Classified slide

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Potential erosion of classified advertising dollars is already prompting sellers to examine their revenue streams.

Analysts say newspapers need to understand that not only will classified ad spending shift from print to online vehicles, but overall, spending will decrease in the next few years. The local nature of dailies may be what keeps the classified dollars coming in, online and off.

"We are seeing two trends," says Marissa Gluck, analyst for Jupiter Communications. "The first is a shift [away from newspapers], the second is the disappearance of dollars [due to free and discounted classifieds]."

The total online classified market is expected to be substantially smaller by 2005 than it is now. Ms. Gluck says $2.7 billion in potential revenue will be lost in 2005, compared with the $1.4 billion expected to be earned.

Ms. Gluck says the cost of classified listings is going to decrease.

"Recruiters, agents, etc., who were spending that money will not be spending that at all," she says.

Jupiter's research says newspapers will lose $4.1 billion in traditional classifieds by 2005, or 14.9% of what the market would be without the existence of online classifieds.

"That's the number that really scares the newspapers," she says.

Total online advertising for 1999 hit $4.62 billion, according to the Internet Advertising Bureau. Online classifieds comprise less than 11% of that total.

"If all that money is flying away, why are about 45% of newspapers' revenues coming from classified ads when 10 or 20 years ago it was just 30%?" says Randy Bennett, VP-electronic media and industry development for the Newspaper Association of America.

MODEL CHANGING

The NAA says print classified advertising totaled $18.6 billion in '99, up 4.3% from 1998.

"I think that the simple revenue model of charging for a listing is rapidly changing," says Brendan M. Burns, president-CEO of AdOne, a classified aggregator that has partnerships with 700 local publishers and eight national distribution relationships. "That is what Jupiter is suggesting in my mind. Classified providers will be deriving value from organizing classified-oriented content in multiple ways." AdOne recently launched Abracat.com, an online classified service that replaces its Classifiedwarehouse.com.

SHIFT TO ONLINE

"In the next three to five years, it is expected that 20% of that market is going online," says Pete Petrusky, director of new media at PricewaterhouseCoopers.

"Newspapers have the resources to take advantage of that because they have the brand in the local market. The challenge is migrating that to the new medium and I think they are doing that."

According to the NAA, more than 950 North American daily newspapers now have Web sites, and 45% of online users visit newspaper sites at least once a day.

"There are three rules for newspapers to succeed today. They must be one, local; two, local; and three, local," says Paul Camp, CEO of Flywheel Media, a provider of content for Web sites. Flywheel is the new name of the merged Thomson Target Media and Thomson Interactive Media divisions of Thomson Newspapers.

A Jupiter consumer survey found that while 50% of consumers polled expressed a brand preference for news sites, only 28% showed a brand preference for dedicated classified sites. The report suggests that newspapers should target readers based on local or regional affinity.

"Newspapers overestimate the power of their brand," Ms. Gluck says. "The success of Internet-only brands shows that customers are not constrained by brand affinity. They are willing to trust Monster.com."

Consumers' willingness to change brands is nothing new, and the Internet just makes it easier for people to make the switch, says David Israel, CEO of Classified Ventures, a joint venture created by eight media companies.

"A lot of newspapers, in their local market, have proven to be pretty powerful brands," he says. "They are well-known and established and trusted in their own markets. I don't think the Boston Globe is powerful in Chicago, but it doesn't have to be."

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