TV and Radio Web Sites Giving Newspaper Web Sites A Run For The Local Advertising Spend

Philip Stone September 18, 2008

More than a year ago ftm warned newspaper publishers that local television and radio were getting their Web act together and were nipping at newspaper web site revenues, and a new report out this week confirms just that. If newspapers want to get back the web revenue growth they desperately need then they need to change how they do things, not just editorially but on the advertising front, too.

A new report, “Valuation Metrics for Local Web Sites” confirms slowing newspaper web growth while TV and radio are roaring forward. While local newspaper site revenues have grown a third since 2002 and are expected to reach $3.7 billion this year, local TV sites have grown their revenue by two-thirds during that same period and radio has grown 70% since 2003. True, TV online revenue is only about a third of newspaper online revenue but it’s just a matter of time, if things don’t change, before the two revenue lines cross, especially since in Q2 newspaper online ad revenue growth went negative compared to a year ago, and there is nothing to indicate that won’t continue.

Borrell/BIAfn

What’s TV’s secret? For one thing, for obvious reasons they really understand video advertising while newspaper sites are still flogging display banners. Newspaper web sites that have a dedicated video sales person, or people on staff dedicated to shooting video ads are few and far between.

And getting into video advertising now is really important because, according to the report from BIA Financial Network and Borrell Associates, while banner ads and classified listings today make up about 50% of a newspaper web site’s ad revenues, projections are those types of ad revenues will drop dramatically within five years and by then streaming audio and video advertising will be all the rage. Newspapers need those skill sets now.

“Specifically, their reliance on revenue from classified and display advertising will continue to result in slower growth rates over the next few years than what they experienced a few years ago," the report said. "Additionally, nearly one-third of their Web clients are local real estate companies and automobile dealerships, two categories of retailers that are cutting back their overall advertising outlays."

JP Morgan just this month reduced its 2008-2009 online spending forecast and specifically stated that that display ads will suffer the most. All the more reason to be ready with video.

For newspaper publishers the dilemma of slowing web revenue growth comes at a time when their web properties more than ever need to earn at least as much as the ad losses from print. But that is plain just not happening – for most newspapers web revenue today makes up around 5%-10% of total newspaper revenue and that is projected to increase to only 7%-13% by 2011. Getting web revenues to 50% of overall revenues seems but a distance dream.

Meanwhile big groups like Gannett and McClatchy are reporting 17% downturns in their monthly print advertising revenues – classifieds are much worse – and since the web is said to earn only about 12 – 14 cents for every dollar print loses there’s a huge gap that has to get filled as quickly as possible.  

"Unfortunately people have tied online too closely to their legacy media which is in decline," Gordon Borrell, CEO of Borrell Associates, said. "That's just hitching their wagon to a falling star." In other words, his advice is to treat online as a separate business, not an extension of the legacy business. An obvious question which no one can really answer yet is how long will it be before the legacy business becomes an extension of the online business?

But that kind of thinking accentuates why newspapers, if they are to have truly successful web sites, need to invest in staff dedicated to that online product. That means that a web advertising sale is not just an add-on to a newspaper print sale, nor that just legacy newspaper clients are approached for ad sales, but rather there is new blood out there dedicated to finding new ad customers and promoting online ad campaigns.

But Borrell thinks that’s a culture publishers just don’t buy into. “Most of them feel this is a convergence opportunity and convergence to them means they don’t need to hire new staff,” Borrell said. That may well be to their peril.

In the overall picture newspapers today are currently getting about 11% of total web advertising revenues. That’s better than TV and radio (about 3%) but TV-radio is expected to grow to 10% in three years giving newspaper a real run for their money, unless newspapers start changing the way they do things on the web.

One thing for sure – whatever newspapers have invested in building their web sites has not, and will not, go to waste. The report puts the median price of a newspaper web site at $3.5 million with some of the really big sites worth into the hundreds of millions. Indeed value multiples for web sites may be much higher than the legacy business, according to Mark Fratick, vice president of BIA Financial Network.

“Obviously, there are fundamental changes taking place in the value of media properties, with the value of their websites becoming more meaningful as a percent of total value,” Fratick said. “Given their growth potential, the value multiples of media websites may be two to four times that of the core business.” 

And it’s not just the TV and radio web sites causing advertising slippage at newspaper sites. The so-called “pure play” sites now account for more than 53% of local online revenues  whereas the report says by the end of the year newspapers will have just a 27% share of local online ad dollars.

In other words, it is not a captive newspaper web market out there. Newspapers have plenty of things going for them, not least their brand, but there are others out there latching onto the local spend that more rightly should be going in the newspapers’ direction.

Take a look in your own local market who is spending on local Web advertising  but is not advertising in print,  who is getting that money that should be flowing to the local newspaper, figure out why it is not going to you, and then draw up a plan to go get it. Time is running out!

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