Monday, April 12, 2010

Digital ad share at newspapers hits new low

The newspaper industry is falling farther and farther behind in the life-or-or-death mission of shifting its revenue base from print to the interactive media.

New data released last week show that online advertising revenues at newspapers have grown at a far slower pace since 2003 than digital sales across all media. While total online revenues in the United States rose 211% since 2003 to $22.7 billion in 2009, interactive advertising at newspapers in the same period gained 125% to $2.7 billion. (See Figure 1 below.)

Even more troubling, the share of online spending captured by newspapers has dropped by a hefty 25% in the last three years, tumbling to an all-time low in 2009. The newspaper share of online revenues last year was 11.9% vs. 16% as recently as 2006 and as high as 16.4% in 2003, the first year the Newspaper Association of America got around to reporting digital sales. (See Figure 2 below.)

The Internet Advertising Bureau, a trade organization, provided total industry data here. The NAA’s newspaper data is here.

Taken together, the two sales reports show just how short publishers are falling of their oft-stated goal of weaning their businesses away from print revenues. The goal is spot on, too, given that print advertising has plunged a staggering 43% since 2005 – a decline that many publishers fear may continue, albeit at a slower pace, for the foreseeable future.

If print sales continue contracting and interactive sales don’t take up ever more of the slack, then newspaper companies at some point will run critically short of the revenues they need to remain healthy concerns.

For all the digital-is-the-future rhetoric we have heard for years at newspaper industry conferences like the NAA hoedown under way this week in Orlando, interactive advertising averaged barely 10% of the anemic $28 billion in revenues reported by newspapers in 2009.

How could performance fall so short of the promises? A number of things went wrong at the same time:

Failure to innovate

Publishers first ignored the new media in hopes they would go away and then blew tens of millions on ill-conceived, technologically tin-eared, bureaucratically bloated and under-promoted projects that failed to come close to countless innovative efforts brought to market by such garage dwellers as Sergey Brin and Larry Page.

When newspaper advertising commenced the vertiginous slide that began the year after sales hit an all-time peak of $49.4 billion in 2005, publishers were so preoccupied with fixing the core business that they spared comparatively scant resources for interactive ventures. Even when they gamely dabbled in the new media, they scarcely knew what to make of such alien concepts as tweeting, social networking, GPS advertising and augmented reality.

Failure to protect content

When the Internet arrived in the mid-1990s, most publishers quickly put their expensive-to-produce print content on their websites for free in the expectation that an ever-growing number of page views would yield ever-higher ad revenues. But a glut of page views across the web since then has driven ad rates to ever-lower levels, instead.

After 1½ decades of giving away content for free, profit-challenged publishers today have started thinking they can charge for it – a hope called into question last week when the Valley Morning Star in Harlingen, TX, dismantled a months-old pay wall after its traffic collapsed by some 40%.

Because content has been free at most newspapers since the inception of the Net, publishers declined to invest in any of the numerous technologies that would have enabled them to protect their most valuable resource from unauthorized use. Today, publishers are deploying a global whack-a-mole service in an endless, likely fruitless effort to crack down on copyright poachers.

Failure to adapt ad offerings

Instead of building innovative, transactional ad products to satisfy the desire of marketers to reach targeted and verifiable prospects, publishers tried to migrate their existing print advertisers to the web, selling banners to retail and national advertisers and online listings to such traditional classified customers as employers, auto dealers and real estate agents.

When the print business collapsed, publishers lost not only their print revenues but also much of their online volume, too. Classified advertisers, in particular, migrated to free or cheap websites that specialized in recruitment, autos and real estate – and a great many of them are not likely to return when the economy picks up again. Classified advertising matters, because, until it collapsed, it produced as much as two-thirds of the revenues at some newspaper websites.

Failure to commit

With 90% of their revenues coming from print, publishers focused first and foremost on preserving that business. The Boston Globe famously declined to invest $1 million for a stake in the infant Monster.Com in 1995 because its owners feared a cut-rate recruitment site would threaten their continuing ability to gross $100 million a year by charging hundreds of dollars for a three-line, agate ad.

The preoccupation with protecting print – plus a not-incidental amount of inertia – prevented most newspaper executives from recognizing the profound shifts in technology, consumer behavior and media economics that were destined to rock their world.

Given that there is no shortage of intelligence and talent at America’s newspapers, the only explanation for the industry’s failure to embrace the new paradigm is that it really did not want to change.

Now that a growing number of newspaper people truly and deeply recognize publishing companies must adapt or die, the burning question is whether the industry has the time, skill and resources to turn things around.


Blogger John Yenne said...

As irritating as it is to the print industry, Marc Andreesen's provocative proclamation that newspapers must "burn the boats" is the underlying dilemma here. It obviously can't, because the money is still too good. And probably will be for some time, but in an ever-shrinking process. Print executives strategize more about contraction than innovation because it's more profitable for the moment. Print is still the dominant marketing engine the local advertising base understands. So, the industry sneers at Andreesen. In the meantime, you can see the sea change. Disciples of auto innovator Pollak (Velocity 2.0) turn their noses up at print. Digital innovation is blossoming everywhere except at newspapers -- where there best ideas are "new" directories. Newspaper corporations are giving up on the digital investment as they shrink, and people like Saradakis leave Gannett. The print industry should heed the wisdom of Solomon: "Where there is no vision, the people perish." Prov. 29:18.

6:30 AM  
Blogger MisterH said...

The more I see real innovations happening with new online-only publications like The Daily Beast and The Huffington Post and Slate, the more absurd this particular blog seems to me, particularly after I just read John's comment. John is absolutely right that it makes sense for newspaper publishers to focus on squeezing profits out of contraction in the short term rather than creating new profits from innovation in the long term. The newspapers are publicly traded companies that really have no choice but to chase short term profits. Eventually almost of them will simply go out of business. Isn't that pretty much a foregone conclusion at this point? Other ventures have emerged that are slowly (but at an accelerating pace lately) taking the newspapers' place. Real, sea-changing innovation hasn't come from the newspaper publishers, and it's not going to. To keep asking over and over again if they'll ever begin innovating before it's "too late" is just nutty. It's too late. That's it...end of story. Why all the ceaseless pontificating?

8:35 AM  
Blogger -30- said...

Well, while I sympathize with the "it's just too late" feeling, it's important to note that in most metro markets newspapers are the 800lb gorilla. At my paper, while I sometimes chafe at the glacial pace of change, we are in-fact changing and we are so much bigger than any other outlet -- online or traditional -- we have a certain luxury to plod a bit.

There really is no shortage of intelligence and talent at America’s newspapers, and to a old-hat web guy it may seem more like Keystone Cops at times, but generally speaking at the end of the day, newspapers ARE adapting and as long as they adapt ahead of the curve (and I'm not saying that all will) then they'll survive.

10:11 AM  
Blogger Unknown said...

John's comment hits the nail on the head. Papers (and not just chain-owned, publicly traded ones, MisterH) see that most of their revenue (still) comes from print. And they (still) seem to see their future as print -- most of them anyway. They just seem to have accepted the fact that they'll be smaller companies. What they don't seem to grasp is that they will be *ever-smaller* companies, decaying slowly away like some clump of radioactive material. What's the half life of print these days?

5:49 PM  
Blogger Unknown said...

Newspapers lack of interest in the future is what has caused the disruption to begin with; the internet is not just a fad!

Short sighted publishers looking for the quick win and lack of fostering innovation within the newsprint industry, cut people until we make a profit mentality will be its undoing.

I’m not saying that we should not cut people but we need to cut the dead wood not the talent which drives the innovation. Try listening with both ears! When I offer ideas I receive lots of excuses why it won’t work. Take advantage of off the shelf creative development across the internet where the cost is limited to the lease of a product.

I do not believe that print will be completely dead but it will defiantly have to be published differently and drive revenue differently.


6:31 AM  
Blogger enigma said...

OK, newspapers are experiencing their worst revenue since 1984. Compared to automobile and real estate sales, which are at their lowest point since the early 1970s, newspapers are doing all right.
Considering the overall decline in nameplates and circulation since the 1970s, the newspaper industry is doing better than it has any right to expect.
So, newspapers aren't doing well online. Is this any surprise? Online is a new media with new players and new rules. Let the new media guys do their thing and newspaper guys should stick to their thing, serving their local communities to the best extent possible.

10:02 AM  
Blogger edward allen said...

I am not suprised by your findings. It's anecdotal, but many U.S. newspapers seem to have given up on the Internet. Some newspapers have not updated the look of their Web sites for several years, and some still don't understand that that content is still king. This contrasts with European newspapers like England's Guardian newspaper, which is lively, well-presented and interesting. Online U.S. efforts like the Huffington Post and Daily Beast understand the need to keep their readers interested in what they are doing, but not most U.S. publications. Maybe this is a result of staff cutbacks and the effort of putting out both print and Web products. But the Europeans seem to understand that there is revenue in Web publication, however diminished it might be, and are going for it.

4:45 PM  
Blogger edward allen said...

From reading the U.S. press, I get the impression publishers are giving up on the Internet because it isn't producing the revenue. Many U.S. publications haven't changed the look of their Web sites for years, although there is an array of attractive new presentations. Just look at England's Guardian web site if you want an example. The U.S. Web-only sites like the Huffington Post and the Daily Beast seem also to understand that attracting readers is a key part of their operations, but less so USA Today and the Washington Post. If they want the new revenue, publishers have to keep up with the changes the Internet brings. It may be diminishing, but it is still money and publishers are foolish to turn their backs on it.

4:54 PM  
Blogger Robert H. Heath said...

Response to enigma.

Newspaper publishers have taken solace during this horrific downturn in the misfortunes of the automobile, real estate and (I would add) financial services industries.

But dig a little deeper and the problem does not go away.

I have looked at newspaper ad spend for local retail, which now makes up 50% of total ad revenue according to the NAA figures. This excludes classified and the three categories above.

These numbers are in free-fall as well, even adjusting for the recession and a slowdown in personal consumption expenditures.

You can find the details here.

9:59 AM  
Blogger enigma said...

Response to Heath: I wouldn't dream of dismissing the downturn in newspaper ad revenue, but newspapers don't publish in a vacuum. They depend on local retailers for most of their ads and when the two biggest industries--cars and homes--are on their backs, it's no surprise that newspapers would also feel the pain.
As I noted, when you consider the diminishing circulation numbers, it's surprising the drop in dollars isn't worse...nor is the web going to make it any better.
As NNA's community newspaper numbers strongly suggest, the collapse is a metro paper phenomenon fueled by rising subscription prices, diminishing content and belief that newspapers are the cash cow that can be forever milked and never fed.

4:29 PM  

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