Wednesday, March 09, 2011

Will classified advertising come back?

Nowhere have newspapers suffered as mightily in the last five years as in the meltdown in classified advertising, where nearly $14 billion in highly profitable revenues were vaporized between 2005 and 2010.

The classified ad crash, of course, resulted from the worst global economic calamity since the 1930s. The real estate market collapsed. Employers stopped hiring. Two of the three domestic automakers plunged into bankruptcy. Nervous consumers held off on buying everything from cars to pedigree puppies.

The impact on newspapers was rapid and profound:

While classified advertising delivered more than 40% of newspaper revenues as recently as 2000, want-ads produced barely 22% of the industry’s revenues by the end of 2010 – the lowest contribution in 50 years. To put it another way, the classified crash was responsible for 58% of the drop in revenues that brought total newspaper ad sales to some $26 billion at the end of 2010 from an all-time high of $40.4 billion in 2005.

Now that the economy is – sort of – on the mend, the big question for publishers is how much the classified advertising market will rebound. Although economic upswings historically have reinvigorated classified advertising, this time may be different.

The principal reasons that classifieds may never regain their former strength are that people are hunting for jobs, buying cars and shopping for homes in decidedly different ways today than they did even five years ago. They have moved to the web. And employers, car dealers and real estate agents are enthusiastically following them.

The migration, which began with a trickle in 2006, turned into a torrent as the economy unraveled and continued declining in 2010 despite the nascent recovery. Here is where we are today:

:: Total recruitment advertising revenue at American newspapers was about $750 million last year, or 85% lower than the $5.1 billion produced by this vertical in 2005.

:: Real estate sales were approximately $1.1 billion at the end of 2010, or 76% lower than the $4.6 billion achieved in 2005.

:: Automotive revenues were about $1.2 billion last year, or 73% lower than the nearly $4.6 billion booked in 2005.

The above projections are based on actual data published through the first nine months of 2010 by the Newspaper Association of America; the projections for the final three months of last year are mine.

To be sure, classified advertising is likely to improve if the economy continues to recover. Employment advertising, for example, jumped 5% in the third quarter of 2010 but still remained deeply depressed against historic levels.

Fundamental shifts in consumer and advertiser behavior in each of these major verticals suggest that they never will return to their former glory. While many publishers recognize the enormity of these secular changes, others still have not come to accept them. But every publisher has to face these facts:

:: Employers have learned to post vacancies on their own websites or at low- or no-cost job boards targeted to their particular industries. In recruitment as well as the rest of the classified verticals, the online media are significantly cheaper – when they are not simply free – than the rates traditionally charged by newspapers.

:: Auto dealers know that eight hours is the median amount of time consumers spend shopping on the web before contacting a dealer. Car manufacturers and sellers are focusing their efforts on intercepting customers as they make their decisions online, not luring them to dealerships after the fact with broadcast or newspaper ads promising free pony rides. In addition to avoiding the nuisance of cleaning up after the ponies, interactive marketing enables dealers to get the names, email addresses and phone numbers of live prospects – something you just can’t do with print.

:: The vast majority of real estate argents have said in countless surveys that they know newspaper ads don’t sell houses. Agents buy ads to please sellers, who want some tangible proof that something is being done to market their houses. As sellers and buyers become accustomed to shopping at sites like Realtor.Com or Zillow.Com, real estate agents will put more of their dollars into those venues, which not only are cheaper than newspaper ads but also make it possible to make contact with prospective customers.

Ironically, a strengthening economy will chew into sales of the strongest line of classified advertising left at most newspapers: Legal advertising.

While no one in the industry tracks the volume of legal advertising, some publishers report anecdotally than notices associated with mortgage foreclosures, tax delinquencies, bankruptcies and other legal matters recently have been providing up to 30% of their total ad volume.

Because a lot of legal notices will dry up as the economy improves, publishers are worried about their dependence on such business. The hope, of course, is that the traditional job, auto and realty categories will perk up to offset the decline in legal notices.

But will they come back to 2005 levels? Don’t count on it.


© 2011 Editor & Publisher

19 Comments:

Blogger -30- said...

So short answer: no.

Another point that you overlook is that most newspaper's online classified offerings simply can not compete functionality-wise with the offerings from their more web-savvy competitors.

Look at your local newspaper's online classified, then look at Craigslist. Which is easier to use? What About Monster, or other such sites? Given that, who'd use a newspaper?

The reasons for this vary, from archaic classified computer systems designed from a time web "the web" was only a press type to the newspapers decision makers who themselves are the types of people that call their kids to help with the family computer. Is it any wonder they're so willing to throw money at the first charlatan that comes along offering an online classified "solution"?

8:02 AM  
Blogger Mike said...

Alan, based on your conversations with publishers, do any of them seriously expect classified dollars to return to their pre-recession percentage of total? I've always assumed that, barring some infrequent exceptions, most publishers recognized that train -- if not totally out of the station -- was running a lot fewer cars than what the industry was used to. Is that not the case?

9:30 AM  
Blogger Stephen said...

Actually, as I invest in newspapers companies, the classified sections of many papers, mostly smaller ones, are rebounding nicely, according to income statements. Most of these have been in automobiles and employment. Granted, a lot of this has been in the online classifieds of these papers. Fact is that no one was ever really comfortable buying a car or finding a job via craigslist. We'll NEVER get back to 2005, or even close, but classified are rebounding.

11:44 AM  
Blogger john lindauer said...

Classifieds may not come all the way back but in some area, such as real estate, they could - if the newspapers would reorganize how they market the real estate ads. At the moment, newspapers are leaving a lot of money on the table.

6:53 PM  
Blogger john lindauer said...

Classifieds may not come all the way back but in some area, such as real estate, they could - if the newspapers would reorganize how they market the real estate ads. At the moment, newspapers are leaving a lot of money on the table.

6:54 PM  
Blogger Steve Outing said...

Stephen wrote: "Fact is that no one was ever really comfortable buying a car or finding a job via craigslist."

Whoa, you're in a dream world, bud. I haven't bought or sold a car in quite a few years. But in 2004 I bought a car on eBay and sold the old one on Craigslist. My wife found her then one-year-old Highlander in 2006 on Craigslist. Way back then those transactions were perfectly comfortable; they'd still be today.

Look for anything or buy anything from newspaper classifieds? Sell my car or anything else using newspaper classifieds? You're joking, right? I wouldn't dream of it. ... Maybe if the year was 2000, not 2011.

Re: jobs. Institution and corporation websites list their jobs on their websites, which would be the best source. Non-skilled jobs: Craigslist. Newspapers lost classifieds long ago. I think it's way too late for them to get them back, though possibly in some small markets newspaper classifieds can rebound to some degree -- but they didn't lose as much as newspapers in major metro markets.

7:03 PM  
Blogger Sheldon said...

Alan, of all the topics to focus on you picked the one that is beyond life support. You understated the importance/relevance of Craig's List et al, newspapers are not in the consideration set when it comes to classified. Too bad the powers that be at Tribune, Times Mirror and others were so arrogant and short sighted in their thinking. Migration to electronic editions would have been so much easier if it would have been offered up to subscribers at a reduced cost rather than just play dumb and hope against hope that subscribers and young readers would continue to pay for such a diminished print product.

4:22 AM  
Blogger Ed said...

Once you boil away the rhetoric over print vs digital the picture emerges that newspapers have reach and credibility and they will get their share of classifieds in both print and online going forward. What they need to do is become more competitive in selling and adjust their costs so that they can increase their margins from this smaller, yet still vital source of revenue.

4:39 AM  
Blogger Steve Ross said...

The 2005 decline is a bit misleading because circulation was also falling. Ad revenue per subscriber is the better metric 9the one all other media use...), and it started falling in late 2006. As the recession started in 4Q 2007 and as advertising is a leading indicator, probably all but 3 to 10 percent of the decline was due to the recession. The fact that I can't calculate it any finer is testimony to the sloppy way newspapers keep their revenue data!

All that said, I absolutely agree that classified cannot come back to former levels, with this caveat: unless newspapers invest in new local-oriented technologies such as mobile, couponing, specialized apps and so forth.

And even then, some advertising can't come back. There are fewer auto dealerships, a buyer's market for real estate for another 5 years, and so forth. On the other hand, the days of giant national chains may be numbered.

Most shopping is local, and the more efficient news organizations can develop a local ad buy, the more local vendors have a shot at competing with national chains.

Yes, if newspapers insist on NOT spending to develop or modify new technologies, and insist on skewing their rate cards to help national vendors to the detriment of local vendors, they will get what they deserve... their doom.

11:14 AM  
Blogger Marc Edge said...

The decline in classified advertising was not caused by the recession. It was caused by the Internet. It wll not come back as long as there are free ads to be had on Craiglist, and while lower-cost websites are much better suited to sell ads for such things as cars, real estate, and jobs.

5:20 PM  
Blogger BillinBoston said...

Newspapers will never again be the best way to sell cars or houses or hire people other than fry cooks. Monster, Edmonds and Zillow all do a much better job of presenting their wares than a newspaper classified could possibly do. Online you can see 20 pictures of a car before you bother to inspect it personally. Newspapers can't afford to develop the capabilities to match the online specialists. Classified ads are unfortunately doomed to be a shrinking revenue stream and newspapers should squeeze as much profit from it as they can while completely avoiding any further investment

7:11 AM  
Blogger Steve Ross said...

Mark,

You say the Internet killed classifieds. I've run the numbers every which way and published a major study, which simply says you are wrong. What skin I have in the game is not on the side of print, either. If you have numbers to back up your statement, care to share them?

8:21 AM  
Blogger 99Errorz said...

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4:21 PM  
Blogger suresh said...

Visit popular classifieds website

6:18 AM  
Blogger Syed said...

@Steve Ross: I haven't done an exhaustive study of the subject, but I have followed the space very closely for the past five years and I agree with Mark's position (regarding the impact that specialized technology firms have had on classified-revenue). Could you link us to your report, please?

7:59 AM  
Blogger Steve Ross said...

Here's the link to Columbia Journalism Review version:

http://www.cjr.org/short_takes/craigslist_straw_man_1.php

I'm on the road at the moment, but can send the updated study to anyone who wants it. Just email me at ssr3@columbia.edu.

I have some other studies as well, done for clients. One, on the Messenger-Inquirer, can now be released. (I'm not shilling for work... my plate is incredibly full.)

Craigslist basically killed pennysaver advertising. Monster.com didn't kill anything. The jobhunting cohort was much smaller in the 1990s due to birthrate decline in the 70s, and the economy was better. Resulting job shortage forced employers to advertise nationally. When print job ads dropped off, so did Monster.com (which lost a third of its revenue in 2001 compared to 2000).

What online did was reduce pricing power for newspapers that did not invest in enhancements to their classified pages.

10:06 AM  
Blogger 645 said...

Alan, based on your conversations with publishers, do any of them seriously expect classified dollars to return to their pre-recession percentage of total?

1:19 AM  
Blogger Jack Smith said...

Thanks for sharing this post for classifieds.We can see the difference between local newspaper’s online and craigslist.it is from archaic classifieds computer systems. that most newspaper's online classified offerings simply cannot compete functionality-wise. Most of newspaper’s classifieds are small sizes and it may rebounding according to income statements.Car Classifieds

6:34 AM  
Blogger Mrioll Chwen said...

Local classifieds are still worth to do. Today, everyday new medium of an advertisement has been lauched and yes, they are more powerful. But small businesses and local businesses are still dependent on small budget and for them, local classifeds in news papers or in an online classified site is worth to do. They can get good exposure from those submissions and advertisement.

4:47 AM  

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