$43.6B U.S. agency revenue
Although it is still in the test phase, newspaper and advertising executives are responding favorably to Google's newspaper ad program that allows advertisers to go online to bid on ad inventory in daily newspapers.
However, once the test wraps up at the beginning of February and the program is expanded, there will be some tough questions to resolve. These include whether the program will prompt smaller advertisers to seek lower ad rates from newspapers; what impact, if any, it will have on ad agencies; and, perhaps most important, how Google and participating newspapers will divvy up revenue.
"There could be a fight [over revenue] if the program has legs," said Chuck Richard, VP-lead analyst at Outsell Inc., a market research and advisory company that focuses on the information industry. "But if it's just casual chump change no one will fight over it."
For now, newspapers are collecting all revenue generated from the ad program, said Tom Phillips, director of print ads at Google. He said Google will expand the program in the next few months, and within that time he hopes to hammer out a revenue-sharing plan with the newspapers.
The program, which currently includes more than 100 advertisers and 66 newspapers, is designed to help newspapers sell print advertising to smaller advertisers that buy Internet ads from Google and have generally been priced out of the newspaper advertising market. Advertisers bid on when and in which newspaper sections they want to run their ads. Newspapers can accept or reject the proposals.
Phillips said early returns from the program have been positive and that the top five newspaper participants in the program are getting several bids a week from advertisers.
Daily newspapers in the program include many of the nation's largest dailies, including the Boston Globe, Chicago Tribune, The New York Times, Philadelphia Inquirer and The Washington Post. Advertisers have included Avis Rent a Car, Budget Rent a Car System, Intelius and Register.com.
"There is a class of advertisers that loves using search marketing [to buy ads] for a number of reasons: They can set the parameter for the ad campaign; they can put in bids and do it on a scale [that] only electronic media can provide," Phillips said. "To go into our system, bid on what newspaper media you want to buy for the next three months and which sections, and do it all through one interface is very compelling."
Most of the ads being offered in the program are quarter-page or smaller, but newspapers can offer any ad size.
Denise Warren, senior VP-chief advertising officer at the New York Times Media Group, said The New York Times is limiting the program to quarter-page or smaller units "because we can sell bigger space on our own." She added that the program is generating ad revenue the Times would otherwise not get, but said she did not yet "have any revenue expectations" because the program was still too new.
"The benefit [of the program] is for advertisers too small to afford an agency but who need the leverage that Google's self-service can provide," Warren said, adding that the program so far has "exceeded our expectations."
Randy Bennett, VP-audience and new-business development at the Newspaper Association of America, which represents newspapers that control 87% of the U.S. daily newspaper circulation, said the program could eventually provide a financial windfall for newspapers. "If a network is created that streams revenue to newspapers that previously was off limits to them, it could be a huge positive for newspapers," he said.
Still, Bennett said, the newspaper industry has some concerns about the program. "Will Google start to do business with our larger advertisers?" he asked. "And if Google starts to move smaller advertisers up the food chain and becomes an intermediary for traditional newspaper customers, that could have a negative impact."
Google currently owns the relationship with any advertisers participating in the newspaper program, "but if the advertiser wants to go directly to a newspaper, Google will not stand in the way," Phillips said.
Ken Doctor, lead analyst at Outsell, who covers the news industry, agreed?in theory. "Google can say, `Talk to anyone you want' but then come back and offer a suite of advertising services that newspaper publishers can't offer," he said. "Google has a number of hooks to keep the customer."
Negative effect on ad rates?
Doctor said that depending on how it evolves, Google's newspaper ad program could have a negative effect on newspapers' ad rates. "A full-fledged Google program will put pressure on pricing of [newspaper] ad rates, and that's something that publishers have to be concerned about."
The Google program is also expected to shake up how ad agencies buy newspaper ad space.
"It will make life easier for advertisers but a little more difficult for agencies," said Gene DeWitt, president of DeWitt Media Strategies. "Google could push some agencies out of business or change the economics" within ad agencies that do a lot of newspaper ad buys. "If advertisers figure out how to make newspaper buying more efficient, they can take it in-house and pay Google a dime instead of agencies a dollar. It's a media department on a laptop."
The newspaper program is part of a wider effort by Google to transform the delivery of traditional advertising. It has created a similar program for radio spots using its dMarc Broadcasting subsidiary and last year started to test selling ads for both consumer and trade publications.