Even As Local Online Ad Spend Surges, Newspapers Can't Win

This story was written by David Kaplan.
In the daily drumbeat of bad news for newspapers, the growth of online advertising would seem to offer some solace to the beleaguered industry. But as a WSJ piece tells it, they still can't make a go of it. After some promise two years ago, stats from local media researcher Borrell Associates show that newspapers' share of the local online market is now 27.4 percent, down from 35.9 percent in 2006, even as the total segment has seen 57.2 percent gains last year. Here's the why:

-- Sins of commission: One thing marketers like about online versus advertising on traditional media is that the web is commonly cheaper. Unfortunately, salespeople and media buyers, who in most cases rely on commissions, have a reason to dislike online ads because of the lower dollar amounts online brings to the table. So naturally, they have more reasons to focus on print in the case of newspapers, or TV when it comes to video advertising. And with newspapers struggling much more than the broadcast business, the short shrift given to online only exacerbates the problem. Scripps (NYSE: SSP) hopes to inspire more online ad sales activity at papers like the Corpus Christi Caller-Times by tying deals to commissions. Since the online readership is one-third of the paper's print circ, a third of their commissions will be directly related to online ad sales. That fraction will rise each year, compelling them to meet higher online sales benchmarks. 

-- Pizzerias and plumbers don't buy banners: When newspapers do sell ads on their sites, they typically look for larger marketers to buy banner ads. But much of the growth in online ad spend is being driven by small, local businesses like pizza places and plumbers who want to attract customers looking for area services. And since search is key to attracting those local customers, that's why internet companies like Google (NSDQ: GOOG) and Local.com have taken a 53.3 percent share of local online ad sales.

-- Cannibalization: Getting back to the commission issue, convergent ad sales that tie the print and web sides together has tended to dilute online spending. That's because a typical advertiser will simply cut from the print budget and shift it online, rather than spend more. And even when ad sales are separate, the print and online teams end up in competition with each other for the finite universe of local marketers.

-- Partner or die: Changing compensation is one way to move the meter on advertising. But with free listings sites like Craigslist taking crushing classifiedwhich tend to provide roughly 60- to 70 percent of papers' revenuespublishers have had to turn to online alliances with the Yahoo (NSDQ: YHOO) Newspaper Consortium and quadrantOne for help. These partnerships have certainly offset would otherwise be an even more dire set of circumstances for newspapers. But as the past week's Q2 earnings from Scripps, AH Belo (NYSE: AHC) (NYSE: BLC) and Lee Enterprises (NYSE: LEE) have shown, partnering on national and local ads with Yahoo hasn't been enough to prevent declines in online revenue.


By David Kaplan

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