Advertising The Future Newspaper

2006-12-13T05:56:00-08:00

And now for the second post in this minor series All The News Fit To Serve wherein the blogger attempts to parlay a passing knowledge of the newspaper business into an exploration of how newspapers might change in the Web age. As it should go without saying, these are my opinions, and do not reflect any thinking at my employer or any actual strategy being taken there. Just needed to clear that up. That said, on with the show! This post’s theme: advertising, or how “old media” is not so much different than new media when it comes to bringing home the bacon.

Analyzing the newspaper business today is a study in contrasts. On the one hand, print circulation continues to decline and the recent drop suggested a more extreme decline may be in the future. Net wisdom decries newspapers as ailing dinosaurs doomed to extinction by 2014. On the other hand, papers still enjoy healthy profit margins and often monopoly status in local markets that gives them an advantage in covering a local area unmatched by anyone. Still, newspapers have seen some unsettling drops in readership and the decline in classifieds might be a troubling portent. On the other hand, newspapers are far from finsished and the warning signs have actually helped some papers to retrench and repair wasteful processes. In terms of readership, ewspapers still enjoy esteemed and privileged positions in their local markets that are still worth a lot, but Wall Street is alarmed whenever at the anemic growth or even retreat many papers are suffering. Putting it more simply:

The glass is half full
But the water level is dropping at an accelerating rate

And now every paper is trying to figure out how to refill the glass. But why is declining readership such a concern for newspapers? It helps to understand how the business operates.

You might assume that papers are supported largely by subscription fees and the decline in print readership is troubling because of decline in that revenue. But for many papers, subscriptions only offset delivery and printing costs; indeed, it is possible for some small urban papers to even make a business giving away their product for free! Rather, subscriptions have the unusual property in that they are meaningless as money, but essential as a quantity. Because the real value of circulation is to set the advertising rates.

Like many Web sites, the dominant driver of revenue for newspapers is advertising. Of course, there are sometimes a few other minor revenue streams (licensing, royalties, books), but advertising is such a dominant revenue source that you can directly gauge the health of a paper by the advertising rates it can charge. And since the value of an advertising in a paper is largely determined by the size of the audience it reaches, advertising rates (and advertising profits) are directly influenced by the circulation of the paper. Advertising has been exceedingly good for newspapers – the total ad market for papers is estimated at $45 billion – but the writing is on the wall. Classifieds (another form of advertising) have already precipitously declined, and it’s only a matter of time before commercial advertisers follow suit. The party is over; this is why the papers are getting scared.

There is some good news on the horizon though. Internet readership of papers has been climbing steadily and ad rates are expected to continue increasing at a phenomenal rate – next year, internet advertising is expected to increase by 29% while traditional media advertising will increase only an anemic 1-2% – and some papers like the New York Times have built online web sites that reach a global audience and dwarf the readership of their printed versions. A lot of geeks read these trends and argue that papers should save themselves today by discarding the printed product and surviving off websites only, but such a move would only be suicide for any paper foolish enough to try it today.

The catch is for all its promise, Internet advertising is nowhere near the profitability of print advertising – optimistic estimates suggest it might be there in 10 years. This gap is simply stunning to casual pundits like me who think the Web is a ready equivalent to anything in traditional media. Why is this disparity so great? I think it has to do with a few different factors. One possibility is that Internet advertising is not attractive enough to traditional print advertisers yet, perhaps because of its perceived limitations (you just can’t buy a flashy three-page spread in the first few pages of the Magazine online). In addition, unlike print advertising, no single entity has a monopoly in a local ad market on the Internet. Which belies another difference between the two ad markets: the print version is local, the web version is global. I think it will take a while for some advertisers to want to reach the latter.

All is not bad for for Web advertising however. As stated before, web ads are able to reach sheer numbers of people inconceivable for any print publication today and at all times of the day and night, so some profits might be made in volume. Newspapers could also conceivably farm out web advertising to outside sources too who might have a better chance selling to Internet-savvy advertisers (Google is certainly hoping for this). The main advantage of online advertising in the long run will prove to be demographics however, and how intelligently newspapers are able to target them. The audience for a print ad can only be considered as an aggregate average, since the same ad goes to every subscriber, be they rich or poor, urban or suburban, dog owners and/or video game players and/or coffee drinkers. But the beauty of Internet advertising is that you can target the ads to the consumers more likely to respond to them – I am still talking about marketing to aggregate groups and not individuals (that gets a little too much into privacy), but the groups are much smaller here. This might make Internet advertising rates eventually exceed those of print ads. Newspapers would be foolish to ignore this opportunity. Which is why every newspaper at this point seems to require users to register. As an anonymous reader, you’re worth so very little to advertisers; as a 27-year old female from the Midwest, you (as part of an advertising group) might be worth much more. More readers and better marketing might help to make up for the decline in print readership.

But the real kicker is that for many newspapers, the website will never be able to close the gap.

Online readership growth for any paper must eventually reach a stable plateau where it starts to level off. How do you increase readership to greater levels beyond that? One possibility is to increase the paper’s website to be more than the news. The New York Times has followed this idea and unveiled sites for interactive applications like movies, travel, and home finance. Another possibility it acquiring outside media sites like About.com (NY Times) and Slate (Washington Post). This helps to some degree, but it can also seem like developing portals in an age where portals are no longer relevant. Personally, I think the opposite approach might be the wave of the future. Stop expecting your readers to live their online lives at your websites and distribute your content to them all over the web. But that’s a topic for the next post.

Nimble Code: Tag advertising

Advertising The Future Newspaper