Following the frogs in the pot

It’s important that we closely watch events and trends within the newspaper industry, because it is a harbinger of things to come for broadcasting, sort of a canary in the mine shaft.

Some observers argue that broadcasting’s collapse won’t necessarily follow newspapers, because, well, TV isn’t newspapers and vice-versa. This is a shallow interpretation of what’s taking place, because it isn’t newspapers OR television that’s being whacked by disruptive influences; it’s the model of mass marketing that’s the problem.

This is why I have been shouting for years that local media companies will never — repeat NEVER — recoup losses to their legacy platforms’ business model by shifting that model online. This is because traditional ad methods follow the path of scarcity, but abundance is the rule-of-thumb online.

Mass marketing requires scarcity in order to create demand. Reduce the supply, increase the demand; it’s as old as the modern culture. But online, the demand side now plays a major role in creating its own supply — and this is especially true of businesses supported by advertising, a.k.a. the media. Fragmentation, disintermediation, the ability to unbundle content from form, and the personal media revolution have all created an abundant, customer-in-charge world for media, one in which pure reach-frequency ad models won’t work.

Some argue that the Wall St. Journal proves this is incorrect, but if corporate America didn’t pay the subscriber fees instead of the subscribers themselves, the WSJ would be in the same boat as everybody else.

There are two stories in the news about newspapers that bear comment. A Reuters’ report shows that online revenue growth for newspapers is slowing, and a story in the San Francisco Chronicle about Yahoo’s alliance with a consortium of newspapers looks like a solution. Both of these articles take a generally desperate view of the revenue situation for papers, and they contain clues about the truth of what’s happening, if you have eyes to see it.

Let’s look at this consortium first. When you cut away all the details, the deal is essentially what television station websites have been a part of for a long time — creating strength for national advertising by combining to function as a network. This “pulling together” is good for the network but not so good for its individual members, primarily because no network of out-of-market users can deliver the kinds of eyeballs that local advertisers want. The balance sheet may look good for a few minutes, but it is not the salvation that the consortium seeks. It is, however, quite a deal for Yahoo, because they can accustom local users to the idea that Yahoo — not the local media company — is the place to go for local news.

I know I’ve said all that before, and a few paragraphs of this particular story suggest that this consortium is something very different. It’s not.

Publish globally, sell locally.

That’s the key to an alliance between Yahoo and a consortium of newspapers…whose local sales forces will start selling online advertising using Yahoo technology to target ads over the Web — showing shoe ads to frequent shoe shoppers, for instance.

No dollar terms were announced and details remain fuzzy, but …Yahoo Chief Executive Officer Terry Semel…(said)…it will help create an unparalleled solution for local and national advertisers.

Behind his comments lie billions of dollars in local online advertising that Yahoo and its newspaper allies have decided to sell together because neither can get that money alone, said Lincoln Millstein, senior vice president for Hearst Newspapers…

“We’ve come to the conclusion that we’ll never build (ad technology) platforms as robust as them and they have come to the conclusion that they will never develop the sort of sales resources we have,” Millstein said.

…Wes Jackson, president of the interactive division of Belo Corp., one of the leaders among the 12 chains that put together the deal, said the alliance should bring money to the newspaper side — just not enough in and of itself.

“We wouldn’t be doing this deal if there weren’t meaningful economics,” he said. “I don’t necessarily say this is a savior play for the newspaper industry. I say this is an incredibly powerful play for our newspaper Web sites.”

In a nutshell, the papers will use Yahoo’s targeting technology to put their local advertisers in front of potential customers, but because this will take place “on” Yahoo, there’s no guarantee these will be the customers they’re actually seeking. Local media needs targeting opportunities using databases of local users, not global users, and they need to get 100% of that revenue.

But look what Yahoo gains! As each day goes by, the Yahoo “audience” gets more and more accustomed to the idea that Yahoo is a one-stop shop for local news. Moreover, those advertisers to whom the local newspapers are selling also get used to the same idea.

This is certainly, at the very best, a potential, short-term revenue shot in the arm, and investors will be happy for a few quarterly reports. In the long run, however, it’s yet another up tick in the stovetop water temperature beneath the pot of frogs formerly known as the newspaper industry.

The Reuters story appears to be just another ominous sign that the industry is in trouble, but this one is a knife to the heart, because it evidences through reports released this week that the industry’s overarching online strategy is failing. Rapid online revenue growth obtained through reach/frequency ad plays has begun to slow, and this will have a domino effect in the months ahead.

U.S. newspaper companies have pinned their hopes on their Web sites and other Internet-related assets as circulation falls and advertisers shift their spending elsewhere.

The big question is when online revenue would make up for what they are losing in print.

This week’s results suggest that the transition “is going to be slower and perhaps less profitable than newspapers have anticipated,” said John Morton, a longtime newspaper analyst and president of Morton Research Inc.

Again, my money is on the belief that online revenue of the sort the industry is currently pursuing will never make up for what newspapers are losing in print.

There’s plenty of spin in the article, but I want to point out once again that the essential problem for all local media companies is their insistence in the belief that a model of scarcity online will generate the kinds of revenue needed to offset losses to legacy platforms. This is an illusion, and it’s why local media companies need to diversify and “become” entrepreneurial internet companies in order to fully survive.

We cannot rely only on our brands and our content to pull us through this transition, because it is impossible to scale content in an environment of abundance. Moreover, content is the wrong end of the information value chain online; the “right” end is the aggregation of content, which is the role Yahoo, Google, MSN, AOL and the other internet pureplays possess. The longer we wait to aggregate the local web, the more we accelerate our own demise.

Let us in broadcasting not be fooled by the notion that video is different than text online. It is, but it isn’t. And where it isn’t is what matters.

Trackbacks

  1. […] Terry Heaton’s take on the Yahoo/Amigos deal and other attempts to make up for lost print revenue with online advertising dollars turns on this point: “…the essential problem for all local media companies is their insistence in the belief that a model of scarcity online will generate the kinds of revenue needed to offset losses to legacy platforms.” […]

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