Thursday, February 2, 2012

The newspaper business: the three legged stool can not stand when all of its legs are being sawed off

Back in my newspaper days I was, for a quite a while, a classified advertising manager. We were the stars back then, at least at the management meetings, simply because we brought in the money that made the newspaper wildly profitable.

Classified advertising was the money engine, the one area that grew in year and year out. Automotive, real estate, help wanted, all those categories grew every year in the eighties, right up until the first Iraq War and the recession that followed it. After that things were a bit slower, but it wasn't until the rise of the Internet – (remember that site?),, and then Craig's List.

For years the Internet has been sawing off one of the three legs that meant life for a newspaper: classified advertising, local retail, and national advertising. Circulation was a sideshow during the golden age simply because newspaper publishers knew that the way to make money was to gather up the eyes and sell advertising. Google seems to understand that better than anyone in today's media world (though Facebook is learning fast).

Having spent all my early years in the newspaper business I can tell you without a shadow of a doubt that the Internet did not kill off classified advertising, newspapers killed it off. Even before the rise of Internet publishing, newspapers were slow to react to the auto traders springing up in their midst. Then they ignored the real estate publications, the apartment guides, etc.

Newspapers simply felt that their product was the newspaper – not news, not advertising, the newspaper. So, other than those endless special sections (which appeared in the newspaper) newspapers didn't (and don't) create new media products on the fly, they circle the wagons and wait to run out of ammunition in hopes the calvary will ride in to the rescue.

So while newspapers were losing their classified ads, other competitors were taking bites out of local retail and national advertising, as well. The issue is not that advertisers are moving away from newspapers to the web, it is that advertising is moving away from newspaper to non-newspaper properties.
In 2000, the Newspaper Assn. of America reported that newspaper advertising stood at $48.7 billion, a rise that year of over 5 percent. A decade later print advertising stood at $22.7 billion, with digital advertising only adding $3 billion more.

But Internet advertising hit $26 billion in 2010 according to the IAB (the estimate for 2011 is over $30 billion).

Funny coincidence, isn't it? If you add those two number together you get $48.7 billion, the exact same number we saw in 2000.

So from a newspaper publisher point of view, the advertising has moved away from newspapers to the web. But from the perspective of a sales person, the advertising has moved away from one group of sales people to another.

Today the mantra is paid content rather than advertising. It is a self-defeating philosophy that says that the future is ignoring the $40-50 billion of ad dollars out there and instead pursues paid digital subscriptions. It's working, ad dollars are leaving newspapers as planned. The problem, these advocates say, is just that digital subscription dollars are not growing fast enough.

Look at the New York Times Company's recent performance. Advertising revenue fell across the board: print was down 7.8 percent, but digital advertising was down, as well – 4.9 percent. Ignoring the demise of, NYT properties actually grew digital advertising 5.3 percent.

But digital advertising in the U.S. is set to grow 18%, if the IAB's numbers are right. That means that even in the area of digital, newspapers are lagging behind the pace of growth of the category as a whole.

Some traditional media observers are almost (but not quite) declaring victory for the paid digital subscription strategy, even as the water is reaching the feet of the string quartet on the upper deck. (Those that left the newspaper industry, though, are enjoying the music being played by those left on board the sinking ship.)

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