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Why it’s so hard to move print revenue online: The loss of scarcity

sundaypaperIt’s shorthand for the chief problem of transitioning a local news operation’s business model from print to online: Newspaper revenue dollars become online pennies. Despite increasing readership online, advertisers continue to pay a much higher price when they place their ads in print.

A lot of that has been laid to inertia on the part of advertisers and a lack of sales imagination at papers. But there’s also something very real at play as well: the loss of scarcity.

This can be see in some very simple numbers. At the right are the two places a print advertiser can distribute a message, for instance, in Baltimore, MD on a typical Sunday. They can choose The Sun or The Examiner. Or, if they’re feeling especially flush, they can choose both. Even with greatly diminished circulation, the local newspaper remains the best way to put your ad in the hands of a lot of local people. And in most major markets, there’s only one — or at best two — organizations that can pull that off. Scarcity.

But what happens the same advertiser wants to reach online users in a metro market? That’s when the picture gets a lot more complicated for traditional local publishers.

The chart below is comScore’s November 2008 breakdown of the top 30 online destinations in that same market, Baltimore, by percentage of market share. The pink bar represents Tribune Interactive, parent of The Baltimore Sun (click chart for a larger image):

trib-chart-small

Online is a world of nearly infinite choices for advertisers. And this chart represents only the very beginning of a very, very long tail. The local newspaper group is at position #25, sandwiched between the Weather Channel and Superpages, and just a few clicks ahead of craigslist. The head of the pack are Google, Microsoft, Yahoo, AOL and Fox. Huge national players dominating the local market.

Without scarcity to sell (“You have to go through us to reach the local market”) newspapers are stuck. Not only do they need to continue to bear the burden of local newsgathering, but they can’t underwrite those costs anymore as print dollars dry up and online prices are driven down by the sheer amount of online ad inventory.

You may have the best salespeople in the market. But given the abundance of options for an advertiser, the price of online advertising — as measured by CPM (cost per thousand) — is sure to head down.

Given this downward pressure and the reality that local newspapers are unlikely to move significantly further to the left in the chart above, a new revenue model is called for, one that turns away from the old model of “selling eyeballs” in bulk and moving toward one that leverages their unique local focus, creating revenue streams valued by their localness and their uniqueness.

It’s time to take a few lessons from Apple Computer.

Tomorrow: Why the notion of an “iPod or iTunes strategy” is actually a move in the right direction. But maybe not the direction you’re thinking.

                                   
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  • http://stylecoalition.com Michael J Pratt

    Tim – You hit the nail on the head. It’s precisely why we formed the Style Coalition (http://stylecoalition.com) as a (online) publisher driven guild of top content creators who can package and steer topically targeted content to advertisers with the idea of providing a much better return for them…and the publishers. To date, most of the focus has been by large networks to gather related sites ( I use “related” loosely) together and call it a focused set of eyeballs being delivered. While this led to an easy way to reach a number of readers, the return was terrible due to the near randomness of the target. In fact, it wasn’t targeted at all. The publisher was left out of the equation (not so in the print world) Viewership CAN be targeted online, but it must be done from the bottom up, not the top down.

  • http://sellingprint.blogspot.com MichaelJ

    It would be helpful if newspapers just face the fact the online revenue is not going to cut it. The overiding problem is that CPMS are going to get cheaper and cheaper as more outlets come in play and as the costs of placing an ad keep going down.

    Advertising is a good business for Google. They have lots of long tail in their infrastructure and the numbers are huge.

    For the newspapers, they should use the web to identify their fans, assemble tribes and communities. Then they should harvest that information to sell them stuff. The web is awesome for selling stuff and gathering information on who is viewing what when.

    The faster newspapers get out of the selling eyeball business and into the selling stuff business, the faster they can relax and start making money.

  • http://timwindsor.com Tim Windsor

    MichaelJ:

    You’re definitely on the same scent that part two of this post will follow tomorrow!

  • http://www.yelvington.com/ yelvington

    There is a large truth here regarding scarcity, but I have some disagreements with some of the assumptions.

    One is that local newspapers can not / will not move toward the left of the graph. There’s plenty of evidence to the contrary among local news sites. While no local site is likely to achieve the level of ubiquitous utility that places Google in the #1 slot, there is little excuse for not being in the top ranks. The Baltimore Sun represents embarrassingly poor performance, not potential.

    The second is the assumption that ad avails is all we have to sell. Local businesses are not interested in ad avails, CPM rates, clickthough rates, and all the other details. They’re looking for results (actual business transacted in the brick-and-mortar world) and — importantly — service. Local media sites have an opportunity to focus on understanding the client’s business needs and tailoring packages of creative solutions that meet those needs. This requires a different skill set than past practices (mostly taking orders and picking up slicks), but a local news site is infinitely better positioned to provide such services than some randomly chosen global giant. Already many newspapers are selling local advertising that is actually delivered to geotargeted users through national sites via ad networks.

    We need much more attention paid to the poorly developed local content-and-services model. While “newspaper revenue dollars become online pennies” might be true, it’s also true that newspaper regular readers become online occasional visitors.

    Frequency of use is the responsibility of the newsroom — or whatever we choose to call it today. The aging content model is simply not appropriate to the current information marketplace. News is not enough. Yet there are many poorly met, uniquely local information needs. And if journalists choose not to meet those needs because they don’t fit a 20th century model of journalism, they will nominate themselves for unemployment.

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  • http://timwindsor.com Tim Windsor

    @yelvington:

    Steve,

    Thanks for jumping in.

    The comScore rankings for Baltimore aren’t wildly out of sync with what I’d seen in the past from many other markets, but I’d be very interested in seeing any local news operations that are doing more than about a 20% penetration as measured by comScore. (I believe The Washington Post and AJC were outliers, if I’m remembering correctly.)

    But you’re correctly anticipating where this is going – it’s NOT about selling in a CPM world. It’s about creating a media experience that does exactly what you suggest and creates opportunities for local businesses to see real results.

    Based on your comments and MichaelJ’s above, I’m rethinking the wisdom of my decision to split this post into two parts. Unfortunately, the draft isn’t done, and I’m out of commission until later tonight.

  • http://sellingprint.blogspot.com MichaelJ

    @ yelington,
    I pretty much agree. A little quibble with the website stuff, but everything else. Yup.

    @Tim,
    While waiting for tmw’s installment just one more cent:

    Every small medium business – either retail or service thinks they need marketing. An idea I’ve been floating around the blogger blablaba is for newspaper ad salespeople to team up with printing salespeople. The team can offer the SMB a “marketing solution.” Includes a web ad buy, some print ads, and a bunch of brochures or posters and maybe some analytics from the web site. The comp deal might be an affiliate type relationship.

    So far, except for the challenges of separate cultures, I can’t see why this wouldn’t work for local papers and local commercial printers, who are also in pretty deep trouble.

    Any thoughts?

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