Analysis: In scare for newspapers, digital ad growth stalls

Thu Jun 7, 2012 3:01am EDT

1 of 2. A woman reads U.S. newspapers front pages outside the Newseum in Washington November 29, 2010.

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(Reuters) - As more newspapers cut back on print to reduce costs and focus on their websites, a troubling trend has emerged: online advertising sales are stalling.

In the first quarter, digital advertising revenue at newspapers rose just 1 percent from a year ago, the fifth consecutive quarter that growth has declined, according to the Newspaper Association of America, a trade organization.

A flood of excess advertising space, the rise of electronic advertising exchanges that sell ads at cut-rate prices, and the weak U.S. economy are all contributing to the slowdown, publishing executives and observers say.

For an industry savaged by the erosion of print advertising dollars, significantly boosting digital revenue is necessary for survival. But the double-digit online growth rates that many newspapers used to enjoy -- and on which their hopes for a prosperous future rest -- could be a thing of the past.

At the New York Times Co digital ad revenue at its news sites, including and, fell 2.3 percent to $48.5 million in the first quarter from a year earlier. At the Washington Post Co, the decline was even worse, with revenue dropping 7 percent to $24.2 million, mainly at the website of its namesake newspaper and online magazine Slate.

"The online share that newspapers are getting is smaller even though it's the greatest goldmine of advertising growth we've seen in a generation," said Ken Doctor, an analyst with Outsell Research.

Last week, ratings agency Moody's issued a report calling the U.S. newspaper industry's outlook "negative" because of the "relentless" declines in overall revenue.

"At this point, there is no evidence digital strategies are returning most daily newspapers to positive growth," wrote Moody's senior credit officer John Puchalla. "It is merely a way to moderate revenue declines."

Newspaper executives have long touted digital advertising as a bright spot in an industry plagued by declining print readership. For instance, New Orleans will become the largest U.S. city without a daily newspaper this fall, as the New Orleans Times-Picayune prepares to print just three days a week to cut distribution costs and to focus online.

Some publishing executives are still optimistic about the long-term outlook for digital, blaming the slowdown on the economy.

Scott Heekin-Canedy, president and general manager of the New York Times Co, said digital advertising is becoming just as sensitive to economic swings as print. "We actually saw a dip associated with uncertainties," he said. "We heard it from advertisers and saw it in the spending patterns."

The New York Times Co gets 10 percent of its revenue from digital ad sales and 35 percent from print ads. Print and digital subscriptions generate 48 percent of revenue, while miscellaneous sources account for the rest.

Steve Hills, president and general manager of Washington Post Media, labeled the falloff a "temporary slowdown" in a weak economy and a technology issue related to how content on its websites is published.

But there's another problem that is less temporary: the rise of ad exchanges that put downward pressure on ad prices.


Advertising exchanges are electronic platforms that allow buyers to bid on and purchase advertising space at drastically reduced prices. Many websites -- not just newspaper sites -- rely on these exchanges to sell unclaimed advertising spots, known in industry parlance as excess inventory. The thinking is it's better to get something than nothing at all.

But it also trains ad buyers to expect lower advertising prices. "It's like a publisher trying to sell me an Armani suit for $3,000 but I can walk around the corner and buy it from Google for 90 percent less," said Shawn Riegsecker, chief executive of Centro, an agency that specializes in buying and selling digital ads, and counts many newspapers as its clients.

Advertisers "are buying audience instead of context and they don't care what sites they are on," said Gordon McLeod, president of Krux, a company that helps websites interpret data.

News Corp's Wall Street Journal, which does not use advertising exchanges, enjoyed double-digit growth in digital ad sales for the quarter ending March, according to Michael Rooney, chief revenue officer at Dow Jones' Consumer Media Group. He declined to say how that compares with historical trends.

Robert Dickey, president of U.S. Community Publishing at Gannett Co Inc, the largest U.S. newspaper publisher, acknowledged there is pressure on ad prices. But he argued that advertisers want to be associated with strong news brands.

"What we show our advertisers is that our audience and our performance for them is higher than what they are going to find at other types of sites," he said.


At Gannett, its national paper, USA Today, fared better in the first quarter than did its local properties. USA Today's digital revenue rose 25 percent in the first quarter, with video becoming a big drawer of ad money, said newly appointed publisher Larry Kramer. That compared with 11 percent growth in Gannett's U.S. Community Publishing division.

Overall, however, the newspaper industry's share of online advertising dollars is shrinking. U.S. online advertising revenue is forecast by research firm eMarketer to rise 23.3 percent to $39.5 billion this year, on growth in video advertising and Web search ads.

Auto dealers, retail clothing stores and other local advertisers still use newspaper websites to reach people online, but that segment is also facing insurgent competitors such as daily deals site Groupon Inc, search giant Google Inc, and e-commerce leader Inc.

"If you look at the top 20 companies that made all the money in local Internet advertising, more than two-thirds ... have nothing but advertising ... It's not about the news." said Gordon Borrell, CEO of Borrell Associates, citing websites like Autotrader, and Groupon.

Some newspapers are trying out new formats and experimenting with different types of ads on their websites to try to goose advertising spend.

"Newspaper companies have acknowledged those trends and there is a lot more innovation on the online side that's not immediately reflected in the numbers," said Caroline Little, CEO of the Newspaper Association of America.

(Reporting by Jennifer Saba; Editing by Peter Lauria and Steve Orlofsky)

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Comments (21)
areddy831 wrote:
Don’t forget the effect of ad-blocking software in web browsers-plenty of consumers don’t even see ads anymore.

Jun 06, 2012 12:26am EDT  --  Report as abuse
mstamper wrote:
Newspapers are obsolete. Most of them are a total bore. The public is saturated – overwhelmed – with information. We could do without 90% of the newspapers currently published. What is needed is higher quality, more depth, and a greater diversity of perspectives. Like so much in 21st century America, the quality of journalism is in many cases abysmal. Where is the courage, originality, perspective, and vitality that used to make newspapers fun to read? It isn’t the business model that is failing newspapers. Newspapers are failing to satisfy the needs of their readers.

Jun 07, 2012 7:53am EDT  --  Report as abuse
skyway wrote:
Newspaper advertising is a commodity just like anything else we pay for in our economy. Local and smaller-market newspapers are going the way of many smaller businesses in the U.S. because they are being undermined by larger, more powerful websites delivering competitive content. I own a retail and an online store and it is almost impossible to find products to sell that are not being sold by Amazon for the wholesale price – ie, the price our store pays the manufacturer for the item. The manufacturers have cut out the middlemen – the retailers and supply houses – and are going direct to the public through Amazon, Ebay and “back door” websites. Nobody seems to be discussing the fact that the supply chain has been decimated in this country, putting millions out of work. When you put most of the mom and pop stores out of business, eventually the newspapers are going to go down because they can’t find advertisers. Whats kind of funny about this entire topic is the fact that there isn’t any money left in true reporting, so huge monopolies are being allowed to consume the market and ruin once thriving businesses and its all happening without a word in the press. And, to top it all off, you have a public that finds hard news boring and are mainly interested in Kim Kardashian’s behind or the latest Casey Anthony-style murder case.

Jun 07, 2012 11:32am EDT  --  Report as abuse
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