyst, has been tough on his old profession through the years. After holding their own in the first wave of digital growth from 2002 to 2006, he has written, newspapers lost huge market share to news-free “pure plays” like Craigslist and Groupon for five years beginning in 2007.

More recently, Borrell has been predicting (prematurely he would concede), a turnaround in newspapers’ ad fortunes in their local markets. Last week, he unveiled a 2013 forecast that is positively bullish.

For a start, he expects print ad revenues to stabilize or grow slightly at most papers, a trend he expects to continue through 2017. But the results will be uneven, with small and mid-sized papers having the best growth prospects, he projects, and metros still declining in the range of 4 to 6 percent.

I certainly agree with Borrell and his colleagues that smaller papers are faring better and will in the future. But breaking even in print in 2013 sounds optimistic given industry losses in the 8 percent range for print and 6.5 percent overall so far this year.

Courtesy: Borrell & NetNewsCheck

Digital ad growth for the papers he surveys, again mostly small and mid-sized, is running close to 15 percent this year, Borrell said, and will be 30 percent in 2013.

I think Borrell defines a reasonable goal for mid-sized and small papers, but his own company-by-company account (see below) shows the biggest papers are growing much more slowly — like The New York Times and The Washington Post, which already have relatively mature digital business.

Borrell himself adds an important qualifier. Newspaper organizations will only succeed to the extent that they target two growing categories of digital advertising: video (growing 30 percent next year) and targeted display (growing 105 percent). Those who stick with “mostly traditional run-of site banners and classified or directory listings might see, at best, low single-digit growth next year.”

My own read is that video content and ads are growing briskly already this year and that targeted display is poised to take of locally. How newspapers will fare in capturing a good piece of that business is less certain.

Courtesy: Borrell & NetNewsCheck

Like others, Borrell also sees, digital marketing services like “reputation management, search engine optimization, app development and social media management” as a hot growth area. New digital marketing offerings to local businesses have been a major revenue initiative for many newspaper organizations this year.

By “targeted display,” Borrell explained in a webinar sponsored by NetNewsCheck, he does not mean simply targeted ads like those for camping gear adjacent to an outdoors story.

Rather true targeting is a response to information about the individual user, based either on a profile or record of reading and searches. For instance, last week reading a Huffington Post article, I was served a number of ads for Washington, D.C., hotels, the site having perhaps discerned from my recent searches on Expedia that I was planning a trip there.

In fact, local advertisers will increasingly demand that most of their ads be served in this fashion, according to Borrell, as targeted display will dominate the growth in local markets through 2017, soon outstripping paid search as the biggest revenue format.

Courtesy: Borrell & NetNewsCheck

In a tracking of 2012 digital ad growth rates in local markets, Borrell found a pronounced pattern of those with smaller papers (and often a small initial revenue base) growing much more quickly.

For 11 newspaper companies he tracks, Borrell estimates these growth rates:

  • Journal Register: 35.3 percent
  • Gatehouse Media (newspapers): 32.3 percent
  • MediaNews Group: 26.3 percent
  • Gannett (community newspapers): 21.0 percent
  • Lee Enterprises (newspapers): 10.1 percent
  • McClatchy (newspapers): 3.8 percent
  • Washington Post (newspapers): 0.1 percent
  • Journal Communications (newspapers): 0.0 percent
  • Scripps: 1.0 percent
  • New York Times Co.: -1.9 percent
  • A.H. Belo (newspapers): -5.1 percent

I was struck by the discrepancy between Borrell’s measure of digital ad growth this year and the Newspaper Association of America’s statistics showing just 2 percent improvement year-to-year in the first six months. Best I can tell from explanation of the methodologies, NAA’s survey includes more big papers whose weak results could cancel out gains at many smaller newspapers. Also, NAA is measuring national advertising as well as local, which has been weaker and a drag on an estimate for the full industry.

Borrell’s focus is on local and his main methodology is to gather data from various sources on what local advertisers are spending this year and project how much and where the are likely to spend in subsequent years. For media clients, he estimates the size of each local digital ad market so they can calculate market share and compare that with competitors and industry norms.

His takeaway for small and mid-sized papers is that if they are “selling what the advertisers are buying most,” preferably with a dedicated online sales staff, they can expect 15 percent-plus growth and a 15 to 20 percent share of digital in their local markets.

In the webinar, Borrell added one more qualifier to his optimistic take on the newspaper industry. If spending on Sunday pre-prints switches to direct mail as a result of the deep discount deal for Saturday delivery that Valassis has struck with the Postal Service, “all bets are off … That could throw our forecast for newspaper advertising into a tailspin.”

I have one other caution. I agree with commentators that better targeted advertising is the wave of the future. Advertisers want it and may press for it. But I don’t think we are done with consumer resistance on privacy grounds, and the rise of “do not track” technologies and legislation.

I don’t mind if the computer knows I am going to Washington this week or serves me interest-appropriate ad messages generally. Others mind a lot. And the stronger the push toward behaviorally-targeted ads, I am guessing, the stronger will be the pushback.

Borrell’s estimates also may be over-optimistic. A rival forecasting firm, BIA Kelsey, adjusted its 2012 newspaper estimate downward last week and is predicting 8 percent overall advertising losses this year and 5 percent in 2013.

But Borrell has a long record of tracking changes in digital advertising trends and there is cause for some industry cheer in this, where there has been little but short-term gloom lately.

Correction: The original version of this post said Borrell asks local advertisers what they are spending and their future plans. In fact, he uses a variety of data and a proprietary formula for estimates and forecasts like those here.

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