CLASSIFIED STRUGGLE: TALES FROM THE FRONT LINES

By: Lucia Moses

Newspapers Fight To Save Classified Business







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by Lucia Moses



Nick Rogosienski was quietly directing the apartment classified
sales division at the Minneapolis Star Tribune in the mid-1990s
when the dot-coms came over the horizon. They had strange names,
such as Monster.com and autobytel.com, but executives at the
newspaper quickly realized that these Internet upstarts were
targeting their classified revenue. This, recalls Rogosienski,
‘scared the heck out of our print folks.’



Fear turned out to be a good motivator. The Star Tribune soon
became one of the first U.S. dailies to publish news and
classifieds online. What’s more, the paper has proven that online
doesn’t have to be a perpetual drain. Now independent of the print
side, its Web component has been pumping out profits many other
sites can still only dream about.



Certainly, a lot has changed since panic swept through newspaper
offices several years ago. The threat posed by the Web to
newspapers’ $19 billion in annual classified revenue is far from
gone, but contrary to the scaremeisters’ early predictions,
there’s no evidence of significant slippage.



By now, most U.S. dailies have Web sites, and many are starting to
make money at it. A study done in March for the World Association
of Newspapers showed 25% of newspaper sites in North America are
turning a profit and another 24% are breaking even. No longer
viewed as a short-term defense, Web sites are considered an
investment for the long term.



‘We still think this is the mother of all economic races,’ says
Dan Finnigan, president of KnightRidder.com, referring to the
battle against non-newspaper rivals. ‘We want to win it.’



What’s also clear is that no one classified business model has
emerged; rather, it’s a constant work in progress.



Take the Star Tribune. Responding to the online job recruitment
threat, which many see as the most vulnerable of the classified
categories, the paper developed its own r?sum?-matching Web
service. Under Rogosienski’s direction, the paper also started
its own apartment rental service and glossy magazine to complement
its apartment listings online. Later, the Star Tribune joined the newspaper-backed online channel, Classified Ventures Inc., to give
both its car and apartment listings national play.



But while other newspapers believe they must post their job listings nationally, startribune.com has stuck with its in-house service. Why? Rogosienski, who became vice president for interactive media early
this year, explains that the Minneapolis-St. Paul market has minimal immigration and that the paper (and now its Web site) is sufficiently well-known to be found by people elsewhere looking for jobs in Minnesota. Giving listings to a national database would dilute that brand, he says.



‘I think recruitment is much less of a national marketplace than
people think,’ Rogosienski explains. ‘Nothing’s really stacked up to
what we have.’



It’s hard to argue with startribune.com’s success. The operation went
in the black about two years ago, with the jobs category the biggest
revenue driver. It’s been less successful with auctions, where it tried
early on to hold its own against eBay and got pummeled.



Rogosienski says he’s ‘fairly comfortable’ with the current classified business model, but isn’t letting down his guard. After all, it was
fear that pushed the paper to take action five years ago. And while
others have ceded the auction space to eBay and others, Rogosienski
hasn’t given up on that category, either.



Erosion seems minimal so far



Erosion in revenue seems to have been fairly minimal to date. But New
York media investment bank Veronis, Suhler & Associates says
real-estate and job ad migration from print to online contributed to
holding down last year’s increase in newspaper classified revenue to
4.3%, a slowing in growth for the second year in a row – and the
smallest growth rate since 1993.



So far this year, however, print classified revenue is growing faster
than last year, thanks to strength in recruitment; in the first half
of 2000, it rose 6.1% to $9 billion, according to the Newspaper
Association of America (NAA). These better-than-expected results led
the NAA to revise upward its projection of 4% classified revenue
growth for 2000 to almost 5% for the year.



So there’s reason to be upbeat about newspapers’ future on the Web,
but there’s still cause for concern. Looking beyond 2000, analysts
believe buyers and sellers will increasingly turn to the Web and
away from print ads.



The Cambridge, Mass.-based Forrester Research Inc. predicts that by
2005, online classified ad revenue will rise to $8.2 billion from
$1.2 billion while newspapers will slip to $17.1 billion from $18.6
billion last year. Forrester arrives at these figures by interviewing classified advertisers and consumers about their spending habits.
While other forecasters dismiss that methodology as unscientific,
they don’t disagree that online classifieds will continue to grow in importance.



‘This clearly is going to take a long time, but this movement, we
know, is happening,’ Forrester analyst Chris Charron asserts. ‘Slowly
but surely, classified advertisers are moving their budgets to the
Internet, and consumers are starting to prefer the Internet as a
source of classified content over the newspaper.’



While newspapers still capture the largest share of car dealer
advertising, the Internet is gaining, the National Automobile Dealers Association says. And the National Association of Realtors found 43%
of home buyers in 1999 used newspapers to get information about their purchase, down from 51% in 1995 – while those using the Internet
jumped to 37% from 2% during the same period.



Newspapers, through online sites such as Classified Ventures’
cars.com (a car-shopping service), and HomeScape.com (its real-estate
vertical service), are making inroads against a handful of competitors.
But it’s the job ads that have classified managers most skittish.


Monster versus ‘Gorilla’



What used to be known as ‘Help Wanteds’ represent the biggest subset
of newspaper classified ads, accounting for $8.1 billion in 1999, or
43.5% of their total classified revenue, and those dollars are moving
online.



While print remains one of the strongest sources of job matching,
with 24.5% of hires coming from newspaper print ads in 1999,
traditional recruitment resources are giving way to the Internet,
which helped almost one in 10 employees hired last year get their jobs, according to the Employment Management Association. And while there
are few real-estate and car classified Web sites, the job field is
overrun with players, paving the way, many believe, for consolidation.



Naturally, this is where many publishers are spending most of their
dollars and energy. For example, The Dallas Morning News, worried that
it’s missing a substantial amount of recruitment business, is
implementing a ‘one call does all’ system to make it easier for people
to place an ad in print and online, Publisher Burl Osborne says. To
reach nonlocal job seekers, the Morning News also puts its job
listings on a regional site called texas4u.com and on the AdOne
national network owned by Morning News parent Belo and 10 other
newspaper companies.



‘There’s enormous opportunity if we get into these revenue pockets
and help employers find people,’ Osborne says. ‘I think all of us are
probably placing bets wherever we can.’



Equally optimistic is Indianapolis Star New Media Manager Jon

Houghtalen. Not so long ago, he admits, Monster.com seemed poised
to make newspaper job ads obsolete. But today, print help-wanted ads
at the Star are still strong, and the company’s home-grown r?sum?
service, workavenue.com, does better at matching job candidates to
employers than anything Monster or anybody else has to offer,
Houghtalen contends. By leveraging its relationship with national
car and real estate sites, the site turned profitable on an operating
basis in the early part of this summer.



‘We’re still the 800-pound gorilla,’ Houghtalen declares. ‘I’m
confident we’ll absolutely remain profitable. The Web … allows us
to grow without adding a lot of expense.’



Still, the Star’s business model must continue to evolve. The site
started charging a nominal fee for Web classified ads in March, and,
betting that customers are increasingly willing to pay more for
online ads, will soon return to a forced-buy model. ‘It will be
interesting to see what level of pushback there is from customers,’
Houghtalen says. Today, he’s more confident about the business, but
with more opportunities to chase, the stress remains high. ‘It’s a
constant work in progress,’ he says.



Analysts believe that newspapers, once criticized as slow to adapt
to the new technology, are getting more aggressive. What started as
a defensive strategy to catch ads that were migrating online has
become a realization that the Web offers a way to not just protect
the print revenue but augment it. Many newspapers initially gave
away Web ads to their print ad buyers, but have since found advertisers
are willing to pay extra to have their ads online. They’re also
starting to offer the ability to place ads over the Internet, which
can improve service while cutting costs.



‘There’s a realization now that this is all part of being an
information provider in your community, and it doesn’t have to lose
money,’ says Peter M. Zollman, founder of Classified Intelligence
LLC, an Internet consultancy based in Alamonte Springs, Fla.



For example, online competition is driving Journal Communications,
parent of the Milwaukee Journal Sentinel, to consider what once was unthinkable among newspapers. Dissatisfied with the low traffic going
to the auction portion of its online site, JS Online, the company is considering partnering with a national auction site such as eBay.
‘For the past three or four years, we’ve seen them as competitors,’
says Josh Phillips, online classified manager for JS Online. ‘The
question is, do we want to come up with some sort of relationship
where we’re no longer competitors?’



Quick profits or long-term investments?



While some newspapers are looking to make a quick profit online,
others such as Knight Ridder, the New York Times Co., the Tribune
Co., and the Washington Post Co. are making it their business to
invest for the long term.



KnightRidder.com is expected to bring in $50 million in online revenue
this year and lose about the same amount, says Finnigan. Although a
few of its newspaper sites are at operating profitability, or close
to it, the subsidiary remains in the red as it spends heavily to market
its Real Cities network of regional portal sites in 36 U.S. markets,
roll out new products, and invest in technology with a single goal,
according to Finnigan: to dominate each of its markets.



‘I could make Knight Ridder profitable in about a year, but if I did,
my concern is, it would forever shrink the size of the business and
what it could become,’ Finnigan says.



Keeping with that strategy, Knight Ridder teamed up with Tribune in
July to mount what they hope will be a serious challenge to
Monster.com as the preeminent national recruitment service and
listings site. CareerBuilder Network will combine the online job
search features of CareerBuilder Inc. with the listings content of CareerPath.com, a job service founded in 1995 by a group of newspaper companies.



‘We want to be the leading market player, and think classifieds
particularly lends itself to the online medium,’ says Timothy J.
Landon, president of Tribune Classified Services. ‘We believe at the
end of the day, we want to be the leading classified advertising
provider, regardless of channel.’



Stay tuned



It’s impossible to predict what the future models of newspaper Web
sites will look like. But it’s safe to say the number of national
online classified players, especially in the crowded job arena, will
continue to shrink, and those with the most listings and best tools to
connect buyers and sellers online will stand the best chance of
surviving.



Pressure to get the red out and show a path to profitability also
will intensify. ‘The glory days of ‘spend money and don’t worry about
how to make money’ are over,’ Zollman says. Now that dot-coms have
come down to earth, the playing field has become more realistic, he
adds.



Finnigan acknowledges there’s pressure from his superiors and Knight
Ridder shareholders to make his operations pay off. Next year, he
expects KnightRidder.com to reduce its losses by $50 million; by fall
2002, he expects it to be profitable on a monthly basis.
CareerBuilder’s schedule is shorter. By first quarter of next year,
Knight Ridder and Tribune will have to demonstrate that the network
has the revenue potential and traffic to be a strong threat to
Monster.com, Landon says.



The first act of the online classified drama is over, and the next
is bound to be equally dramatic. ‘We have a lot more information and experience, and I think we’re beginning to see the outline of how
things might be,’ The Dallas Morning News’ Osborne says. ‘Do we have
a silver bullet? I don’t think we do, and I don’t think anyone else
does, but I think we’re getting there.’







~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~





Lucia Moses (lmoses@editorandpublisher.com) is an associate editor
covering business for E&P.











(c) Copyright 2000, Editor & Publisher

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