Tuesday, February 08, 2005

Missing ink: National-ad erosion quickens

Another data point in the long-term erosion of ad support for newspapers has been provided by Lauren Rich Fine, the top media industry analyst at Merrill Lynch.

The majority of national advertisers are "shifting from print and TV towards cable and the Internet," reports Lauren, who huddled recently with 15 traditional print advertisers representing such industries as autos, food, consumer products, beverage, telecommuncations and pharmaceuticals.

One auto maker is putting 7% of its ad budget into the Internet, while a consumer product/drug company and a food/beverage company each were dedicating 5% of their ad funds to the web.

These budget allocations are substantially higher than the amounts national advertisers historically have earmarked for the web. Internet advertising represented 3.7% of the roughly $8 billion spent in newspapers by national advertisers in 2004.

Given the velocity with which advertising is moving to the web from traditional media, Lauren has increased her prediction of future online market share. She now believes 4.6% of all advertising will be online in 2005 and 7.4% by 2009. These projections are boosted from her earlier forecasts of respectively 4.2% and 5.3%.

Here's what's driving the change, says Lauren:
As advertising shifts from an investment to an expense within organizations, the need to measure returns and/or lower costs has heightened. This has pushed marketers more toward the Internet, direct marketing, sales promotion and branded entertainment [product placement].
Beyond these general industry trends, Lauren is concerned that several recent, high-profile mergers will hasten the reduction in ad dollars headed to newspapers and broadcast TV.

The combination of Kmart and Sears will siphon a chunk out of the retail sector that represents 14% of national advertising in the United States. Two cellular mergers -- Cingular plus AT&T Wireless and Sprint plus Nextel -- will trim expenditures in the telecommunications sector that represents 5% of national advertising. Pharmaceutical advertising, which represents another 5% of the national ad mix, also could be reduced by troubles surrounding certain proprietary drugs.

There are a couple of bright spots. Wal-Mart, which traditionally has not been an avid newspaper advertiser, "ascribed some of its success in December sales to its renewed ad campaign," says Lauren. Also, Priceline and Netflix "are now using traditional media to augment their online efforts."

Lauren says she is struck by the "bipolar response" of the newspaper industry to new media. "On the ad side, they get it. Newspapers have done a pretty good job of setting up an online presence and do a fairly good job of getting their fair share of classified advertising online while trying to protect print," she says. "On the editorial side, there is...an insular attitude that good writing and reporting will keep folks in print, with online as really an afterthought."

Although the guys running the business side of newspapers may say that they "get" the challenge, it is not clear that they are acting decisively enough to save the value of their franchises.

There has been a major, permanent structural shift in classified advertising, thanks to the likes of Monster, Craig's List, eBay and other online competitors. Many of those ads are gone and they aren't coming back.

With advertisers accelerating their demand for verifiable, interactive media, newspapers will have to develop new types of direct-response, online programs to attract and retain them. These include, but are not limited to, direct-marketing programs, couponing and much more.

If the newspaper industry thinks it is controlling ad erosion, it is suffering from a profound case of self-denial.

There's just no denying it.


Anonymous Anonymous said...

Let's stick with the newspaper. the old familiar way for advertising. it can be used in all ages and languages. we must remember that there some undeveloped countries with no access to the internet,and most likely that they have a local newspaper.

3:06 PM  

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