Newspapers Miss Out On $300 Mil. In Online Advertising

By: Carl Sullivan Newspapers are missing out on nearly $300 million annually by failing to use the Internet to serve new advertisers and enter new fields, says a new study from Harvard Business School's Clark G. Gilbert and Borrell Associates Inc. of Portsmouth, Va.

From surveying online operations at over 250 daily newspapers in the U.S., the study estimates the entire industry's 2002 online advertising revenue at $550 million, or about 40% of local Internet ad spending. The study's authors suggest that newspapers can boost their current online projections by $650 million annually by 2005 -- if they adjust their new-media strategies.

"Newspapers are exhibiting the classic symptoms of an industry faced with disruptive technology," said Borrell Associates CEO Gordon Borrell in a statement. "They've invested in Web sites, sometimes heavily, but they have remained dangerously over-reliant on their traditional customers. The disruptive technology of the Internet opens up new classes of potential customers that newspapers must pursue."

The study draws comparisons between newspapers and other industries that have faced disruptive technology, such as steel production, photography, and medicine. Gilbert, the Harvard professor, says newspapers have been overly dependent on extending their traditional revenue sources into the online space. And in a rush toward short-term profitability, many publishers have lost site of the long-term opportunities, the study warns.

"The most disturbing thing is that newspapers now appear to be focused on replacing their high-margin business of print classifieds with the lower-margin business of online classifieds," Gilbert said in a statement. "It that's all they're doing with their online operations, we'd suggest that they shut them down tomorrow." He suggests that newspapers should instead tap into the power of the Web as a medium -- focusing on banner ads and requested e-mail notifications in the classified space, for example.

The study encourages newspapers to invest in databases and develop sales staff adept at selling online advertising.

"Newspapers are overly focused on classifieds in the online space," Borrell Vice President Peter Krasilovsky told E&P Online. About 75% of newspapers' online ad revenues come from classifieds. "There are significant opportunities from national advertisers who want to localize. But until papers focus on targeting on specific consumers, they're not going to get those national advertisers."

National advertisers want the ability to target their advertising to specific demographic groups, Krasilovsky said. "Right now, papers aren't up to snuff in terms of being able to provide marketers with that information. It's just a matter of implementing the technology's that's available and that's being widely used today [by non-newspaper Web sites]."

Newspapers are in a strong position to win the local online advertising battle, the study says, pointing to the 40% market share that papers currently hold. "No one should write [newspapers] off for dead," Krasilovsky said.

For more information, visit www.borrellassociates.com.