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Mounting Web Woes Pummel Newspapers

Slipping Digital Ad Revenue, Emerging Content Farms Present More Challenges for Struggling Industry

By Published on . 2

NEW YORK (AdAge.com) -- Look at newspapers' share of digital advertising, the crowds checking out other kinds of news sites, or the prices that advertisers will pay for the competition. The conditions in digital media, essential to just about any future growth for newspapers, are getting worse for papers instead.

Bad News chart
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BAD NEWS U.S. newspapers' digital ad revenue is not keeping pace with digital advertising as a whole.
Some of the challenges, as usual, are simultaneously offering new ways forward. Newspapers might want to overcome their unease, for example, and strike alliances with the content farms surging to grab newspapers' audiences.

But newspapers have to move more quickly if they're going to take advantage of the strengths they still possess.

Right now newspapers reach more than a third of web users, for example, but their share of all digital advertising is much smaller than that -- and declining.

"It's a tragic story if you look at it from a revenue perspective," said Rusty Coats, who worked in newspapers' digital operations for more than 15 years and recently left E.W. Scripps to become a consultant.

Slow growth
Newspapers' share of digital ad revenue has fallen from 16.2% in 2005 to 11.4% last year and is heading for 7.9% in 2014, according to the new entertainment and media outlook from PricewaterhouseCoopers.

The picture in dollar terms isn't much prettier. With the worst of the recession apparently behind us, some newspapers are already selling more digital ads again. But it's going to be a couple more years before newspapers as a whole start increasing their digital revenue, according to PricewaterhouseCoopers. And their digital total in 2014 will still fall 16.3% short of its level in 2007, the pre-recession peak.

This is digital advertising, remember, where growth is supposed to come quickly. Digital's overall total in 2014 will crush its 2007 level by 56.6%.

The riddle for newspapers, and perhaps the uncomfortable answer, lies in the continued demand for news.

"There's no question that there's demand," said Alan Mutter, an independent industry analyst who sounded an alarm over newspapers' share of digital revenue in a post on his blog Reflections of a Newsosaur. "The question is whether particular channels or sites can sustain their traditional share of the business," Mr. Mutter said.

The cheap content factor
The big story about the news business these days, as a matter of fact, revolves around companies that generate news and information using big networks of cheap freelancers. They include Associated Content, which Yahoo bought last month for about $100 million; Demand Media, which is reportedly considering going public this summer; Seed, where writers, photographers and others can submit their content for publication on AOL; and Examiner.com, which says it has 40,000 freelance "Examiners."

They've already got big traction with readers. Examiner's sites got more than 14.4 million visitors in May, according to ComScore -- more than the 14 million people who visited all the McClatchy newspaper sites combined, or the 13.4 million people who visited MediaNews sites, or the 12 million who visited Hearst newspaper sites.

AOL and Yahoo have separately been staffing up their original blogs and news sections; Yahoo is currently advertising for a blog editor for Yahoo Finance, who will report original stories plus hire a team of bloggers. And sites that aggregate local content are also mixing things up. Last year MSNBC.com acquired EveryBlock, giving it a new ability to horn in on newspapers' role as local information centers.

RUSTY COATS: Consultant who worked in digital operations for papers for 15 years.
RUSTY COATS: Consultant who worked in digital operations for papers for 15 years.
Newspapers have, meanwhile, been cutting reporters, thinning the distinction between their products and those of their rivals.

Advertisers also seem to see a diminishing difference. The gap between newspapers' high ad rates online and other news sites' prices is apparently shrinking.

Newspapers still on top
Newspaper sites still typically command much higher rates than most of the internet -- collecting $6.99 for a thousand impressions in April compared with $2.52 across the web as a whole, according to a recent ComScore report. That's partly because advertisers trust newspaper sites to provide safe, sober environments for their brands and partly because marketers want newspapers' authority to rub off on their ads.

But general news sites -- everyone from MSNBC.com to Yahoo News to Examiner.com -- don't trail newspaper sites by much. General news sites got CPMs, shorthand for the cost per thousand impressions, of $6.14 in April. And newspaper sites' CPMs have held pretty flat since April 2009 while general news sites have been able to increase their rates, ComScore said. That's good news for the news itself, setting aside the varying quality among providers, but another worrisome sign for newspapers.

The ominous indicators, however, suggest some tactics that newspapers might want to prioritize. Advertisers are warming to competing news sites because they're finding a better combination of scale and ad technologies like targeting, observers said.

When Michael Hayes, a former newspaper pro who's now a digital-media buyer as executive VP and managing director at Initiative, wants to target an auto dealer group's ads to local consumers actively shopping for cars, he usually goes to big, technologically advanced players. "In that case we geotarget, and we do that by and large through the portals, large networks and so on," he said.

"I would think that the general news sites might be more adept at some of this targeting technology," said Gian Fulgoni, executive chairman of ComScore. "And they have a big platform."

There are ways for newspapers to compete better on those fronts. There are many ad networks that include newspapers and offer ad targeting, for example, but there actually might be too many. A smaller number of big newspaper networks -- say two or three instead of 40 or more -- would give newspapers better pricing power, said Mr. Coats, the former Scripps executive. They could still pitch the halo of newspapers' authority and offer enough scale for good targeting, but without fighting another 30 similar ad networks with newspaper inventory in the process.

Time to partner up
And if newspaper budget cuts have reduced the quality of their news product, they may be able to buy some time by partnering with the high-quality nonprofit news providers that have sprung up -- often staffed with former newspaper reporters.

Some papers are already doing just that. The New York Times has teamed up with the Bay Citizen for The Times's Bay Area edition and the Chicago News Cooperative for its Chicago edition. Articles by ProPublica, the nonprofit led by former Wall Street Journal Managing Editor Paul Steiger, have already appeared in papers including the Arizona Republic, Orange County Register, Virginian Pilot, Las Vegas Sun and the Philadelphia Daily News.

MICHAEL HAYES: Former newspaper pro who's now a digital media buyer.
MICHAEL HAYES: Former newspaper pro who's now a digital media buyer.
"We as an industry have had to cut so much on the expense side that some of our journalistic local impact has been hurt," Mr. Coats said. "If you can shore that up while you get into the art of deep transformation with your sales staff, selling in this new environment, getting out of this attitude of entitlement, then I see that as win-win."

The same holds true for local aggregators, where again newspapers are already showing some willingness to explore. Boston.com, the Boston Globe's site, includes YourTown sections that combine original Globe reporting with elements like outside contributions, town announcements, and tools to pay municipal bills online or see trash pickup schedules. The New York Times Company has already signed a deal letting it use technology and content from a local aggregator called Fwix. And The Knight Foundation just awarded a $458,625 grant to be divvied up among The Boston Globe, Columbia Daily Tribune in Missouri and the software nonprofit OpenPlans to explore providing block-by-block news and information.

It will be less comfortable to collaborate with the content farms, but that's looking more imperative as time goes on. "If local newspaper sites can't cover local newsworthy events, whether it's sports or otherwise, the consumer is going to find it somewhere online," said Mr. Hayes, the digital-media buyer at Initiative. "And, therefore, ad dollars will flow there. And that will hurt small local newspaper sites."

Last April USA Today started using Demand Media, a company that doesn't like the term "content farm" but draws content from a huge pool of freelancers. Demand is providing the content for USA Today's new Travel Tips site online.

There's more concern about the quality of content farms' contributions. Former New York Observer editor Peter Kaplan told Ad Age this month that publishing content from some of these sites is like "sending unchecked meats out to the public." But content farms are coming for newspapers' readers one way or another; maybe there's a way for papers to do something more productive with the model than giving it the stiff-arm.

Newspapers' continued stores of strength enable them to innovate if they're willing, said Mr. Mutter. "Their unfair advantage is that they are stellar brands in their markets. They also do still have comparatively enormous ad revenue even in their depleted states. They have almost always the largest source of knowledgeable content creators in a market. And most operate a pretty respectable profit."

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