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Analysts: Newspapers Could Lose $4 Billion to Internet

Web Continues to Siphon Away Classified Ad Revenue

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SAN FRANCISCO (AdAge.com) -- Newspapers' long-secure classified ads business has already eroded noticeably and could ultimately cost newspapers about 9% of its total ad revenues by 2007, two executives from consulting giant McKinsey & Co. told attendees of the Newspaper Association of America's annual conference yesterday.

The newspaper industry's traditional lock on classified ads as its key revenue source is being seriously eroded by non-newspaper online classified ad sites.

Luis Ubinas and Jochen Heck warned that newspapers could lose $4 billion of "highly profitable" classified revenue by 2007 -- or around 20% of newspapers' 2004 classifieds revenue and just under 9% of the $46.6 billion in total newspaper ad revenue last year -- if trends that afflict help-wanted classifieds spread to automotive and real-estate classifieds.

Better than printing money
It's hard to overstate the importance of classifieds to newspapers' bottom lines. Those pages of pure agate type are so profitable that, according to Mr. Ubinas, one newspaper executive said classified ads were a "better business than printing dollar bills."

But the proliferation of online sites as diverse as monster.com, realestate.com and craigslist.com has substantially complicated newspapers' hold on the format. "Once upon a time, classifieds was the exclusive property of newspapers," said Mort Goldstrom, the NAA's vice president of advertising. "That time is over."

The chilling part, Mr. Ubinas said, is that the key problem is not the competitors but rather what their pricing is doing to the entire classifieds model, calling it "price destruction."

Another chilling fact: "Online is capturing all the growth," he said.

The Internet effect
A McKinsey analysis, Mr. Ubinas said, showed that an "Internet effect" began affecting help-wanted classifieds as early as 1995 and has resulted in an ever-widening gap between what historical trends would portend as expected help-wanted linage and what help-wanted's true results were. In 2003, Mr. Ubinas reported, help-wanted classifieds were off 50% from levels that would be expected had decades of previous trend lines held true.

The dire prediction of huge revenue losses by 2007 would occur if these trends spread to automotive and real estate classifieds.

How to fight back
"Newspapers have valuable assets" in the classifieds space, Mr. Heck said. "But online is replicating them." Newspapers could fight back, Mr. Heck said, if they adopted tactics like maintaining market share "at all costs"; putting compelling content around listings; automating many ad-ordering processes; and developing a finer understanding of what makes local markets tick.

"It's not too late" to recover, Mr. Goldstrom said, "but the door of opportunity is closing quickly."

Not all attendees were so optimistic. One, heading down the corridor after the presentation, was overheard telling a colleague he now feared the classifieds business "would never come back" to where it once had been.

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