Sunday, December 16, 2007

Online ad sellers out-local the locals

In a historic first, online media companies collectively will sell more ads in local markets this year than such individual hometown media as newspapers, broadcasters and yellow pages, says an independent research firm.

Borrell Associates predicts that online-only media companies will claim 43.7% of the $8.5 billion expected to be spent in 2007 on local advertising, usurping the long-time lead of newspapers. While newspapers three years ago controlled 44.1% of the local market, they will capture only 33.4% of sales this year.

The growth of the online media companies “came mainly at the expense of newspapers and yellow pages publishers,” who have lost a combined 19.6 points of local advertising share in the last three years, says Borrell. The full breakdown in the relative market share for local media companies, and I do mean breakdown, is illustrated below.

Assuming Borrell’s math is right, this means mega-portals like Google and Yahoo; directory services like Local.Com and Business Com, and other virtual media companies are out-localing the locals without spending the enormous sums that traditional media companies must continue paying to create content, run printing presses, broadcast 24/7, publish fat phone books, and, last but not least, sustain their costly resident sales staffs.

This latest evident blow to the once-unchallenged hegemony of local media adds a new and unsettling dimension to the long-running debate over whether the weak ad sales at newspapers result from a cyclical economic downturn that someday will correct itself or from a fundamental, or secular, shift in the structure of the media business.

Last week, Credit Suisse analyst John E. Klim briefly lifted newspaper stocks when he suggested that the industry’s agony is indeed cyclical and will pass when housing recovers, the economy perks up and publishers become “more digitally-centric multimedia operators.”

While it would be terrific if John were right, the apparent loss of local-media dominance identified by Borrell suggests that publishers have not become “digitally-centric” enough to expect to be in very good shape when the economy eventually recovers, as it always did in the days when oil was cheap, the dollar was king and the globe wasn't warming dangerously.

To the contrary, most newspapers and other local media have adopted a strategy of trying to build their online businesses by selling new media to the old print or broadcast customers who either (a) don't cotton to interactive advertising or (b) aren't in the market for low-price, high-volume and indiscriminantly targeted banner ads.

The misguided marketing has been particularly disastrous for newspapers, given that advertisers in such key classified categories as auto, employment and real estate are redirecting ever-larger shares of thier former print budgets to such optimized online verticals as AutoTrader, Monster and Realtor.Com. And that's not to mention the ever-popular, and mostly free, Craig’s List.

While newspapers tend “to confine online ad sales to businesses that happen to be advertising in the parent medium,” there is “increasing evidence that the so-called era of convergent sales is drawing to a close,” says Borrell. “In fact, nearly all the local media companies that have focused on convergent sales have begun experiencing slower growth.”

If newspapers (and others) want a brighter future than appears to be in prospect, they need to begin leveraging their rich reservoirs of unique local content to create inexpensive-to-produce sites that can serve readers, non-readers and advertisers alike.

They also need to empower the smartest net-savvy people they can find to create, market and sell modern Internet and mobile products that will enable them to compete with a straight face with the interlopers who, at the moment, are beating them rather soundly at their own game.


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