Tuesday, February 03, 2009

Print drives online ad sales at newspapers

Second in a series. Part one is here.

The misguided assumption among those advocating paperless newspapers is that the revenues of the digital-only entities succeeding them will be at least as robust in the future as they are today.

This is dangerously false, because it overlooks the reality that the vast majority of online revenues at most newspaper companies come from print advertisers who are “upsold” to the web when purchasing a print schedule.

It requires a tremendous leap of faith to believe that the marketers who buy print advertising would continue to spend equal or greater sums on web advertising if the publisher eliminated the medium that attracted them in the first place.

Before anyone stops the presses in perpetuity, let’s get a grip on the facts.

As discussed in the first installment of this series, interactive advertising produces only a slender fraction of the total sales at the average newspaper company.

The $3.1 billion of interactive revenues booked by the newspaper industry in 2007 represented barely 7% of over-all advertising sales. While it is possible the industry may have generated up to 10% of its sales on the web in 2008, this is because print has been shrinking so rapidly that the online component has become proportionately larger.

Online revenues are declining, too, though not as fast as print sales. While online sales at newspapers advanced by 31% as recently as 2006, the rate of growth dropped to 18.8% in 2007 and almost certainly will be down by 2% to 5% when the final numbers are calculated for 2008. Few forecasters anticipate positive growth this year, especially since online ad rates on average are approximately half of what they were in 2007.

The worst part of the online sales story at newspapers is that fully two-thirds of revenues at most properties come from the three principal classified categories, employment, automotive and real estate. The verticals have been shrinking sharply for years because each is in state of profound secular decline.

The significance of the industry’s dependence on classified advertising is so great that it’s worth taking a deeper dive.

Classified advertising, which produced 40% of the industry’s revenues and more than 40% of its profits in 2000, generated only 23% of newspaper revenues in the first nine months of 2008, according to the Newspaper Association of America. Between 2000 and 2007:

:: Recruitment revenues fell $4.9 billion, or 56.3%, to the lowest level in 13 years.

:: Automotive sales slid $1.8 billion, or 35%, to the lowest level in 22 years.

:: Real estate sales, which had been the only category showing consistent gains after 2000, plunged sharply in 2007, dropping $1.2 billion, or 22.6%, in a single year.

When the final numbers for 2008 are reported, classified revenues will be down by somewhere between 25% and 30%, based on their trajectory in the first nine months of the year – a trend aggravated by the economic meltdown in final quarter of the year. In but one data point, the Conference Board reports that the number of online job listings dropped by nearly 645,000 listings, or 23%, between December, 2007 and December, 2008.

Though the rate of decay in the classified categories may moderate this year, the dismal state of the economy gives no reason to believe any of the categories will show positive grow in 2009. The crystal ball is too murky to guess what might happen in 2010 and beyond.

The long-running decline in classified advertising is not the product of a weak economy, although it certainly is exacerbated by it. And don’t blame the collapse of classified advertising on simply the bargain rates at Craig’s List, either.

Rather, the decline in classified advertising reflects the new ways employers are hiring workers; a shrinking number of auto dealers and the eight hours that consumers shop for cars online, and the way people will start buying and selling homes among themselves now that real estate agents have lost their multiple-listing monopoly.

In other words, there is absolutely no reason to believe the market for classified advertising will regain its strength whenever the economy recovers.

Even though the changes in consumer and advertiser preferences have been manifestly evident for eight years in the employment vertical, abundantly clear for five years in the auto sector and vehemently obvious in the last two years in real estate, newspaper publishers to date continue to rely to a dangerous degree on the rapidly decaying classified advertising business to generate the preponderance of their online sales.

They do this by encouraging – or, in some cases, forcing – print classified advertisers to buy online ads when they book a print schedule. This is called an “upsell” and, as noted above, it historically has produced roughly two-thirds of the ad dollars at most newspaper websites.

So, what would happen if newspapers stopped the presses and no longer had print ads to upsell from? Several things. All at once. And all ugly:

:: A certain number of advertisers would stop doing business with the publisher because they don’t like, don’t understand or don’t value the web.

:: Web-savvy advertisers doing a bit of comparison shopping would find that the rates for ads at the newspaper website are a whole lot higher than the free listings they can get at Craig’s List, Wal-Mart (via Oodle), Ebay’s Kijiji and many other sites, great and small. Newspapers would be forced to either sharply dial down their ad rates or risk losing a significant volume of business. Either way, revenues would shrink.

:: With their ad revenues constricted, newspapers would discover they no longer could afford the large and well compensated advertising staffs that historically enabled publishers to extract the largest share of advertising dollars in almost every community in the land. An ad rep who previously booked $9,000 in print revenues and $1,000 in online sales now might generate an order for only $1,000 in online advertising – or perhaps less, if the paper were forced to drop its online ad rates to remain competitive in the marketplace.

No matter how aggressively a publisher cut sales expenses to offset the sharp drop in revenues, she never could get them as low as Google or any of the thousands of other do-it-yourself online advertising media that employ no sales staff and, instead, rely on customers to create, schedule and pay for their ads by themselves.

Further, a substantial cut in the sales staff to trim overhead at a publishing company almost certainly would lead to a drop in volume, because fewer people would be calling on fewer prospects.

Newspaper publishers could join Google and move to do-it-yourself advertising, too. But they would have to make substantial investments in promotion and training to successfully migrate merchants in their communities to this new way of doing business. As demonstrated by Google’s recent decision to shut down the do-it-yourself print advertising system it had been offering to newspapers, the adoption of such a radical change is neither smooth nor rapid.

With likely declines in both ad rates and volume after the discontinuation of the print product, the typical digital-only newspaper company would be left with a notably smaller advertising base than it has today.

This necessarily would force economies throughout the organization. And the department that could be cut the most easily would be, as always, the newsroom.

Next: Newspaper web traffic depends on print, too

So you won’t miss the next installment, sign up for the email alert or RSS feed in the right rail. Your privacy will be protected and the email address will not be used for any other purpose.

24 Comments:

Anonymous Anonymous said...

I asked it before, and I'll ask it again: Does anyone know how well the Detroit experiment is working?

10:02 AM  
Blogger Margaret A. McGurk said...

I have been making the argument for a while now that Craigslist is a straw man.

The real competition has been building for years from Auto Trader, Cars.Com, Monster and their ilk. People ARE paying for classified ads; they're just not paying newspapers.

This is easy to test; on any given day, count the number of real estate ads in your local paper and on Craigslist. Then, compare with the numbers of listings available through your local MLS.

Newspapers did little or nothing to hold those audiences, and now that they're gone, the big boys blame Craig and his lists.

2:00 PM  
Anonymous Chuck Taylor said...

As far as I know, the Detroit experiment has not yet begun.

4:24 PM  
Anonymous Joe Zekas said...

The fate of newspaper real estate ads was clear long before two years ago, at least to everyone I met and spoke with at dozens of newspaper conferences.

Gannett's Mike Kment, at least 6 years ago, was warning everyone who would listen (few did) that classifieds online would eventually be free.

Everyone knew it, and no one ... well, you complete the sentence.

6:07 PM  
Anonymous Anonymous said...

"The misguided assumption among those advocating paperless newspapers is that the revenues of the digital-only entities succeeding them will be at least as robust in the future as they are today."

Where is this argument being made? Any links?

7:47 PM  
Blogger Newsosaur said...

In re the above question: Kindly read the first part of the series.

9:30 PM  
Anonymous Anonymous said...

Anyone consider that people don't really look at online ads? Don't click? They just want a few newspaper that allows commenting, some bells and whistles... but free. And maybe they didn't really look at ads in the print edition.. or at least ACT on what they say by going to the advertiser?

4:11 AM  
Anonymous Anonymous said...

Print drives more buyers to sellers' Web sites than any other medium.The measuring and reporting of the print to Web connections is the tool to prove the power of print.The print and the Web become the "brand". All it takes is publishing management thinking like the customer, the reader and the advertiser.

8:54 AM  
Blogger T Heller said...

Allan writes: "A certain number of advertisers would stop doing business with the publisher because they don’t like, don’t understand or don’t value the web."

There's a hidden assumption embedded in that statement. Can you find it?

Overall, I applaud A. Mutter's wading into newspaper economics, but I think he's still a bit too lodged in the 'newspaper as all-in-one' paradigm. A change in the 'medium' by which content is delivered to consumers quite likely will also presage a sea-change in the industry's business model. That's the turmoil we're currently witnessing. In the end, the best price/value product will dominate.

And the hidden assumption contained above? That the web is the only alternative. It's not. It is only the *first* digital medium that has attained wide-spread acceptance.

Unfortunately, however, the hide-bound newspaper industry has yielded *significant* market power when they adopted their present relationship with the Internet devil. Ask yourself this: assuming it was physically possible, should a corner grocery store make its *perishable* produce available for *free* over the Internet?

9:25 AM  
Anonymous Joe Mescher said...

I agree with this perspective, and feel I am qualified to comment since I have sold online advertising for a daily newspaper.

The printed product lends credibility and thus drives traffic to the news website.

The infrastructure investment and physical product let people know newspapers have some 'skin in the game', as opposed to a start up news website.

Furthermore, in the Vermont market anyhow, newspapers have 'feet on the street' salesforces focused primarily on print, but willing to introduce online to their customers since it looks like the growth product.

Digital only is an intriguing idea, but the economics simply don't work.

I see the digital product as a long term growth vehicle, but the paper isn't going anywhere.

My in-laws would be crushed if that happened (even though reductions in the size of the paper have them upset).

9:50 AM  
Anonymous Brian Costello said...

I've been thinking a lot about this as well in posts. The question I have is "When will the average consumer start looking for their deals online, rather than in print?" My company is heavily print, but I'm the online guy, so merging the two is exciting, but creates a lot of questions. Print, right now, works better than online for coupons -- plain and simple. But the time is coming fast where that will change. The question is, when?

10:56 AM  
Anonymous Anonymous said...

Newsosaur:
You are absolutely right that most online ads are print upsells. It therefore makes no sense to dump print and go online-only.

But why are most online ads print upsells? They don't have to be. Retooling ad salesforces to focus on online is the first step to creating the newspaper of the future

11:01 AM  
Blogger Gerry said...

(from Gerry Storch)

As always, I enjoyed reading the Newsosaur's erudite comments.

However, this time it was too much of an academic numbers crunching exercise for me.

While Mr. Mutter stands at the blackboard with pointer in hand, valuable though it may be, let's please not forget that thousands of journalists ... some of them my old colleagues ... are faced with buyouts at best or ruined lives at worst.

I'm afraid I was a minor part of the go-Internet cacophany with an article published in the Online Journalism Review.

In it, I contended that 1) failing papers should go exclusively online, 2) should establish a unique franchise by becoming all-local, and, most importantly, 3) stop giving the news away free and start charging big-time.

I'm not an economist, certainly not an Internet expert. I left the journalism biz seven years ago. I was commenting as a concerned outsider, trying to use common sense. Remember that?

Now Mr. Mutter tells us, indirectly, this won't work.

Even though papers derive 90 percent of their revenue from print advertising, they're not surviving in print.

And they won't survive, he says, by going all-Net.

So what can they do? Apparently, nothing.

Well ... if there truly is no hope, let's hear it right now. Get it out of the way. Stop worrying about what we can't help.

If there is any hope, let's hear why and how from Mr. Mutter.

If he were the publisher of the paper he knows best (the Sun-Times?), what would he do or try to do to save it?

P.S. Have you noticed that three press authorities far more august than me ... NYT editor Bill Keller, legal/journo guru Steve Brill and former Wall Street media hotshot Henry Blodget ... all say what I do ... that papers are crazy for not charging for their web sites???


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6:41 PM  
Blogger Newsosaur said...

In re the above comment: The fourth installment of the series will include my thoughts on what newspapers ought to be doing.

8:17 PM  
Anonymous Walter Dnes said...

Re; Gerry Storch's comment at 6:41 PM. I'm very pessimistic myself. Much has been made of the fact that newspapers used to be a "gatekeeper" to the news. It was the only source, till the end of the 19th century. At the beginning of the 20th century radio came along, followed by TV in the mid-20th century. The one advantage newspapers had over them was that the reader could flip through at liesure, rather than having to listen to radio news on the hour, or wait till 6:00 PM. And the reader could also stare at an ad for 5 minutes, rather than miss an ad if he went to the bathroom during a commercial break.

The web changed that. The printed page (newspaper/magazine/mail-order-catalogue) was no longer the sole gateway. The web is a newspaper equivalant in a way that radio/TV can't be, namely that you can go to a website when you feel like it, and stare at something for several minutes.

As for the question of what is killing newspapers, people who try to pin the blame on any one particular website are missing the big picture. When a person gets stung to death by a swarm of 1,000 bees, you don't waste time trying to pin all the blame on one particular bee. Similarly it's *THE WEB* that killed newspapers, one cut at a time. Craigslists took away *SOME* classified ad revenue. Dice and Monster took away *SOME* ad revenue. Here in Canada, http://www.mls.ca took away *SOME* revenue. Ditto http://flyerland.ca/ And if I want to read pithy editorials and sparkiling repartee, rather than read a paper, I can go to sites like http://newsosaur.blogspot.com etc, etc, etc. None of the above struck a mortal blow by itself, anymore than 1 bee sting would kill a healthy person who deosn't have a specific allergy. However, the combined effect of a thousand cuts to advertising revenue is killing newspapers.

What can I say to journalists? There is the old saw about how railroads ran into trouble, because they thought they were in the "railroad industry", when they were actually in the "transportation industry". Similarly, newspaper journalists are *NOT* in the "newspaper industry", they are in the "news industry". Newspapers as we know them will fade away, to become at best niche players. But radio and TV will be around for a while. They have newscasts. As a matter of fact CNN and FOX and other networks have all-news channels running 24x7 on cable. This is the future of journalism.

Just as is the case with print, websites associated with radio/TV will get traffic driven to them by the radio/TV site. Websites are a perfect complement to electronic media. You can give at most a few minutes to one story on air; "60 Minutes" is an exception. A newscast can always point people to the companion website for a more detailed, in-depth analysis.

10:38 PM  
Anonymous Anonymous said...

I wish people would stop calling the Detroit thing an "experiment" or cutting things a "strategy." What newspapers need to do is stop trying to be everything to everyone. That is simply not possible with staffing the way it is, and revenues falling overall. They need to decide what market, or markets, they intend to serve (and this needs to be more specific than a geographic location) and provide news that serves those markets. And for god sake, don't give it away for free!

7:09 AM  
Anonymous Bulletproof Jackets Central said...

Isn't this just a sign of the times? The entire world of commerce is changing and the news industry is not immune to it.
The generation of the future will live, shop, and spend in non print media. I think the news print industry is going to have to find a way to adapt to this reality.

12:54 PM  
Blogger Bulletproof Jackets Central said...

Isn't this just a sign of the times? The news paper industry along with all industries and all commerce is changing.

The generation of the future will live, buy, sell, and spend on the internet. Brick and mortor stores are already in transition. The print industry is going to have to find a way to survive the transition and then prosper on the other side. The fact that this blog exists is witnes to that fact.

The question in any commerce is what does the customer want i.e. what is he willing to buy and though what media is he making his decision? It is clearly noe, and more so in the future, the internet. The print media has no choice but to adapt.

1:14 PM  
Anonymous Bulletproof Vests said...

Great comments guys. Thanks for the information.

5:56 PM  
Anonymous Jacob said...

I think there will always be newspapers and printed media, but the internet is becoming so powerful and readily available that people dont use the other stuff anymore. As far as stores go, not too many stores anymore on a downtown street, they are all huge corporations with mega stores and huge advertising/marketing budgets. This is hurting the small businesses.

8:19 PM  
Anonymous Anonymous said...

I've been in online ad sales for 9 years and have seen it grow massively. The company I work for is a pure-play-online business news organization. Our content is free and our CPMs are high because of the targeting.

Newspapers should really try to use their websites to serve their readers. I'd like to get my local news headlines via email and I'd gladly give my demographic information for the use of the service. I'd probably even keep the box checked for solo email offers. That would be a win win win for the readers, advertisers, and publishers. What if I could get classified ads emailed to me for items I'm searching for?

The web is direct marketing. At its best, this means personalized content for readers, tighter demographics for advertisers, and higher CPMs for publishers.

Ad execs should stop complaining and get creative. Giving banner impressions away or bringing in online people for the upsale doesn't show confidence in the online product. Make something that engages readers and gets marketing folks excited.

8:27 AM  
Anonymous Bullletproof Vests said...

The last anonymous comment is totally correct. With the internet people can go and look and get exactly what they look for. What i have see with increased internet speed is how efficient your common person is at shopping around for the best deal on a car or even a CD player. They read reviews, compare prices, find what they are looking for, and purchase. People hardly ever just go and buy the first thing that pops up. That does put more pressure on businesses to have competitive prices and good marketing. Its critical for companies to be flexible with their business plans.

4:18 PM  
Anonymous John said...

Intro said:
"The misguided assumption among those advocating paperless newspapers is that the revenues of the digital-only entities succeeding them will be at least as robust in the future as they are today."

I would add:
"The misguided assumption among print newspapers is that revenues of print newspapers will be robust enough in the future to support the current large enterprises"

The game is changing. No matter what you do. Print media, if it continues to exist is going to change in a way that I don't think any of us foresee exactly.

People of my generation are NOT big purchasers of newspapers. My mom reads both locals religiously.
I go to the local newspaper site... sometimes.

If the newspaper was engaging for ME, and was NOT available online, would be the only reason I would purchase one...

5:37 AM  
OpenID Stomgatz said...

You are absolutely right that most online ads are print upsells. It therefore makes no sense to dump print and go online-only.

8:46 AM  

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