Nieman Foundation at Harvard
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Feb. 18, 2010, noon

The Newsonomics of online marketing

[Each week, our friend Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of the news business for the Lab.]

Take two simple words: online advertising and replace them with “digital marketing.”

Within that simple word change, we see a world shift, and one of huge, fundamental importance to news publishing.

“Online advertising” has been a steep learning curve for text-based news companies, as well as broadcasters. They’ve built a small business on it, about $3.5 billion a year, according to the Newspaper Association of America. That’s after 15 years of transitioning ad sales from print to bundled, and lately, with McClatchy a leader here, to print, bundled and online-only. Still, that’s just $3.5 billion, compared to some $35 billion in print advertising.

Even with all the investment made, digital revenues make up no more than 15% of any local newspaper company’s total revenue. In addition, while some $23 billion was spent on online advertising (the fastest growing ad category in the country) in the U.S. in 2009, newspaper companies take in maybe 15 cents of every dollar there, compared to the 20 cents on a dollar they got of the old pre-digital world ad pie.

Online advertising is where the game has been played. Now it’s moving to digital marketing. The new definition targets two big shifts:

  • Online is increasingly a passe term. We think online and we think desktop and laptop, if not the old AOL. Not so long ago, it seemed like a miracle to be — and stay (always on) — online. Now our Internet connections are increasingly embedded with us. Smartphones are the leading edge of the mobile Internet, with tablet proliferation fast on its heels. New TVs are being built with the Internet inside, completing the blur between screen and monitor, and promising much more news — and commercial — interactivity.
  • Advertising is increasingly a passe term. Coming out of this Great Recession, advertising is flat all around. Part of that is the uncertainty and ungainliness of the recovery. Bigger, though, is the fact that companies, especially big ones, are moving their money from traditional advertising to direct marketing of all kinds.

The goal of business, those in the news business must remind themselves, is not to support news media, but to find paying customers. For many decades, finding customers meant sending messages to the large audiences put together by daily newspapers — the biggest local mass markets — and national and local broadcasters. Newspapers sold space; broadcasters sold time, and both said to businesses: If you place the right ad, you’ll do well. All the risk was the advertisers’; the highly profitable rewards went to media.

Now that world is coming disassembled. One astounding number: In 2009, U.S. businesses spent $66 billion on their own direct digital marketing, according to ongoing research by Outsell, one of the companies with which I work. That study, done by my colleague Chuck Richard, showed that such marketing had increased three-fold in four years. How is that money being spent?

It goes to site building, design and operation. It goes to search engine optimization, marketing and promotion. It goes to information technology generally and it goes to analytics, testing, research, content, and audience acquisition. Much of that money used to go into advertising, and now it goes into finding, retaining, and upselling customers more efficiently. Companies as diverse as Honda, Best Buy, and Chevron are among those who are mastering this new form, and diverting dollars that used to go to, and support, Old Media.

Consequently, this self-marketing move is pulling dollars out of the marketplace, as we acknowledge that the long tie between advertising and media is unraveling.

The self-marketing movement of dollars is noteworthy as is where the new digital marketing dollars will be spent. About half of online advertising is now spent on display ads — those clickable images — which a key part of where newspapers make money online. Unfortunately, online display keeps losing share to paid search advertising (a market owned by Google and Yahoo), and now mobile, video, and social marketing are the fastest-growing categories — all areas in which news companies find themselves lagging more national, digital-centric competitors.

Add it up, and we see a depressing reality, but one which must be acknowledged and understood. This digital marketing revolution is the big one — much bigger in its financial impact than the news-reading revolution that has pulled readers away from print and broadcast and to digital. Yes, this new digital marketing world will support new publishing, but much of it is non-journalistic; the dollars spent won’t support the large-scale journalistic enterprises that we’ve long taken for granted. To fund large-scale journalism, especially local journalism, we’ll have to look elsewhere.

POSTED     Feb. 18, 2010, noon
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