Apr 27, 2011

To compete in the advertising market newspaper needs to enter the ROI battle field

"Hard economic lesson for news" is the last post from Jeff Jarvis' blog BuzzMachine. I added a comment to it. Here it is:

Newspapers are in the advertising business, with on average 80 to 85% of their revenue coming from ads (in North America). They are facing five major issues with this business:

#1- They have lost the monopoly of distributing advertising.

#2- Advertising space has no limit on the digital word, driving prices down

#3- Google has changed the game in the advertising business from "eye ball" to "ROI". Customers pay only if there is an interaction with the ad.

#4- ROI means targeting ad and customer database qualification. Unfortunately, newspapers are not yet equipped to fight this data war... even if some are trying hard (see below in my other #4 - Tulo)

#5- Digital means also better measurement than polls. Better measurement regarding the interaction between customers and ad, but also between customers and content. And those measurements are not saying what the polls were saying. They are saying that maybe we don't engage with content as much as we wanted to believe it before, same with ad.

So what are some possible directions:
#1- To rely less on advertising and increase paid customer revenue, like the NYT is doing right now (ad is now 50% of its revenue). But, less ad $ means less money because it is way more costly (acquisition cost) to make $1 in paid reader than $1 in advertising. So no choice here than to reduce operation cost. Reducing operation cost does not mean, reducing quality (so it can), it means reducing focus. You can't talk about everything. You can't offer the same package. Is it bad? Personally I don't think so. Except that the focus on what brings ad $ (entertainment for ex.), might not be the focus that is good for citizens and our society.

#2- To diversify revenue. Many newspapers are doing or trying to do that now. The magazine industry has been very good at that, in particular in Europe. But once again, acquisition cost for diversification $ are going to be probably higher than for ad $... and you probably can't, in the short run, maintain your operations. Rue 89 (in France), a news site started by former journalists from the famous newspaper Libération, are doing that and they are closer and closer to be successful (simplified P&L).

#3- To develop a SEPARATE online / digital operation that does not have the same operational cost that a traditional media company. Then, to build from there. The route is longer and, not doubt very hard. In North America (sorry I can't be more precise), I know a small publisher that has developed local websites (over 10). All of them have very small operations. All of them are making money and being profitable. Of course, nothing to do, in term of revenue, with their print competitors for now BUT they enjoy a very nice profit margin, higher than some of the print brands that I know.

#4- Enter the ROI advertising battle and develop a strategy to generate highly qualified customer databases. In Sweden, one of the largest newspaper publisher Stampen, has been understanding the necessity of entering this ROI battle. They have developed a very smart mobile platform -- TULO -- that allows to generate new advertising revenue BUT ALSO to help newspapers create highly qualified customer databases. More than 80 newspapers are using it in Europe. Revenue generation is starting to be very interesting as well as data gathering (disclosure: we are helping Tulo).

We all know that the decline in ad revenue is the main issue. If newspapers want to compete in this field they need to become better platforms for advertising and prove ROI. In America, the last numbers from the newspapers industry are not good. More advertising revenue declines. For example, McClatchy is entering its "nineteenth straight quarter of revenue declines", with -9.5% for this quarter and the next one is not looking good either. At least, their online ad revenue is up by 2.2%.