Google, MSN, and Yahoo and other aggregators are cited by newspaper executives are harming newspapers. But what have they actually done? It is important to have a realistic understanding of their effects if one is to fashion strategies for the future of newspapers and news organizations.
Aggregators carry news stories from major news services and thus make international and national public affairs, entertainment and sports news widely available. The headline news on the aggregators’ home pages is becoming the primary news provider for those less interested in news and the online sections are well-used by news consumers who want more news or more timely news than appears in their daily newspaper.
Aggregators and others sites carrying content from news services are now contributing about 20 percent of the revenue of Associated Press, for example, taking some financial pressure off newspapers to fund the cooperative on their own. Other news services are also gaining income from online operators, thus helping them keep prices lower for newspapers as well.
So how do aggregators news harm newspapers? They harms papers to the extent that some less committed newspaper readers are willing to substitute their local paper with a news sources that don’t cover their cities. Some are willing to do so and this is taking some subscribers and single copy purchasers away from newspapers. U.S. newspapers have lost approximately 6 million circulation since 2000, but about half of that was circulation of the 70 competing newspapers or second editions papers that have been closed since the millennium. So one can thus say that at least 3 million people have decided to use other news sources.
Aggregators are also accused of STEALING value through their search functions and links to newspaper sites. Certainly the aggregators are CREATING value with the technique but are they taking value in violation of copyright or norms of content use? The answer is “no” because they do not represent the material as their own and direct those searching to the newspapers own sites, where they are exposed to advertising sold by the online newspapers.
Newspapers are now getting between 7-10 readers online for every reader they have in print. This plays an important role in making their sites attractive to advertisers, a development that generated the $3.2 billion in online advertising revenue that newspapers received in 2008.
Newspapers, of course, could stop the aggregators from linking to their content by putting it behind walls and charging for its use. If they did so, the aggregators could not link to it legally or technically without users encountering a pay or registration wall. So why haven’t newspapers done this until now? Frankly, because they get more readers and more advertising income by offering the material free.
Publishers are increasingly arguing that they should turn newspaper sites into paying sites and they have been holding joint discussion about how that might happen and whether it would be beneficial to do so simultaneously. This has raised some antitrust concern, but it raises real and significant questions of what such a strategy would accomplish.
In my estimation it is not as easy answer to the challenges newspapers face and has some elements that put its effectiveness in doubt. This is primarily because it is uncertain what existing readers will do. Will they subscribe to print AND online? Will they stay with print only? Or will they drop print?
The first option would be financially beneficial, but is likely to attract a limited number of readers unless the joint pricing is so attractive that it produces little new income for the newspaper firm. If that is the case the benefit of the strategy is reduced. The latter option would be very damaging to papers because print advertising creates more value than online advertising and prices for print ads would decline more than would be gained online.
It also needs to be recognized that people who do not currently buying newspapers are unlikely to buy subscriptions to online news sites. Thus, creating a paid model will likely reduce the boosted audience that free online news currently provides. This would have a negative effect on online audience and the increasing revenue that is being obtained from online advertising.
But what of heavy news users? As I have written in other entries in this blog, heavy users tend to be promiscuous and move between many online news sites. A commonly used system for micropayments would be necessary or these heavy users will reduce their use of multiple sites if each requires separate payment registration. Even with such a system in place, it is unlikely that more than 5-10 percent of the newspaper purchasing population would regularly use such a system.
Moving to a paid online model will not be as easy as agreeing that everyone should switch to paid on January 1 next year. It will require considerable strategic thinking and providing new types of value for consumers if it is to be successful. Even then, the benefits for newspapers will vary significantly depending upon the size, location, and competitive situation of individual newspapers.
Friday, 17 July 2009
Wednesday, 8 July 2009
THE POOR CONNECTION BETWEEN INTERNET ADVERTISING AND NEWSPAPER WOES
Self deception is more damaging than lies told to us by others because it more strongly affects our perceptions and decisions. One of the biggest self deceptions in the newspaper industry today is that the Internet is striping newspapers of advertising dollars and is a primary cause of its economic woes.
There is no question that Internet is increasingly attracting advertising revenues. They reached $23.4 billion in the U.S. in 2008. Looking at the numbers more closely, however, one sees a different story. About half those expenditures are search and lead generation fees that don’t compete with traditional newspaper advertising. Search payments alone are the single largest category of Internet income and represent 40% of total online fees.
Internet classified advertising—the direct competitor to newspaper classifieds—has never exceeded 20 percent of online advertising revenues and it is declining as a percentage of the total. Online classified advertising was $3.2 billion in 2008, about one third of the classified advertising expenditures in U.S. newspapers. Nevertheless, some newspaper executives and industry observers act as if all the online classified revenue has been diverted from newspapers, but the evidence of that is not very persuasive. As this figure shows, between 2003 and 2006, Internet classified grew considerably, but newspaper classifieds not only held their own but increased as well. Clearly there has been a significant decline in the past 2 recession years, but there is no evidence it is shifting to online classified advertising.
U.S. NEWSPAPER AND ONLINE CLASSIFIED EXPENDITURES, $ BILLIONS
If one considers annual gain or loss of classified advertising in the two media one sees that the patterns do not indicate any substantial demand side substitution (advertisers switching from one to the other) because the figures do not rise and fall in the same patterns or in somewhat similar amounts.
NET GAIN/LOSS FOR NEWSPAPER AND ONLINE CLASSIFIEDS, $BILLION
So why does the Internet constantly get the blame for newspaper woes? I believe it is because of it is just the newest in a series of threats to newspaper revenue. The Internet certainly is taking some money from newspapers, but it isn’t the worst culprit. The real competitor is direct mail and home delivery advertising that have taken much preprint and display advertising from newspapers in recent decades by delivering better household reach. That was compounded by the significant reduction in the number of large retailers in the late 1990s and 2000s. The development of the recession in 2007 and 2008 is currently playing the major role because newspaper advertising—especially classifieds—is more strongly affected by recessions than other types of advertising. But recessions come and go and there is no reason to believe that an advertising recovery will not accompany an improvement in the economy.
I don't mean to say that some former classified advertisers are not shifting to online sites, or starting their own company sites, allowing allows them to market more inexpensively. But newspapers can strive to get them back and to keep others from leaving by aggressively marketing to those people and firms and by creating effective print and online newspaper classified packages that provide more effective advertising responses for them.
The end for newspapers is not in sight and those who think that the $50 billion industry is going to collapse and disappear within a year or two because of Internet advertising are just not paying attention close enough attention to what is really happening across media industries.
There is no question that Internet is increasingly attracting advertising revenues. They reached $23.4 billion in the U.S. in 2008. Looking at the numbers more closely, however, one sees a different story. About half those expenditures are search and lead generation fees that don’t compete with traditional newspaper advertising. Search payments alone are the single largest category of Internet income and represent 40% of total online fees.
Internet classified advertising—the direct competitor to newspaper classifieds—has never exceeded 20 percent of online advertising revenues and it is declining as a percentage of the total. Online classified advertising was $3.2 billion in 2008, about one third of the classified advertising expenditures in U.S. newspapers. Nevertheless, some newspaper executives and industry observers act as if all the online classified revenue has been diverted from newspapers, but the evidence of that is not very persuasive. As this figure shows, between 2003 and 2006, Internet classified grew considerably, but newspaper classifieds not only held their own but increased as well. Clearly there has been a significant decline in the past 2 recession years, but there is no evidence it is shifting to online classified advertising.
U.S. NEWSPAPER AND ONLINE CLASSIFIED EXPENDITURES, $ BILLIONS
If one considers annual gain or loss of classified advertising in the two media one sees that the patterns do not indicate any substantial demand side substitution (advertisers switching from one to the other) because the figures do not rise and fall in the same patterns or in somewhat similar amounts.NET GAIN/LOSS FOR NEWSPAPER AND ONLINE CLASSIFIEDS, $BILLION
So why does the Internet constantly get the blame for newspaper woes? I believe it is because of it is just the newest in a series of threats to newspaper revenue. The Internet certainly is taking some money from newspapers, but it isn’t the worst culprit. The real competitor is direct mail and home delivery advertising that have taken much preprint and display advertising from newspapers in recent decades by delivering better household reach. That was compounded by the significant reduction in the number of large retailers in the late 1990s and 2000s. The development of the recession in 2007 and 2008 is currently playing the major role because newspaper advertising—especially classifieds—is more strongly affected by recessions than other types of advertising. But recessions come and go and there is no reason to believe that an advertising recovery will not accompany an improvement in the economy.I don't mean to say that some former classified advertisers are not shifting to online sites, or starting their own company sites, allowing allows them to market more inexpensively. But newspapers can strive to get them back and to keep others from leaving by aggressively marketing to those people and firms and by creating effective print and online newspaper classified packages that provide more effective advertising responses for them.
The end for newspapers is not in sight and those who think that the $50 billion industry is going to collapse and disappear within a year or two because of Internet advertising are just not paying attention close enough attention to what is really happening across media industries.
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