Digital ad share at newspapers hits new low
New data released last week show that online advertising revenues at newspapers have grown at a far slower pace since 2003 than digital sales across all media. While total online revenues in the United States rose 211% since 2003 to $22.7 billion in 2009, interactive advertising at newspapers in the same period gained 125% to $2.7 billion. (See Figure 1 below.)
Even more troubling, the share of online spending captured by newspapers has dropped by a hefty 25% in the last three years, tumbling to an all-time low in 2009. The newspaper share of online revenues last year was 11.9% vs. 16% as recently as 2006 and as high as 16.4% in 2003, the first year the Newspaper Association of America got around to reporting digital sales. (See Figure 2 below.)
Taken together, the two sales reports show just how short publishers are falling of their oft-stated goal of weaning their businesses away from print revenues. The goal is spot on, too, given that print advertising has plunged a staggering 43% since 2005 – a decline that many publishers fear may continue, albeit at a slower pace, for the foreseeable future.
If print sales continue contracting and interactive sales don’t take up ever more of the slack, then newspaper companies at some point will run critically short of the revenues they need to remain healthy concerns.
For all the digital-is-the-future rhetoric we have heard for years at newspaper industry conferences like the NAA hoedown under way this week in Orlando, interactive advertising averaged barely 10% of the anemic $28 billion in revenues reported by newspapers in 2009.
How could performance fall so short of the promises? A number of things went wrong at the same time:
Failure to innovate
Publishers first ignored the new media in hopes they would go away and then blew tens of millions on ill-conceived, technologically tin-eared, bureaucratically bloated and under-promoted projects that failed to come close to countless innovative efforts brought to market by such garage dwellers as Sergey Brin and Larry Page.
When newspaper advertising commenced the vertiginous slide that began the year after sales hit an all-time peak of $49.4 billion in 2005, publishers were so preoccupied with fixing the core business that they spared comparatively scant resources for interactive ventures. Even when they gamely dabbled in the new media, they scarcely knew what to make of such alien concepts as tweeting, social networking, GPS advertising and augmented reality.
Failure to protect content
When the Internet arrived in the mid-1990s, most publishers quickly put their expensive-to-produce print content on their websites for free in the expectation that an ever-growing number of page views would yield ever-higher ad revenues. But a glut of page views across the web since then has driven ad rates to ever-lower levels, instead.
After 1½ decades of giving away content for free, profit-challenged publishers today have started thinking they can charge for it – a hope called into question last week when the Valley Morning Star in Harlingen, TX, dismantled a months-old pay wall after its traffic collapsed by some 40%.
Because content has been free at most newspapers since the inception of the Net, publishers declined to invest in any of the numerous technologies that would have enabled them to protect their most valuable resource from unauthorized use. Today, publishers are deploying a global whack-a-mole service in an endless, likely fruitless effort to crack down on copyright poachers.
Failure to adapt ad offerings
Instead of building innovative, transactional ad products to satisfy the desire of marketers to reach targeted and verifiable prospects, publishers tried to migrate their existing print advertisers to the web, selling banners to retail and national advertisers and online listings to such traditional classified customers as employers, auto dealers and real estate agents.
When the print business collapsed, publishers lost not only their print revenues but also much of their online volume, too. Classified advertisers, in particular, migrated to free or cheap websites that specialized in recruitment, autos and real estate – and a great many of them are not likely to return when the economy picks up again. Classified advertising matters, because, until it collapsed, it produced as much as two-thirds of the revenues at some newspaper websites.
Failure to commit
With 90% of their revenues coming from print, publishers focused first and foremost on preserving that business. The Boston Globe famously declined to invest $1 million for a stake in the infant Monster.Com in 1995 because its owners feared a cut-rate recruitment site would threaten their continuing ability to gross $100 million a year by charging hundreds of dollars for a three-line, agate ad.
The preoccupation with protecting print – plus a not-incidental amount of inertia – prevented most newspaper executives from recognizing the profound shifts in technology, consumer behavior and media economics that were destined to rock their world.
Given that there is no shortage of intelligence and talent at America’s newspapers, the only explanation for the industry’s failure to embrace the new paradigm is that it really did not want to change.
Now that a growing number of newspaper people truly and deeply recognize publishing companies must adapt or die, the burning question is whether the industry has the time, skill and resources to turn things around.