Local newspapers scramble for online ad sales
By Erina Lin, Wednesday 19 December 2007 at 23:51 :: Advertising :: #1003 :: rss
As online companies dominate local ad markets, newspaper publishers are scrambling to modify the way they sell ads, a move that may have come a bit too late.
In the United States, McClatchy is reconstructing its commission and incentive packages to better compensate staff for online sales. Gannett, on the other hand, operates 50 mom-centric social-networking sites around the U.S. in order to boost online revenue through the "hyper-localized" sites. Other publishers, such as Lee Enterprises and Media General, are relaunching sales of local online ads.
However, the timing may be a little late. Now, pure-play Web companies get the lion’s share of the local online-ad market for the first time. Internet companies got a 43.7 percent share of the US $8.5 billion local online-ad market in 2007, while newspaper publishers had only a 33.4 percent share, based on the data from Borrell Associates.
Local media companies, due to their strong ties with the community, seem to have an advantage over Internet sellers. However, the problem is that they have mostly failed to convert that edge into sales. Instead of attracting local businesses, many newspaper companies focus on selling ads to bigger advertisers, who were already the clients for the print ad.
This strategy undoubtedly allows them to quickly and cheaply migrate a customer from print to online; however, it also limits their growth because the customer base is not expanding. This move is further aggravated due to some newspaper companies simply “plopping their papers online instead of creating new Web sites that offered advertisers something they couldn't get in print,” a Wall Street Journal article stated.
On the other hand, Web companies such as Google and Local.com are growing quickly because they have tailored themselves to be cheap and easy for local businesses to take out ads, according to the Wall Street Journal.
"Newspapers are tied too closely to defending their print products and have not seen the Internet as an innovative and competitive tool to go out and compete," said Gordon Borrell, chief executive of Borrell Associates.
Newspapers are facing the greatest impact from this competition - local TV and directory businesses are experiencing a much smaller degree of erosion in their core ad revenue, according to the Wall Street Journal. Analysts point out a slowing growth of online revenue across the newspaper industry: Online ad revenues were up 21.1 percent in the third quarter this year to $773 million, down from 23 percent in the same quarter last year, and way behind the growth of 39.7 percent in the first quarter of 2005. This slowing trend reflected steep declines in the sales of newspaper print ads.
"All of the players, from Google to other local media companies, are putting more attention on going after the local dollar," Jack Williams, president of Gannett Digital, the Gannett unit responsible for developing online revenue, told the Wall Street Journal. A huge potential opportunity is identified in the local online ads – the spending is expected to grow 48 percent next year to $12.6 billion.
Newspapers, however, have a tough challenge – online ad revenue only made up 7.1 percent of total revenue in the third quarter, the Newspaper Association of America reported. Analysts say that ideally it should be in the low double digits, then hit the mid-teens in five years, and thus the drop in print revenues will stabilise.
Increasingly, newspapers are deciding to form deeper alliances with their main competition, such as the Yahoo Consortium. In 2008, papers in the alliance will start applying Yahoo technology on their sites to sell more sophisticated ad offerings. A group of 11 newspaper companies recently formed a partnership with real-estate website Zillow.com to tap into more real-estate classified ads.
Analysts say these kinds of steps will help, but none are a silver bullet.
"Ultimately, it is going to take a lot of singles to really have a significant impact on the overall operations of the company," according to John Janedis, analyst at Wachovia Securities.
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