Friday, June 16, 2006

GOOD NEWS FOR THE NEWSPAPER BUSINESS? Can it actually be true?
NEWSPAPER AD REVENUE UP 35%

Okay, admit it. We got you to look.

Our headline is a little misleading, since it’s really newspaper’s online revenues that increased by that amount in the first quarter of 2006, according to the Newspaper Association of America. Total online advertising for the quarter totaled $613 million, which was exactly 34.9% greater than the total for that same period in 2005. While you can certainly claim that this increase is really not that big of a deal since the base upon which it was built was small in comparison to the total spend in the medium, some credit has to go to the folks who run these unwieldy old media beasts, known as newspapers, for this accomplishment and what it may portend. Newspapers have become a punching bag along with the rest of the legacy media including magazines, radio and television. Even spot cable’s growth slowed considerably in the first quarter, just a 3.5% gain.

The issues facing newspapers includes a steady diet of slow to non-existent growth in print advertising, continued subscriber erosion, falling profit margins and expenses rising faster than revenues. This situation stimulates less than enthusiastic reviews by the investment community. No less an authority than Warren Buffett has recently offered an opinion that there’s a string of years upon us where newspapers will consistently lose 5% of their annual revenue. Thanks Warren.

Digital Beat Print

Historically, stable multi-media companies such as Tribune now find themselves stuck in the uncomfortable position of owning large amounts of assets in slow growth media, struggling with dissident board members opposed to stock buybacks and, according to recent reports in the media, pondering a separation of the newspaper and television divisions into separate stocks so as to possibly enable a sale. Such is the condition of the digital transition!

Newspapers and their advertising revenue have become primary targets of the new media business as websites such as Cars.com, Monster.com and Craigslist have gone from concepts to threats to the long-standing newspaper classified ad and their lucrative revenues to the local newspaper. This has hurt the retention and growth of automotive and employment ad businesses, despite a nearly 5% growth in classified this past quarter primarily driven by gains in real estate ads, that constitute over 50% of the classified revenues upon which newspapers heavily rely. Add in other targeted websites such as Realtor.com that contend for real estate classifieds (27% of the total take) and you have the quadruple threat to the Classified section: a real erosion of automotive, employment, real estate and general classified advertising moving to the Internet.

On the display side, there’s the long time erosion of the number of large lineage department and grocery store advertisers due to closings and consolidations, etc. It's enough to make newspaper owners crazy enough to desire cross-ownership opportunities with their long time enemies!

Local, Local, Local

Enough of what you already know. Despite all of the bad news besetting the newspaper business, it does hold a powerful trump card in this battle and that’s localism. It is difficult for anyone to find more local content than is available in this holdover from the 16th century. Despite cuts in staff through buyouts, declining print readership, low to no growth and assaults from Wall Street, dissident board members and investors, the local newspaper still largely rules when it comes to truly local content. So, we congratulate the newspapers for figuring out a way to start transitioning to a monetization of the one true asset it has in the digital world (by the way, it’s the same one it had in the analog one): its unique local content.

While it’s currently impossible to replace lost print lineage revenue by increasing ad sales to the online version, since internet advertising is still not as highly priced as a newspaper ad, the newspaper industry is moving into areas that have formerly been the property of the electronic media through its online properties by offering audio/video feeds, etc. Local readers who want to see the Mayor’s press conference and have broadband access can find such events at the website of their local newspaper before, during or after it's aired on the local television station. Immediacy has always been the hallmark of radio and television but no more. Newspapers have served as one of the primary sources of local content to citizens throughout the history of the Republic and they may now be poised to grow that position through this troubled transition where the online platform is going to probably equal if not overtake the print one.

But, will the money follow along? It’s probably too early to call this race but savvy marketers are always going to value the holder of content unique to the local marketplace. Marketers desire to be in proximity to the local reader/viewer/listener as they read or view content that has the local angle. This is one of the keys to moving merchandise/services both to local and NATIONAL advertisers. Logically, it would seem to follow that the value of this local content and the strength of the brand attached to it should increase as the media world continues to break into these smaller niches.

Connecting the Dots

In an article published this month in Ad Age Online by Randall Rothenberg, the author describes an interview he conducted with the President of DotConnect Media. DotConnect was purchased by Lee Enterprises in March of this year. Lee is one of the nation’s largest newspaper owners. DotConnect is busy selling a national network of local newspaper websites that can be utilized by any national advertiser looking to capitalize on the attention of the local website reader in any market small or large. Anyone who has followed the advertising world over the past few decades is all too aware of the historic challenges that the newspaper business faced when trying to market its print version to the national advertiser. There were differences in pricing and ad sizes, among other problems between papers, that made the purchase of national newspaper advertising, outside of free standing inserts, extremely difficult and nearly impossible for all those except the most patient.

The newspaper business which for so long controlled the local marketplace found it impossible to duplicate its success in the national marketplace and watched as local radio and television stations prospered in their absence. Brave efforts were made, the President of DotConnect toiled at National Newspaper Network who had tried to make a go of it, but the newspaper business fell well short of its goal of offering the national advertiser the ease of purchase that was commonplace amongst its electronic competitors.

With the standardization of advertising available on the Internet platform, the newspaper industry may now have an interesting angle on those national dollars that DotConnect is pursuing. With a network of nearly 1,500 local newspapers available, and an ability to add more, DotConnect can offer an ease of buying and billing that struggled to be accomplished in the print version of the newspaper. This time, it’s the radio and television operators who risk falling behind the newspapers in the effort to make money from the national advertiser.

While revenues to electronic media websites are clearly on the rise, there is not a single platform available to radio and television operators like DotConnect that links the websites together in a way that makes them an easy, one stop, and one bill buy for the national advertiser. There are firms such as WorldNow (12.3 million unique users per month) and IBS (audience of 12.2 million unique visitors per month) providing such national/local sales services for television stations.

Even so, these current options still aren’t the one-stop option of a DotConnect but it at least affords some synergies to the online advertising buyer. It’s probably an easier task to build a larger network of newspaper sites since multiple owners really don’t exist in all but the larger print markets. Television and radio owners do still deal with in-market competition and that long-standing business situation may tend to prevent an electronic media version of DotConnect from emerging. But, aren’t these the times that should make current broadcast owners take stock of what may be holding them back?

Radio & TV Websites Fall Short

Another potential challenge is that many radio and television station websites still do not offer the complete functionality or the quality and depth of content present at the website of the local newspaper. Some companies are clearly working to make their websites more than an occasional destination for their viewers and listeners but work remains to be done across the industry to make that a reality. With their websites, the local newspaper, and its local content, can deliver ads to either local and national advertisers that offer all of the sight, sound, color, motion and emotional elements of a television or radio ad that the print version could not offer. Add in a healthy dose of interactivity for measure, too.