Monday, April 08, 2013

Newspaper ad sales skid for seventh straight year

Advertising sales, the predominant revenue stream for the newspaper industry, dropped for the seventh year in a row in 2012, falling to less than half the record $49.4 billion achieved as recently as 2005.

More on that in a moment.  But first, let’s put things in perspective by comparing the meteoric rise of Google, the definitive digital media company, with the epic collapse that has cut the newspaper industry’s primary revenue stream by more than half since 2005:    

As you can see in the above chart, Google came out of nowhere in the early days of the millennium to create a revolutionary way of matching specifically targeted ads to specifically targeted consumers.  In less than a dozen years, this upstart start-up built a $46 billion advertising business that was twice as large last year as the combined print and digital ad sales of all of the 1,382 daily newspapers in the land. 

The stunning reversal of fortune for the newspaper industry, whose consolidated revenues last year fell 6.8% to $22.3 billion in spite of a brightening economy, reflects a long-running lack of imagination and initiative that publishers are attempting to reverse by paying fresh attention to digital advertising and, in many cases, imposing new fees for access to formerly free web and mobile products.  

To underscore the commitment to these new initiatives, the Newspaper Association of America, the trade group that annually reports on the industry’s financial health, argues fairly that “several” new categories of newspaper advertising are growing in spite of the long-term advertising decline.   

While this certainly is true in the case of such things as digital subscriber fees – which largely did not exist a couple of years ago – and interactive marketing services, the fact is that the combined advertising and circulation revenues of the industry, which accounted for 84% of aggregate sales in 2012, totaled $32.7 billion last year vs. $60.1 billion in 2005.  By any measure, the newspaper business is half the size today that is was seven years ago.   

Notwithstanding a modest uptick in the broad economy, newspaper ad sales last year fell to a level not seen since 1983. The difference between then and now is that $22.3 billion in 1983 dollars would be worth $ 50.6 billion today. Revenues fell in every print category: 

∷ National slumped 11.7% in 12 months to $3.3 billion.  This is 58% lower than the $7.9 billion recorded at the industry’s peak in 2005.  

∷ Retail slid 7.6% to a tad under $11 billion.  This is 50% lower than the $22.2 billion posted in 2005.

∷ Classified stumbled 8.0% to 4.6$ billion. This is 73% lower than the $17.3 billion reported in 2005. 

The only bright spot for publishers is that their digital advertising revenues gained 3.7% in 2012, generating an aggregate $3.4 billion in sales.  But the digital-advertising growth at newspapers last year – as well as in the prior 10 years – pales in comparison to Google’s bodacious growth in the same period. 

As illustrated in the green line in the chart above, the digital sales at newspapers and Google started out almost even in 2003 at $1.2 billion for newspapers and $1.5 billion for Google. Google’s sales doubled in 2004, handily outstripping newspapers, and then kept compounding to the point that Google’s sales were nearly 15 times greater than newspaper digital revenues in 2012.  

While Google and newspapers admittedly operate in different realms of the advertising business, a comparison of their respective performance is both fair and instructive: 

Newspapers (along with magazines, billboards and broadcasters) represent the traditional but inefficient “reach” model of advertising, which depends on spreading a commercial message to as large an audience as possible in hopes of connecting with qualified customers who happen at the moment to be receptive to it.  Google, on the other hand, represents the highly efficient “each” model of advertising, which lets marketers put customized commercial messages next to only the results of searches containing specific keywords they have selected to target their ads. The Google system not only enables marketers to target exactly the right prospect at the right moment but also makes it remarkably easy to monitor response rates and, thus, measure an ad’s return on investment in real time. 

While there is no known way for print publishers or broadcasters to provide a similar form of targeted advertising to specific individuals in their audiences, most newspapers, magazine publishers and broadcasters made the fateful mistake when the Internet came along in the mid-1990s of exporting the “reach” model of their legacy media to their products they created for the web and, subsequently, smartphones and tablets. 

Instead of investing in the technology necessary to gather customer data and target advertising on the emerging digital platforms, legacy publishers and broadcasters  – whether for want of insight, resources, skill or conviction – ceded the opportunity to Google and a host of other digital natives who understand that targetable customer data – not masses of unknown and undifferentiated eyeballs – is the Holy Grail of digital publishing.  

In fact, the high cost and imprecision inherent in “reach” marketing is an utter turnoff for a growing number of marketers, who want to establish direct and long-lasting relationships with known customers, so as to efficiently promote purchases through well-honed individualized offers.  As one example of this thinking, one major advertiser candidly confessed here  to his desire to stop buying inefficient newspaper advertising as soon as possible.   

The soaring growth of Google’s sales and the corresponding repudiation of print newspaper advertising objectively demonstrate a clear and growing preference on the part of marketers for “each” vs. “reach” advertising.  And the velocity of the shift, as illustrated in the above chart,  has been dramatic:  

When the NAA first started tracking digital sales in 2003 (nearly a decade after the commercial arrival of the Internet), the aggregate print and digital ad revenues of all the nation’s newspapers were 30.7 times greater than Google’s annual sales. When aggregate newspaper ad revenues peaked in 2005, their annual sales were 7.7x greater than Google’s.  As aggregate newspaper ad sales fell and Google’s revenues rose, Google and newspapers were neck-and-neck in 2009.  Google overtook the combined ad sales of all the newspapers in the United States in 2010 and has been on a tear ever since, outselling publishers by 1½x in 2011 and by 2x in 2012.       

Though publishers from time to time have blamed Google for taking advertising away from them, the fact is that newspapers, magazines and broadcasters never developed products to compete with Google, which now is applying the highly effective principles of keyword-targeted search advertising to banner, video and mobile advertising.  In so doing, Google and its fellow digital publishers are developing ever-richer profiles of individual users to help advertisers acquire, retain and transact business with customers more efficiently than possible in the past.   

As Google and other digital publishers move forward, newspapers and other legacy media companies for the most part have not committed to the bold investments in talent and technology required to deploy the contemporary and competitive digital products necessary to serve the readers and advertisers they want – and need.  

If the print advertising business continues to contract in the future, publishers will have even fewer resources than they do today to transform themselves into true digital publishers.  The market has voted. What are they waiting for?

3 Comments:

Blogger chuckl said...

They still probably make more $$ from print ads than digital. What does that tell you?

6:36 PM  
Blogger Marc Matteo said...

They still probably make more $$ from print ads than digital. What does that tell you?

They suck at it?

10:09 AM  
Blogger Sajith Pai said...

Alan, I had commented on this on a twitter post as well, but just in case you missed that : You are comparing Google's global ad rev to the US newspaper ad market. That doesnt seem right. My estimates are that Google's US ad rev is anywhere from $16.6 to $23b (for '12) basis their 10-K. I know it is a wide range, but Google doesnt break this out specifically, so there is a bit of guessing that has to be done. If so at the higher end of the range, it would only be just above the US newspaper market, and at the lower end of the range, it would be lower than the US newspaper ad market.

1:08 AM  

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