I just got back from San Francisco and while traveling I was struck by the number of free newspapers. Get on a plane - get a free paper; stay at a hotel – get a free paper; buy a coffee - get a free paper….WOW, I wonder what this says about the state of the industry? And they say that their circulation is growing…hummm!
Anyway, this is my fourth of six posts and it isn’t about circulation, it’s about display advertising. If you don’t know what display advertising is, just open up a newspaper - the majority of the ads that you see are display ads. They come in all shapes and sizes, but the biggest distinguishing factor is that they are a blend of images and text and they run throughout the paper, unlike classified advertising (Part Three).
Display advertising in newspapers has hardly been impacted, but because it represents about 70% of the average newspaper’s ad revenues, once the erosion starts newspapers stand to hemorrhage revenues. By looking at the strengths and weaknesses of this part of the newspaper business, I hope to provide an insight into some possible risks and how these risks will impact the future of newspapers.
1 – Timeliness
Interestingly enough the Internet is currently at a disadvantage when it comes to display advertising. It actually can take longer and is more difficult to run a banner campaign online than it is to run a display ad in a paper. Online sales people will disagree with me, but it is what it is. The complexities of placement, targeting and available impressions make it more difficult to buy and this has helped newspapers maintain display revenues (NAA). This is especially true for retail display ads.
Not only is it often simpler to run a newspaper ad, the fact that many newspapers produce the creative (art-work) at no additional cost benefits local retailers tremendously. Dealing with the newspaper for both the rapid production of ad creative and the running of the ads makes for a very convenient solution for retailers.
Do you think online display advertising will be able to compete with newspapers?
2 – Efficiency
When it comes to advertising in general, efficiency comes down to the number of interested customers an advertiser reaches with their ad. When I was working on my previous start-up, Autonet.ca, I made an interesting observation about automotive consumers. They were buying newspapers primarily for the auto ads. For example, here in Toronto, if you were looking to buy a new domestic car you would pick-up the Toronto Sun. If you were looking for a Mercedes, you would pick-up The Globe and Mail or The Toronto Star. This type of consumer habit has historically helped create efficiency for the newspapers.
However, these habits have started to change. Many people are now more likely to do a search on Google for the information they seek rather than picking-up a newspaper. I think this is in part supported by the recent news that search is approaching email as the number one daily function on the Internet. The change in consumer offline and online habits along with the decline of newspapers’ “real” circulation has made the number of consumers looking to a newspaper as a primary source of retail product information greatly shrink. And, this is sure to continue.
How much longer do you think advertisers will continue to pay for decreasing results?
3 – Cost
Most local retailers effectively cannot afford to advertise in newspapers, and for those that can, the return on their investment simply continues to decrease. For decades newspapers have raised their ad rates year after year even though the vast majority have been loosing readership. Buying an ad in a newspaper that is distributed to an ever smaller readership obviously becomes less and less cost efficient.
The means by which display advertising is sold by newspapers is one of biggest issues. They generally have highly paid sales teams. Sales costs make up a large part of the cost of the product and are extremely difficult to adjust without a tremendous impact on sales. Some papers have made attempts to reduce their sales costs - few have successfully done it without negative impact to their revenues.
Newspapers are already overpriced and they can’t easily reduce their costs. They’re caught in their old business model and they can’t break out of it. As ad rates continue to increase and the number of retailers advertising in newspapers continues to decrease there’s an opportunity for other media to offer much more cost effective solutions.
Do you think newspapers will be able to compete in the cost game?
Display adverting is what has kept newspapers afloat in recent years. They’re at great risk if they’re unable to maintain their hold on retail advertising.
The reality is there is a lot less retail advertising in newspapers today. Over the last 30 years, much of the display advertising has moved to the flyer/circular. In many ways, print fliers have served to change the habits of consumers more than anything else. In my next post, I will cover that part of the newspaper business and its impact on the industry.
Stay tuned for the for more posts:
Part Five – Distribution
Part Six – The Reader