Tuesday, December 04, 2007

Online ad share slips at papers

Internet advertising sales at newspapers this year have grown at slower rates than those of competing media, shrinking the industry’s share of online revenues in the third quarter to the second-lowest level since 2004.

Notwithstanding sunny press releases from the Newspaper Association of America, the evidence is growing that the industry – which prominently and properly has targeted digital sales as a top strategic priority – is simply not keeping up with the universe of companies that sell online advertising.

Online ad sales in all media surged 26% to a record $15.2 billion in the first nine months of the year, according to PriceWaterhouse-Coopers, which conducts a quarterly survey for the Internet Advertising Bureau, a trade organization. By contrast, newspaper sales grew 20.9% in the same period to $2.3 billion.

While a sales gain of nearly 21% ain’t chopped liver, the comparatively weak momentum achieved by newspapers means that the industry’s share of the online revenue pie is shrinking at a time when publishers can least afford for that to happen.

Because online newspaper sales are growing more slowly than those of their competitors, publishers in the third quarter corraled only 14.7% of the total available revenues. Between April, 2004, and June, 2007, however, the newspaper industry never controlled less than 15% of industry revenues and, in fact, averaged quarterly sales growth of 15.9% throughout the period.

Although newspapers were slow to wake up to the threat of the Internet – and even slower to grasp its myriad bountiful opportunities – they actually surpassed the online Internet competition in quarterly sales growth from the middle of 2004 to the middle of 2005. As you can see from the graph below, however, they have been trailing the over-all industry’s growth pace since then (with the exception of the fourth quarter of 2006).

One reason newspapers may be lagging is that they have tried to bundle print and online sales into combo packages sold by all-purpose sales reps, who, depending on their pedigrees, either don't get new media, don't get print, or, in a few depressing cases, don't get either. The somewhat counter-intuitive argument that convergence selling is a failure is discussed here at PaidContent.Org and well worth a read.

While it would be wrong to make too much of a single quarter's sales slip, it is troubling to note that publishers collectively have under-performed their online peers for three quarters in a row in spite of an intense, high-profile effort to pump up their digital businesses. If the industry is going backwards while trying as hard as it can to move forward, it either isn't trying hard enough or isn't trying the right things.

Whatever challenges publishers have faced to date, the situation could get worse, given the slowdown in real estate, the softness in auto sales and a potential reduction in help-wanted advertising caused by the economic "headwinds" predicted for the new year by Ben Bernanke and others. These three advertising categories are the primary drivers of the classified business that represents the largest portion of online sales for newspapers.

If online classifieds deteriorate and significant new products aren't mustered rapidly and effectively to replace them, the industry's online growth gap could start turning into a sinkhole.


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