By: Jennifer Saba Remember when online advertising revenue charted double-digit growth every year, and still curved upward? It seems like only yesterday. As print revenue declined, fear not, newspaper executives said ? we're concentrating on growing digital revenue to make up the loss. The numbers backed them up until Q2 2008, when online revenue growth officially reversed. Now, that line is accelerating in the wrong direction.
The recession plays a large part in the downturn. It's a mistake, however, to think it's the only reason. In hindsight, it's foolish to have thought newspaper executives were really throwing all their muscle behind digital in the past decade. And it's a mistake to think the well for online ad dollars has run dry, obviating the recent arguments for paid content that have been dominating the conversation.
"The industry needs to turn its attention back to advertising," says Ken Doctor, an affiliate analyst at Outsell Research and author of the blog Content Bridges. "It has long been what has sustained the American press, and it's an important revenue source going forward.
"With online revenue flagging as much as it has, attention has been turned and diverted," he adds. "If advertisers aren't going to save us online, maybe the readers will save us online. Even if [paid content] worked, it adds only a small revenue stream."
Consider that online revenue at newspapers is down more than twice as much as online revenue in general. The NAA reported that in Q1 of this year, online advertising revenue at newspapers decreased 13.4% to $696 million year-over-year. For the same quarter, the Interactive Advertising Bureau and PricewaterhouseCoopers said that overall Internet advertising revenue dropped 5% to $5.5 billion.
For newspapers, that decline can be attributed to two major factors: relying too heavily on classified advertising to boost revenue, and the addition of display ad space gumming up inventory ? and worse, driving down the costs of the ads that do get sold.
Lauren Rich Fine, a former newspaper analyst and currently practitioner in residence with the School of Journalism and Mass Communication at Kent State University, says newspapers have the traffic and the brand is very credible, but "It's strange they still don't know how to sell it."
Newspapers "never really had their eyes on online ad revenue in the first place," says Mark Potts, author of the Recovering Journalist blog and CEO of GrowthSpur, which helps hyperlocal and community sites generate revenue. "It was supplemental to print, and rarely had its own distinct strategy. I think newspapers never took it seriously enough or got around it the right way. They got caught up pursuing traditional advertisers online."
That was fine when those traditional advertisers, especially those in the classified category, were happy to buy online ads as part of a bundled package. Then the huge plunge in classified revenue occurred in 2007, and the slowdown in online revenue growth followed shortly thereafter.
Shawn Riegsecker, president and CEO of Centro, which helps buy and sell online advertising, says, "I think it's really important to know that classified revenue is what's dragging that line down." He estimates that roughly 70% of digital revenue reported by newspapers is classified. Aggravating this problem: With a few exceptions, newspapers don't break down what online revenue is coming from classifieds. Instead, executives tend to report one overarching online revenue number, obscuring other categories that could be rising, Riegsecker notes. "There is going to be a day when you are going to lose" classified revenue, he adds, as it's exposed to technological changes and economic cycles ? "and you're going to mask a really good story."
New ways of selling, targetingRusty Coats' mission is to reduce that 70% slice for classified. The vice president of content/marketing for E.W. Scripps' newspaper division says so far this year at his company that ratio is more like 40% classified to 60% pure-play.
Coats admits that the industry has had what he refers to as an "adult moment," an epiphany of sorts: "We, like all media companies, have declared ourselves successful and profitable in online sales long ago. But that was on the back of classified advertising. We really haven't been selling [online] in the last 10 years." About 18 months ago, he adds, that began to change.
At Scripps, that change means taking a different approach to selling and targeting advertising. It boils down to one simple question posed to current and prospective advertisers: Who do you want to reach?
"On the training front, they are selling audience, and not product," says Coats. The movement is away from, for example, pushing a quarter-page print ad to an auto dealer, and toward selling that auto dealer to a group of people interested in buying trucks.
It's essentially the opposite approach of what Coats calls the "show up and throw up" strategy, where a salesperson rattles off a list of special sections, guides, and mobile coupons before even asking: Who do you want to reach? Coats says the technique is based on what the advertiser is trying to accomplish, versus "what product we are going to force down their throat this week."
Then again, many papers haven't maximized the amount of ads to be gained from small and medium-sized local businesses right in their backyard. "The biggest issue for newspapers to be successful is they need to attract local," says Fine. "It has to start somewhere. The numbers are small, but they should do a better job as the local [ad] network in the community."
Coats says there's a lot of talk about smaller advertisers turning to Google's AdSense program, but in reality many smaller advertisers don't. They are looking for someone to help navigate online advertising, he adds, an opportunity that lends itself to newspapers: "We become more of an agency. We call it aspirin: We help them make their headache go away."
He describes sales- people in two different ways, apologizing for what he says may sound "pedantic" to sales professionals in other fields. There are "hunters" ? those who go out and catch clients ? and "farmers," who cultivate and grow their clients. Newspapers, he says, tend to employ salespeople who are more suited as farmers, but that's not going to net new advertisers. Scripps wants the hunters, and is retraining its force in the art of acquisition. When Scripps holds sales blitzes for online advertising, for example, roughly 80% to 90% of the advertisers obtained are new business.
Getting BT to work for youAlso helping to push up online ad revenue is the Yahoo partnership, which extends local market reach and equips newspapers with behavioral targeted (BT) advertising. One aspect of the partnership allows newspapers to sell Yahoo's local inventory as well as their own using Yahoo's ad-serving platform APT.
While newspapers have great overall market reach when print and online are combined, that diminishes when only the paper's Web site is considered. So when a newspaper site might reach, say, 15% of the market, that's not going to do much for selling BT ads. When Yahoo's local channel is added, however, that market reach mushrooms to an average of about 70%. The success of behavioral advertising hinges partly on the size of the demographic segments delivered.
"You cannot do BT based on a 12% market share," says Coats, offering an example of an advertiser looking to reach young women interested in fitness. "If I cut that in half to just women, I'm down to 6%. If I cut it to women under 30, I'm down to 1%. If I cut it down to women under 30 who are interested in fitness, you get my sister."
Why care about BT in the first place? It increases the price that newspapers can fetch for an ad, and it makes that ad more effective since its audience is highly targeted. At Scripps, CPMs for BT ads command two to three times as much as display ad CPMs, which are priced aggressively to begin with, Coats says.
Julie Weitzner, vice president of media at the online agency Razorfish, says that while BT is promising, there is still very little post-purchase verification that the parameters were adhered to in the buy.
Yahoo's additional inventory also offers new opportunities. Coats figures that by selling, at minimum, 23% of Yahoo's inventory at the local level, it can make up for the loss of classified advertising: "It's not anything really truly heroic," he says. "It's 23% of what's out there. Once you see that would make up the gap, it changes your perception. It takes you out of the conversation ? 'I'm going to stare into my open grave and weep' ? something the industry loves to do. This is possible. This is solvable. All it takes is execution."
Breaking it all outThe McClatchy Co. deserves recognition for being one of the few companies still hammering home the advances it makes in online ad revenue. Even so, for Q2, McClatchy announced that digital advertising slipped 2.9% year-over-year. But it helpfully broke out those numbers, revealing just how much classified, specifically employment, had fallen.
Stripping out just online help-wanted, McClatchy's online revenue grew a remarkable 24.7%. What's equally stunning is that given the company's real estate and automotive exposure, those categories didn't experience a dramatic plunge online. Online auto was down 3.1%, while online real estate declined 2.4%. As of Q2, online revenue represented 16.5% of total advertising, up from 11.8% in Q2 2008. McClatchy is getting a $20 CPM for Yahoo BT ads, versus a $12 CPM for regular display.
Christian Hendricks, McClatchy's vice president/interactive media, says that online-only revenue represents 45% of total online revenue. He attributes the growth of share to the company's focus on selling display ads, including Yahoo's local inventory on the APT platform ? which McClatchy began using in January and is still rolling out across its properties ? and its other channels like CareerBuilder, Cars.com, and Apartments.com. "I believe we are the only company positioned this way," he says, noting that Tribune and Gannett ? which are partners in CareerBuilder, Cars.com and Apartments.com ? are not part of the Yahoo consortium.
The company is shying away from upsells and bundles. When McClatchy reports print revenue and online-only revenue, bundled ads are included in the online-only revenue line. Hendricks confirms, however, the growth of online-only revenue is not a shell game in which the company just allocates different portions of bundled buys to online from quarter to quarter to show growth.
In bundled ad buys, the online rate is fixed. So, for example, if someone buys a $1,000 print and online package, $800 might go to print while $200 goes to online. That online rate card applies to a $500 bundled package where $300 is for print and $200 is for online. About 20% of McClatchy's online revenue is from bundled buys.
McClatchy also makes a distinction between upsells and bundled buys. Upsells occur, Hendricks says, when an advertiser interested in buying a print ad is offered the opportunity to purchase an online one as well for an additional X dollar amount. Upsold ads make up 35% of McClatchy's online revenue.
And what about classified? Hendricks revealed that for the real estate category, 52% of that revenue is from online-only. In help wanted, 38% of ad revenue is online-only.
But in the automotive classified category, 80% of the revenue is online-only. "The reliance on print doesn't matter as much in the auto category," he says, considering that many local auto dealers have shut down. Losses from dealer closures were offset by extending new product offerings to existing Cars.com customers and taking a modest rate increase in some markets.
New opportunities for brandingKent State's Fine sees an upside in all this turmoil. "I think desperation is moving the industry forward," she says. "I think newspapers have a remarkable opportunity because of the quality of the demographic they deliver. The challenge is there is a tremendous amount of inventory that grows every day and is devalued because of the quantity. I think the burden is on newspapers. They need to be more creative."
That means moving beyond basic banner ads, says Gordon Borrell, CEO of Borrell Associates. That's one factor, he believes, that separates newspaper Web sites that are successful from those that are not. It's more about video advertising and online directories, he adds ? acting as a service to advertisers in need of help.
Creative units that promote branding can drive up CPMs. The Internet has traditionally played host to actionable ads ? cost-per-clicks. But that's changing, says Centro's Riegsecker. About 65% of ad dollars dedicated to branding were spent "offline." On the Web, the ratio is 70% direct-response to 30% branding. As more people go online, branding ad dollars will follow, he says.
"Brand advertisers want to be associated with respected media brands and next to or near contextually relevant content with beautiful advertising," he says. "The Web was not built as a branding medium. ... But there is pressure from advertisers wanting to bring those dollars to the Web."
That's what spurred the Online Publishers Association (OPA) to introduce three new ad units: the fixed panel, which is embedded in the layout and moves as the user scrolls down the page; the XXL Box, which has "page-turn" functionality and video capability; and the pushdown, which opens to display the advertisement and then rolls up to the top of the page.
The New York Times, USA Today and The Washington Post are OPA members that implemented the new units in July, attracting advertisers like Bank of America, Mercedes-Benz and Frito-Lay.
"It's a huge opportunity for being a great branding platform," says OPA President Pam Horan. "It gives them ways to think about connecting with their audiences to deliver their brand experiences directly on the pages of the sites."
Razorfish's Weitzner, who worked on the Mercedes-Benz campaign with the new ad units, says that the newspaper sites running the ads are high in quality and, contextually speaking, a good environment for the car. For the Mercedes push, the client was looking for dominant "share of voice" on the page and didn't want the clutter of other ads (the online equivalent of taking out a full-page ad).
QuadrantONE, the national online agency backed by Tribune, Hearst, Gannett and the New York Times Co., is starting to get the attention of advertisers who previously wouldn't give newspapers a fleeting glance. "From a traffic standpoint, the audience skews well and is highly engaged, and we have been able to attract incremental advertisers" ? especially consumer packaged goods ? "that wouldn't have considered newspapers in the past," says quadrantONE CEO Andy Ellenthal.
He says quadrantONE "took a beating" on CPMs in Q1 but it's starting to spring back, especially the ad units that are considered higher in value such as rich media and streaming video. "We are getting a 50% premium on the larger units," he adds, but warns that at least from a national-category standpoint, many sites still have too many units in general ? which drives down CPMs.
The opportunities for increasing online ad revenue are certainly out there, according to Coats. "Basically, one of the things we laugh about every time we see that forecast number that online ad revenue is going to decline, is it assumes we are getting 100% of online ad revenue to begin with," he says. "It's about stealing share. We are all scrapping for what's out there. The rewards are going to go to those who are the most tenacious."
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