Newspapers Discover the Web

Posted on January 15, 2007 
Filed Under Journalism

Red Herring sums up 2006 as the year that newspapers finally acknowledged the presence of the web and began the slow migration of its resources to the “dark side.” (Wonder why writer Alexandra Berzon keeps referring Borrell Associates as Burrell though.)

Some symptoms of ailing print:

-The McClatchy Corporation sold its flagship paper – The Minneapolis Star Tribune – for less than half of what they paid for it eight years ago.

-The investor who last year forced a sale of major newspaper chain Knight Ridder reported that he had pulled out shares in several newspaper companies.

-Three years ago, Federated Department Stores—which includes Macy’s—spent nearly US$1 billion on advertisements in newspaper print. This year, that had dropped to US$470 million. And the company was still the top newspaper advertiser this year.

-The Philadelphia Inquirer cut 17 percent of its newsroom workforce and 10 percent of the workers in its advertising department.

The underlying assumption in all of these events is that the Internet has torn the newspaper to shreds. The numbers, in part, bear that out: Circulation is down. Print ad revenue is down. Young readers are departing in droves. Competition is fierce. Traditional advertisers like the U.S. auto industry, movie companies, and the airline industry are cutting back.

But for all the hand wringing and Wall Street anxiety, recent news also suggests that newspapers may finally be figuring out a way to harness a true asset: local, well-branded websites.

The Wall Street Journal reported Wednesday that the country’s top three newspaper companies – Gannett, McClatchy and Tribune – are planning to form a consortium for online ad shopping, with the goal of making it easier for national advertisers to place ads on newspaper websites. The announcement is expected early in the year.

Together, the Gannett, McClatchy and Tribune websites reach at least 20 percent of the online audience, according to industry consultant Gordon Borrell of Borrell Associates. That’s still far behind big Internet companies like Yahoo, but it’s a lot more eyeballs than the companies could reach on their own, and that could be attractive to national advertisers that have, so far, been a small presence on newspaper websites.

That follows news a few weeks ago that the Hearst Corporation and Media News Group have teamed with Yahoo to sell online recruiting classifieds, and will also develop a national ad-sales network.

Taken together with other events from the past year – such as the sudden proliferation of videos on newspaper websites – this latest move could be an indication that newspaper companies are starting to take online ad revenue more seriously, say industry analysts.

“The fascinating thing that happened this year is that newspapers got tired of being on the defensive with Internet operations, and got offensive,” said Mr. Burrell.

But while online advertising holds potential, analysts say, newspapers have a lot of ground to make.

“Newspapers are counting on online advertising to make up for what they’re probably going to be losing on the print side over the years,” said newspaper analyst John Morton. “We can envision a time five to six years from now where online will be a major revenue stream for newspapers.

In summary:

1. ONLINE AD REVS WILL GROW, BUT MOSTLY IN SEARCH: IAB says in the first nine months of 2006, overall online advertising revenue jumped 35 percent. A lot of that growth is in search, which most newspaper sites haven’t embraced yet (but should).

2. PRINT REVS WILL FALL: Online ad revenue is expected to make up 6.2 percent of all newspaper revenue, according to Borrell Associates. That’s up from just 1.3 percent in 2001. Meanwhile, print ad revenues were down 2.7 percent for the first three quarters of 2006, according to TNS Media Intelligence. Analysts there expect print ad revenues to fall an additional .9 percent in 2007.

3. NEW MEDIA INITIATIVES WILL MERELY SLOW DECLINE: The aggressive approach to the Internet will merely slow the overall deterioration of the newspaper revenues. “It really depends on whether the newspaper company gets it, and understands that this is a completely new medium that has very little to do with their core product,” said Borrell.

4.GO LOCAL: News sites are in a good position to capitalize in the online ad market. “What a lot of people don’t recognize in all the talk about declining circulation,” said Mr. Morton, “is that online newspaper presences are growing rapidly. If you go to any town in America, even if circulation is 50 percent, everyone is aware of the newspaper. When they do go to the Internet, the local newspaper website is where they go. If newspapers fail to take advantage of this they will have nothing but trouble in the future.”

5.SAVE PAPER COSTS: Last week, The Wall Street Journal unveiled a redesign that reduces the paper’s width by 20 percent. That the redesign is expected to save the company US$18 million in production cost is a sign of just how costly newspaper production is: Mr. Morton estimated that newsprint alone represents 15-25 percent of newspaper costs.

6.TOUGH YEAR AHEAD: As the Tribune Company – owners of such major papers as The Los Angeles Times and The Chicago Tribune – awaits final bids on a sale, this could be a tough year for newspapers. But in a recent and generally pessimistic Bear Stearns report on The Tribune Company, analysts noted “Growth from online channels could mitigate declines in the longer term.”



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