It’s all about the ad market

Wash, rinse, repeatIt’s not about content; it’s about advertising. Rinse. Repeat.

The downward slope of the local media landscape continues despite a pretty good year for some sectors in 2010. Of course, those whose ox is being gored by business disruptions are doing their best to proclaim radiant glory, while those in the crowd gasp that the emperor has no clothes. Take, for example, the latest from comScore and the Newspaper Association of America (NAA), the trade association representing the newspaper business. A new study reported in NetNewsCheck.com reveals that newspaper websites reached, on average, 62% of adult Americans during the fourth quarter of 2010, including 58% of 25-to-34-year-olds and 73% of individuals in households earning more than $100,000 a year on average. Wow.

“Newspaper Web sites stand out in today’s online environment, with trusted brands and high-quality journalism attracting an impressive audience that sets them apart from other players in the digital space,” NAA president and CEO John Sturm said in a release. “As publishers continue to reinvent their business models, digital is at the forefront of a multiplatform transition that has seen steady growth in online advertising revenue.”

The NAA is just doing its job here, but the truth is these impressive stats are meaningless in the revolution that is advertising. They’re but a vague reminder of the way things used to be, back when reach and frequency were what really mattered and when sales departments moved blue smoke and mirrors along with their statistics. This is, in fact, reach without frequency, which is both the beauty and the curse of online stats. Anybody who has run a media website and paid close attention to the data knows that in any given month, a third of “unique visitors” visited the site less than three times, usually just once. If you’re lucky, the core readership (more than 9 times a month) of a legacy media site is about half of total unique visitors, but you can’t run sales emphasizing that. Precision is a two-edged sword. Add in banner blindness, and you begin to understand the futility of betting the ranch on a display advertising paradigm.

It’s not about content; it’s about advertising. Rinse. Repeat.

While this is going on, pureplay Web companies are stealing real dollars from the markets of newspapers (over half of all money spent locally), because they’ve taken the time and spent the resources to create better, cheaper mousetraps for local merchants. Look at Groupon or Reach Local or Foursquare or Google, and there are tons of others. Each offers a unique value proposition that takes much of the guesswork out of advertising, and this is where everything is heading. Those who continue to emphasize only impressions of ads placed adjacent to or interrupting content are doomed.

Here’s another example of futility from the newspaper industry, via Mathew Ingram at GigaOm:

In what feels like another attempt to put the Internet genie back in the bottle, three traditional media companies — the New York Times, the Washington Post and the Gannett chain, publisher of USA Today — have launched a new service called Ongo that they hope will convince readers to pay for their content, even though much of that content is already available for free. Although it has some interesting features aimed at compensating readers for sharing content, Ongo seems like yet another Hail Mary pass aimed at trying to rewind the clock and impose scarcity on media content, and one that will likely fail just as quickly as others have.

…The only way something like Ongo would really work is if everyone decided to put their content behind a paywall, and cut off their RSS feeds. Even if that were to happen, other sites or individual users would just log in to the pay service and copy the content and the post it somewhere, which others would then link to. Just like iPad apps and other similar approaches, Ongo is yet another attempt to reimpose the scarcity model that newspapers lost when the web first arrived. Although it might seem presumptuous to condemn something on the day it launches, this latest attempt seems almost certain to fail.

I would add that if newspapers did what Ongo offers, people would just move to other portals that are free. Legacy media doesn’t have a lock on the news anymore, because anybody can be a media company. Look at the success of MinnPost, the Web-only “newspaper” in Minneapolis. The company this week announced it had run a surplus, after just three years of operation. Its unique blend of contributions and advertising has turned a corner that many didn’t expect we’d see.

A $17,594 surplus on spending of $1.261 million may not sound like much. But this is tremendous vindication for our business model, because it resulted from 18 percent revenue growth, not budget-cutting.

We ran deficits of $605,000 in 2008, our first full year of operation, and $126,915 in 2009. (We were spending down the start-up funds we raised in 2007.) So it has taken us just three years to reach break-even.

Most notably, our advertising and sponsorship revenue rose 42 percent, from $217,734 in 2009 to $309,508 in 2010. That’s on top of a 35 percent increase the previous year.

MinnPost was a Web start-up, at a time when only start-ups could afford to experiment with new and different business models. It proves the point that while traditionalists are circling the wagons, pioneers are staking out claims in the new world. Free news and information will always be available, but more importantly, the money that used to support traditional reach and frequency is shifting to concepts that provide better bang for the advertiser buck. Media companies need to separate their passion for creating content from their ability to make money, or risk irrelevance downstream.

For a fascinating look about how pureplays view local revenue, read this article from TechCrunch. It’s an interview with the CEOs of Groupon and Foursquare called “Foursquare And Groupon CEOs On Cracking The Local Commerce Nut.” These are two well-funded pureplays who view your market as a nut to crack. Will we just stand by and let them?

Nobody knows the online ad business better than Dave Morgan. In an Online Spin commentary this week, the founder of Tacoda and Real Media painted a very real picture for everybody:

Everybody, from Google to micro-bloggers to smartphone companies, wants a piece of the local ad market, and a share of the $150+ billion annually that has typically been claimed by local newspapers, TV and radio stations, yellow pages and direct mail. That’s nothing new. Lots of folks drooled over the local ad market 20 years ago, too, but without getting any real traction. Today, however, it looks like we’re finally going to see a changing of the guard in local media.

To restate one of my controversial “Heatonisms,” legacy media is not in the content business; we’re in the advertising business. If we could just accept that, then we’d be free to move forward with creative solutions for local merchants instead of trying to hold mass marketing’s head above water. When I’ve said that to some media executives, I hear, “You’ll have a hard time convincing people around here of that.” Yep, and that’s the problem, precisely.

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