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.