The current ad model won’t be enough

A report from Bloomberg cites data from the Newspaper Association of America revealing that 1st quarter online revenue for newspapers increased 4.9% to $730 million. Nice, huh? It’s the first such increase since 2008 and is in sync with a Borrell Associates’ prediction that newspapers would bounce back online this year. It may be a dead cat bounce, but it’s a bounce just the same.

In a statement, NAA Chief Executive Officer John Sturm provided spin with a smiley face, “While broad, macroeconomic factors indicate we are not out of the woods yet, NAA is encouraged by the improvements we are seeing in newspaper ad spending.” Right.

That’s hard to believe, given the other piece of news from the report isn’t so encouraging. Traditional newspaper revenue fell 11% in the quarter to $5.25 billion. So while executives look at the headline, the acid build-up in their stomachs continues unabated, for what is a net $34 million gain online compared to a net $676 million loss in print?

So the problem is that while online revenues are growing again, they’re just not growing fast enough to offset other losses and avoid the disaster ahead. That is not supposition; that is a fact. Here’s the matter in graph form:

source: NAA newspaper expenditures report
Source: NAA’s Annual Newspaper Ad Expenditures Report

Despite every effort on the part of print companies, the print “problem” is acute. Subscriptions via tablets may provide some relief — at least the incentive to eventually scrap the printing press — but something new has to happen, or the industry is going to collapse entirely.

This is why we continue to emphasize the need for local media companies to completely reinvent online selling through local ad networks. We have to create our own demand and be willing to adopt strategies — such as flat rates — that, while less sophisticated than Madison Avenue wants (cough, cough), tilt the revenue balance in our favor instead of theirs. We must be willing to admit that we were wrong, that we’ve been fooled by an advertising industry that stole control of supply and demand from us while we were busy taking orders in what seemed like a revenue-rich no-brainer.

I’ll be talking much more about the value of flat rates in the weeks and months ahead.

UPDATE: Please note Gordon Borrell’s “mild correction” in the comments.

Comments

  1. Mild correction: The prediction from Borrell Associates that you’re referring to (from August 2009) was that newspaper PRINT revenues would bounce back in 2010. Online revenues will also bounce back a bit, but as you astutely point out, they don’t make up for the print revenue losses. Our forecast — which nine months later is right on target, I’m proud to say — has newspaper print revenues ending up the year 1.6% ahead of last year, and basically continuing to be up by that amount in 2011, 2012, and 2013. The BIG problem for newspapers (and broadcasters) is that everyone still believes in the myth of convergence. They use their newsrooms to decide Web and mobile strategies and their current sales staffs to sell advertising around it. Bad model. Completely reinventing online selling is a very good idea, Terry. Ad networks and flat rates are a part of that strategy.

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