Newspaper comeback? It’s all about the money

After years of complaining about disruptive forces hammering content, newspapers have finally begun focusing on the real problem, according to local online revenue expert Gordon Borrell. In a wide-ranging email interview about the topic this week, Borrell told me that attention in newspaper front offices has shifted from news content to protecting the one kind of content they have that others don’t. “Newspapers,” he said, “contain the only daily compendium of the Big Sales in a local market, and it’s that franchise that they’re worried about losing — not the local news franchise.”

They’ve pretty much stopped hand-wringing,” he added, “over companies like Patch infringing on the low-value ‘community news’ turf and have drawn sharp focus on protecting that wildly valuable advertising franchise.”

It’s a good thing, because while the debate has raged about such irrelevant things as whether bloggers are journalists, mixing facts with opinion, hyperlocal news, and personal branding, pureplay Web companies have been decimating the business side of things. Look, the Web didn’t hurt newspapers by taking away their readers; they did so by taking away their money, and I’m happy to see a shift in the numbers this year.

For those of you who still believe it has anything to do with content, here’s an image I put together using data provided by Borrell. Pureplays have been taking local dollars out of the system since the earliest days of the Web, but newspapers were clearly the king. Now look what has happened:

market share by medium, 2002-2010

Borrell points to the slight drop in pureplay share and the uptick in newspaper share in 2010 as a sign that newspapers are really beginning to get it.

The big share losses for newspapers were the result of them being lulled into believing they didn’t need to hire extra staffing and that it was all about putting news online and selling ad adjacencies around it. It’s a niche medium where the other half of newspapers’ content — advertising — should be driving the boat. I think they’re well aware of that now, and I think you’re going to see more share growth as a result.

newspaper circulation and onlineThe drop in market share for newspapers has been precipitous during the past five years, and while there are those who would argue that declining circulation is the problem, the reality is that people consuming newspaper content online come close to making up the difference. Moreover, a direct correlation between newspaper circulation and revenue is assumptive, at best, for the only thing we really know for sure is that money has shifted dramatically within the local sphere. Given the realities of companies like Groupon, Facebook, Google and a myriad of others sucking cash from the marketplace, can we really assume that if newspaper circulations were where they used to be that advertising still wouldn’t have moved? I don’t think so.

This is why I’ve been harping so long on the truth that our “business” is actually advertising, not news content. Surrendering the idea that ads adjacent to scarce content is dying is perhaps the hardest thing for newspaper executives to accept, but that’s the reality. Money is money, and the people formerly known as the advertisers are finding highly efficient and effective online methods to spend theirs.

But all is not lost, and Borrell believes the evidence shows a newspaper comeback, of sorts, and he’s optimistic. “Instead of trying to managing everything under one umbrella,” he told me “they’re actually plowing additional resources into the Internet.”

Their editors or print sales people are less in control,” he added, “allowing their Internet staffs to move more independently and aggressively.”

And, he notes that we shouldn’t forget to examine history, because newspapers can’t be easily written off.

When you look back on any new electronic media — like radio in the 1920s, TV in the 1950s and cable in the 1960s and ‘70s — you see that newspaper companies were among the first to seize the opportunities and make them their own. That’s why you have call letters like WCPO (Cincinnati Post), WBEN (Buffalo Evening Newspaper), and KMST (Minneapolis Star-Tribune). They have a lot at stake, and they leverage themselves into any new business that looks like a threat to their core business. I think you’re going to see newspapers — and perhaps TV stations — basically “own” the local Internet. They have local promotional capabilities to brand a new product, and the feet on the street to develop the content and sell advertising.

That’s a bold statement, and I certainly don’t disagree. The thing that’s different about the Local Web, however, is that it’s ability to generate revenue is outside the mass media box that newspaper companies know so well, and which is also the core business model of radio, television and cable. It’s taken awhile for papers to figure that out, but I agree with Gordon that a shift in the local online market share is at hand.

The Internet is a three-way communications medium. I don’t think anybody has figured out the killer app in terms of enabling commerce, but I’m betting on it happening first at the local level. Will it come from newspapers? I’m not sure, but if it does, it’ll only happen through independent thinkers, those who can separate the making of money from the creation of content.

Media 2.0 101: It’s about money, not content

BBC Home Duty Editor and blogger Neil Henderson posted an apologetic over the weekend about why new media will never replace the old. It’s a fairly common theme from traditional media types and contains the assumption that Media 2.0 is somehow out to “replace” Media 1.0. Jay Rosen referred to Henderson as a replacenik: “A replacenik, @hendopolis, says the salient fact about new media is that it won’t replace the old, neglecting to specify who said it would.”

In fairness, Henderson’s argument is entirely about Twitter.

I think I’m some sort of dinosaur, because I feel that although it’s clear Twitter has many qualities there is no way it’s a replacement for longer forms of financed reporting, in which there’s a proper investment into training, the development of veracity and the cultivation of trust.

…But Twitter is nothing more advanced than a high tech rumour mill. It doesn’t replace sending trained and resourced correspondents to places…It can’t replace the kind of journalism that requires even a modicum of fact checking and investigation.

It’s hard to argue with any of that, but the problem is that nobody is! Henderson is trapped in the belief that new media’s intent is to “replace” the old, and nothing could be further from the truth. New media disrupts old media as it evolves; it doesn’t necessarily take its place; even though it may just shove it aside. Old media’s problem is that it has approached this on the defensive instead of fully embracing the disruption.

I was first shown a portion of the following sequence of images many years ago by Gordon Borrell. I’ve used them for so long and so many times that some people think I made them up. Gordon told me once of a guy in his audience who, when he showed his original (with Harvard Business School’s help) slides, said “that’s a Terry Heaton slide, right?” The sequence perfectly depicts the disruption of Media 2.0 (the green circle) as it encroaches on the Media 1.0 space (the blue circle). Throughout the sequence, the green circle grows, while the blue circle is overcome and surrounded.

Take a look, and then we’ll talk about the gray.

the disruptor approaches

The disruption approaches as it grows, but hasn’t yet impacted Media 1.0.

the disruptor is nigh

As the disruption encroaches on the business of legacy media, it responds by embracing whatever it can to sustain its business model. This is the beginning of the gray response.

the disruptor approaches

The disruption grows, yet we still only respond with what matches our business model.

the disruptor approaches

A very few legacy companies realize that they must enter the disruption’s core with a separate organization not encumbered by an old business model, and they are rewarded with the top revenues in the local space.

the disruptor approaches

Finally, the disruption overtakes everything and those who continue to practice only in the gray are destined to reduced — but not necessarily unprofitable — roles in the Media 2.0 hegemony.

In each slide, the gray area represents those elements of the disruption that “work” to extend the brand and the business model of Media 1.0. An old colleague of mine describes that as “bolting the new onto the old.” Unable to see ourselves as anything other than the mass media that we are, we simply continue to exist as an old business model in a sea of new media and miss what the disruption brings to the table. We miss also that we are now competing (for advertising dollars) against an entirely new group of players, because we’re still too busy competing with our old foes. This has tragic consequences for traditional media.

It’s tragic, because the disruption isn’t now nor has it ever been about content; it’s all about revenue. Borrell’s 2010 Benchmarking Study in March of this year illuminated what’s really taking place.

News and information sites do indeed generate revenue, but the Top 5 local online companies derive all their content from their own advertisers. In fact, half of the top 20 are all-advertising sites.

…Looking at the local online landscape from (the) angle (of) who’s making the most money…we get a clear perspective on the type of content is most valuable in the lean-forward medium of the Internet. Leading the pack are companies whose sole purpose is to deliver advertising content.

In 44 of more than 200 markets we track, Groupon or Autotrader.com generates more revenue than the largest local newspaper, TV or radio station online operation in that market. This is a startling revelation considering the fact that Groupon did not have a dime of revenue two years ago. This year, about two dozen of its local operations will generate over $10 million each. Craigslist, meanwhile, generated about $20 million from its site in New York and about $1.6 million each in Phoenix and Houston, and Autotrader.com is bringing in more than $10 million per site in more than two dozen cities.

As legacy media, we continue to believe in the assumption (yes, assumption) that advertising that interrupts or is adjacent to news content is the only kind of advertising that matters, and that’s where we make our mistake. Meanwhile, Madison Avenue itself is being disrupted by those who not only share the risk with advertisers but also bring them real, countable customers. We will see more and more of this.

The smart money these days is on companies who ACT on separating the creation of content with the growing of revenue. I should add that this window is beginning to close, because it’s been letting the pureplay flies in for too long already. We need to be in the advertiser content creation business, and use our weapons to make a difference on behalf of those who pay us. At least we would be in sync with how they’re increasingly spending their money.

Meanwhile, can we please get off this false argument that new media wants to replace the old?

Advertising as content contributes to changes in search

Doc Searls Twitter PictureThe “must read” post of the week came today from the incomparable Doc Searls via his blog. “World Wide Catacombs” is a powerful statement about the current status of searching. Here’s the first graph (but you need to read the whole thing):

What started as plain old Web search has now been marginalized as“organic”. That’s because the plain old Web — the one Tim Berners-Lee created as a way to hyperlink documents — has become commercialized to such an extent that the about the only “organic” result reliably rising to first-page status is Wikipedia.

Doc describes searching more like strolling through a mall than a library, and this is something that needs discussing, because I agree with Doc that this is of questionable value in the long haul. It does, however, fit with recent postings of mine, which led me to leave this comment on Doc’s piece:

(This) fits with fascinating new findings in the latest Borrell Benchmarking survey (herehere, and here). That last link is my piece this week on “We must think of ads as content.” In a nutshell, what Borrell is finding is that content is still king, but it’s advertising content, not editorial. Armed with free or nearly free tools, the people with the money (to paraphrase Rosen, “the people formerly known as the advertisers”) are spending it not on advertising but on creating their own content. From the Borrell report: “the Top 5 local online companies derive all their content from their own advertisers. In fact, half of the top 20 are all-advertising sites.”

So not only is this taking place, but you have the content farms, as you note.

I think that until smart developers create tools for specifically mining these kinds of content, people will continue to use the old search engines. When that happens (and it should, because there’s money there), we’ll see changes in what the search engines deliver.

As the lens of recent history is applied, the 40,000 foot view of this marvelous tool we call the Web is getting clearer and clearer, and more opportunities are developing as advertisers create more content themselves. Hang on, ’cause it’s going to be an interesting ride. At Harvard, Doc is working on many fascinating things, including the “Ideas for a Better Internet” project, one that could include answers to this particular problem.

Borrell benchmarks 2010

Borrell Associates released its annual media benchmarking report this week and there are three big stories to report, one that we would consider good news, the others not so much. The report is an annual broad study of the local online advertising marketplace and one that reveals trends that media companies need in order to make good strategic and tactical decisions for the coming year.

THE THREE BIG STORIES

pureplays remain at 48%The slice of land held by the “pureplays” has stopped growing. For the past ten years, we’ve watched the pureplays’ slice of the revenue pie locally grow and, like Pacman, devour everything in its path. For the third year in-a-row, the share of revenue going to pureplays has stayed the same. In terms of actual dollars, it grew, because the overall pie grew, but this is an important stemming of the tide for local media companies, because their efforts appear to have stopped the growth of their biggest competition, pureplay Web companies like Google, Yahoo, Groupon, etc.

These Internet companies, which grew share of local online ad dollars from zero to 48% between 2000 and 2008, have hit a wall. Some have folded, others continue to grow, and the biggest have formed partnerships with local newspapers, TV, radio and directories.

Content is king, but not the content most people think. As we say here at AR&D, advertising is content in the Media 2.0 world, and that is born out by this report. According to the Borrell report, the Top 5 local online companies derive all their content from their own advertisers. In fact, half of the top 20 are all-advertising sites.

In 44 of more than 200 markets we track, Groupon or Autotrader.com generates more revenue than the largest local newspaper, TV or radio station online operation in that market. It is a startling revelation considering the fact that Groupon did not have a dime of revenue two years ago. This year, about two dozen of its local operations will generate more than $10 million each. Craigslist, meanwhile, generated about $20 million from its site in New York and about $1.6 million each in Phoenix and Houston. Autotrader.com will bring in more than $10 million per site in more than two dozen cities.

advertising content dominates

A canyon has formed between legacy media companies that are gaining share in the digital space and those that are losing it. There seems to be no helping some local media companies, those who, for whatever reason, decide not to or are unable to dedicate resources to online efforts, placing their future in jeopardy. At this late date, the energy required to cross the canyon is significantly more than it was a few years ago, and that spells trouble for some.

The most aggressive are seeing 20 percent or more of their ad revenues coming from digital sales. In 2010 they reported double-digit and even triple-digit growth in online revenue as they continued to invest in staffing and technology. On the other side of the canyon are companies that have hamstrung their online ventures with little to no dedicated staffing, allowing the new-media venture to be directed by old-media managers. Their digital revenues remained flat or declined last year.

Overall, the report shows a healthy and blooming market, one that shows promise ahead due to mobile. Online media accounted for $13.5 billion, or 14.9 percent of all local ad spending in 2010.

We are forecasting that to grow this year by 17.8 percent as the economy rebounds and mobile media fuels greater excitement at the local level. Without mobile advertising, “local online” (basically banners and search advertising served up on Web pages) would likely be flat for the foreseeable future, signaling the maturation of what is now a 15-year-old medium and the emergence of a new one to steal the attention. By 2015, the majority of all “online” advertising will become untethered from desktops and will be delivered to mobile devices such as iPads and other tablets, smart phones, and GPS-enabled laptops.

local online forecast

By 2015, Borrell projects that newspapers will be toppled as king of the local advertising marketplace, ending a run that has lasted since anybody first started counting such data. Online will, by then, be a $24 billion dollar market, representing a 22.7 percent share of all local advertising. The Local Web has become a relentless juggernaut, and yet we understand so little about it. And for a marketplace that’s just 15 years old, we can safely predict that many more disruptions lie ahead.

The annual Borrell benchmarking study can be obtain via the Borrell Associates website.   <Link>