Local Advertising Hits A Tipping Point

“(W)e’ve reached the end of the Golden Age of Advertising,” says pioneering media researcher Gordon Borrell in a new report that paints a very realistic picture of the state of local advertising. This report — Local Advertising Hits A Tipping Point — is a 5-year follow-up to a report published in 2010 and tracks the opinions of 7,228 small and mid-size advertisers (SMBs).

While there is a lot of between-the-lines conclusions to be drawn, here are just a few of the report’s findings. Remember, these are advertisers speaking, or it would be more appropriate to call them “the people formerly known as the advertisers.”

  • 82% of SMBs have established their own media channel in the form of a website or social media page.
  • Since 2007, spending has skyrocketed to the point at which businesses last year spent 72% more on marketing services and promotions than they had spent 10 years earlier. Meanwhile, the annual expenditure on local advertising was 22% less than it was a decade ago.
    Screen Shot 2015-06-10 at 12.41.44 PM
  • 72% of those are purchasing digital services to support those channels, spending far more on those efforts than on basic advertising.
  • By examining IRS tax records, Borrell concludes that “if businesses were devoting the same percentage of this year’s gross revenues to advertising as they were 10 years ago, the advertising economy would be $56 billion richer.”
  • Online media appeals to the largest percentage of local advertisers and takes the largest share of ad budgets of any other media. This is a pedestal newspapers have occupied for over 300 years! “Over the next 12 months, the gap will almost certainly widen to the point that all traditional advertising channels — print, broadcast, outdoor and mail — begin to look like niche support mechanisms to a local businesses’ digital marketing plan.”Screen Shot 2015-06-10 at 12.33.49 PM
  • Traditional media has devolved into an option, selected by habit or by preference but certainly not by necessity.
  • Online is so strong that by 2020, Borrell projects that all traditional media will scramble to maintain a small set of advertisers who will spend small shares of their budgets with them.
  • Local businesses, on average, get 20% of their sales from online, versus 13% by the old standby, the telephone.
  • These businesses have just begun to become digitally savvy, according to a new metric from Borrell. 85% of SMBs fell short of a line considered “very active” in digital activity. What this means is that they are novices that somebody can teach and that the more savvy they become, the more disruptive they’ll likely be.
  • 82% of respondents maintain a social media page with an average of 2,123 followers, though 61% have fewer than 1,000. The report notes that growing their own audience base equates to real customers for SMBs, which is radically different than buying ads based on somebody else’s reach.
  • Native advertising (a.k.a. Content Marketing) is another area of satisfaction for SMBs, although its use is low. This equates to a growth opportunity for those providing a service.
  • Mobile is another BIG area of interest, although not in any traditional advertising sense. The projected spending categories for mobile relate almost entirely to SMBs own web franchises and include things like Responsive Design (mobile-friendly), search, SMS, proximity, apps and video.

With all Borrell research, it’s useful to take a step back and try to get a 30,000 foot view. What this report doesn’t say directly is that the levers of commerce in our world are shifting to the hands of businesses themselves due to the growth and development of a networked culture. The beauty (or evil, depending on your perspective) of the network is that it is a 3-way communications medium, which allows human beings to by-pass filters that the network deems inefficient and, frankly, now useless. This includes our entire cultural infrastructure of expertise divided into silos, the first of which is how we communicate. There will be others.

This Borrell report tracks empirically the shifts relating to the way money changes hands in the levers that grease of the skids used by businesses to reach customers and sell their wares. Those businesses are loudly telling us now — along with their customers — exactly how THEY want things done, and clearly that doesn’t include traditional forms of getting the word out. It’s too expensive. It’s too haphazard. It’s out of control in ways that we tend to disregard in the name of profit.

While I certainly respect the crisis that journalism may face in all of this, we’ve been our own worst enemies in the assumption that we could simply shift our model to the Web. It’s too late to effect any significant change in that strategic blunder, but it’s not too late to shift our focus to what we’re being given and away from what we want. That, I’m afraid, is the only logical path for the days, weeks, months and years ahead.

Meanwhile, Gordon Borrell will continue to apply his fascinating research to helping us understanding not only what’s going on today but also where that’s all headed.

Free Range Content Consumption

flytvsmHere is the latest in my ongoing series of essays, Local Media in a Postmodern World.

Free Range Content

Facebook’s wish to put media content inside its own application is potentially self-destructive to those providing the content. Moreover, for Facebook, it smacks of the days of AOL. All of this would be irrelevant, if media could bring itself to release its content into the wild of the Net, but that appears more and more to be an impossible task.

To media companies, their competition is and always has been other media, which is an absurd proposition online. When a TV station, for example, behaves online only as it does in the linear world, it has already lost in the battle for relevance.

Local advertisers to increase online spending this year

In what is clearly yet another threat to the health of the traditional local media business, a new survey from Borrell Associates reveals that advertising’s shifting sands have made their way to the local level. In preliminary results (1,800 participants) from an ongoing survey of thousands of small and mid-sized businesses (SMBs) around the country, the largest number — 57% — say they plan to increase online spending this year. That number is significantly higher than any other form of media in terms of increasing ad spending. According to Gordon Borrell, “If overall local ad budgets are increasing only about 10% in 2015, the high growth in digital is coming at the expense of other media choices – notably print.” Yellow Pages, newspapers, and magazines are the hardest hit media categories, with each being targeted for spending decreases of over 20% or more.

Click to Embiggen

Click to Embiggen

The most interesting aspect of this new Borrell’s survey is that the majority of those who advertise in traditional media channels say they’re in a holding pattern on those expenditures this year.  That is, 51% to 65% of them said their print, broadcast or outdoor ad budgets would probably remain the same in 2015.  

(NOTE:  These results come from surveying active advertisers in more than 100 markets across the U.S.  If you’d like to know how YOUR local advertisers compare with these results, the Borrell survey will remain open until April 15th.  To participate in Borrell’s massive SMB survey, contact Greg Harmon at gharmon@borrellassociates.com.)

VCs find value where traditional media can’t won’t

money2smThe venture capital research firm CB Insights reported this week that VCs are “Bullish on News: Funding to Media/Fat Content Startups Jumps 145% YoY.” Although it appears on the surface to have nothing to do with traditional media, that’s illusionary. VCs are always looking for problems to solve, and the problem here is where, how and through whom people everywhere get their news. And it’s really not so much about content as it is money, for the Net isn’t disrupting content, it’s taking money from local communities. That includes the pockets of traditional media.

According to CB Insights data, “digital news and media companies raised $813M in 2014. In 2013, startups in the space raised $331M.”

Investors appear bullish that the new wave of media startups relying on digital technologies can create sustainable (and hopefully lucrative) business models. One such investor, Chris Dixon, a partner at Andreessen Horowitz, wrote after a $50M investment into Buzzfeed:

I believe the future of BuzzFeed – and the media industry more generally – will only get brighter as the number of people with internet-connected smartphones grows, and the internet solidifies its place as the central communication medium of our time.

That’s $813 million that traditional media companies didn’t wouldn’t spend on development, because, in part, they’re convinced their brands will always give them a seat at the marketplace table. Meanwhile, what’s really happening is that, unrestrained by competition, pureplay websites continue to siphon off millions of dollars from the neighborhoods of legacy media. This has been the constant caution of Borrell Associates research data for the past 15 years. Newspapers are dying, and local television is being artificially propped up by cable retransmission fees, while their corporate owners are unable to respond with anything other that defensive comments.

I believe this will continue unabated, until something like private local ownership of media is resurrected and stems the tide. I just don’t see it happening any other way.


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?