Borrell’s Blog

by Kip Cassino

Anyone who has watched “lifeboat” movies knows how they progress. As the days lengthen, the crew stretches rations to a few morsels of food and a single sip of water. The weak are cast into the sea as they swoon. But, eventually, the rations run out and the remaining survivors begin to look to each other as the awful remaining alternative.

To some extent, that grim scenario is playing out in the media industry. Newspapers, for example, have cut staff to levels never contemplated in years past, in order to preserve the “core product.” But beyond the cuts, it’s pretty much business as usual, even though the ad categories responsible for the majority of past revenue – the auto dealers, department stores, real estate, and recruitment – have all continued to slip as the century nears the end of its first decade. But cuts assume that things will ultimately be better … that the lifeboat will be found, and those still onboard rescued. What if that’s not the case? What if the lost revenue is not coming back?

An evaluation of the trends driving the downturn in advertising spending for each of these categories does not hold promise for a return to the past. Without getting too technical, the statistics show the opposite: that there has been a break between past spending patterns and those in place now in every one of these ad categories. Return to the past is unlikely. Nor is it likely that some major new ad category will arise to take the place of the lost revenue. A look through the lists of businesses and their ad spending patterns does not show promise in any market, large or small.

There are no quick fixes for the current situation. There are indicators, however, that – when taken together – at least show the direction newspapers must go to regain their market strength:

1. Be aware of how you got here. Newspapers are in the situation that exists now because they chose to measure revenue and ignore share. So, when revenue dropped, the reduced share caused even greater reductions – unanticipated by past results.

2. Find out where the money is going. In both recruitment and real estate, the lost share did not all go to some online intermediary. In many cases, it moved to the advertisers’ websites themselves. This means the “Upsell,” the classic vehicle newspapers have used to become the largest local online advertisers in the markets they serve, is ending. The online money is now moving to paid search engine placement, e-mail marketing, online promotions, and streaming audio/video.

3. Play to win. That means measuring share, and looking to win it. Just counting money isn’t enough. If your revenue isn’t growing faster than the whole pie, even if it’s growing you’re still losing ground.

4. Get measured. Newspapers have the reputation among advertisers as resistant to measurement. Yet measurement is, increasingly, what advertisers demand. Programs to offer reasonable metrics in this area must be developed.

Newspapers are not going away, though they may change dramatically during the coming decade. However, the longer they continue their “lifeboat syndrome,” the more painful their transition will be.

~ KC

By Kip Cassino
Borrell Associates, VP Research

Two headlines caught the attention of Wall Street during the past week:

1. Newspaper revenue continued to slide, the victim of faltering classified ad sales.
2. Google’s revenues, though stellar, were below investment community expectations.

The former was really no surprise to any media industry observer. The latter was mildly surprising, unless you are a Borrell subscriber. If you are, you have known it was going to happen since this time last year, if not before.
Newspapers have been losing share of real estate spending for some time – since 2002 at least. However, the strong market for home sales masked the drop in share, since the revenue continued to rise. Only when real estate sales declined did the loss of share reveal itself. This same scenario has been played out twice before in the last decade: in 1998 with recruitment advertising, and in 2000 with department stores. Yet the newspapers continue to remain stubbornly surprised when it occurs. Online ad sales do not have the remedial effect they have had in past years, either. Spending on the “standard” online formats has slowed and will decline in many markets this year, as online advertisers turn to paid search engine placement, e-mail marketing, streaming audio/video, and online promotions instead.
That should be great news for Google. Indeed, it has been in the past few years. But paid search is changing, too. National paid search has reached its peak, and will now begin to degrade in favor of other online marketing choices. Local paid search is still very much on the rise, but brings less revenue with it. A local business seldom gets as many “hits” as a national brand. As localized search replaces unfocussed/”national” paid search, Google and others who rely upon this particular flavor of online marketing expenditures will see growth rates drop. That is, unless things change.
Change is endemic in online marketing. Trends that used to take years to appear offline erupt in months on the web. At Borrell, we spend most of our time examining and projecting the impact of these changes. It helped us get these numbers right, a year or more before they became headlines.
KC