Thursday, April 21, 2005

$4 billion in want-ads circling the drain

Some 8.6% of newspaper revenues could vanish within two years as $4 billion in classified-ad revenues flow to eBay, Monster and free online sites like Craig’s List, according to McKinsey & Co.

Although the loss of auto, real estate and employment ads would blow a major hole in the top line of the industry’s $46.6 billion in annual sales, the impact on the bottom line would be even more devastating. That’s because classified ads are, by far, the most lucrative segment of the business.

"Online is capturing all the growth," says Luis Ubinas, of the prestigious consulting firm. As far back as 1995, he told the annual convention of the Newspaper Association of America, the migration of classified advertising to the Internet has been shrinking the share of the market previously owned just about exclusively by newspapers.

In 2003, help-wanted classifieds were down 50% from the levels that would be suggested by historic trends, according to an online report of Mr. Ubinas’ remarks by Advertising Age. The $4 billion revenue losses by 2007 would occur if the same degree of market-share erosion spread to automotive and real estate classifieds.

Although the size of the potential revenue loss is the largest predicted to date, the story has been told many times before. If newspapers are going to head off the train wreck, they need to act quickly to preserve this business.

One approach is for newspapers themselves to start giving away free want ads on their web sites. When users post online ads, they can be encouraged to pay to list their ads in the print product. A few publishers experimenting with this idea have been pleasantly surprised at the boost they achieved in their print classified revenues.

A more daring variation of the above idea is for newspapers to partner with Craig’s List, where patrons submitting free listings could be encouraged to buy a print ad, too. The resulting revenues could be split with Craig, enabling him to at once build his business and make good on his expressed desire to ensure the long-term health of the mainstream news organizations.

“I'm trying to figure out how to help, maybe just a little, by encouraging people to preserve and expand what's right about mainstream media while encouraging the new stuff,” Craig wrote recently in his blog. “There's a lot of good people and infrastructure in newsrooms and bureaus, like fact checkers and editors. How do we keep all that, and maybe increase funding for investigative journalism? I don't know, want to help, but don't want to be a loose cannon.”

Perhaps it’s time for Craig to stop praising the newspapers and pass them some ammunition. We can only hope they don’t shoot themselves in the foot.


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