Archive for March 30th, 2008

The Situation

A few weeks ago I covered the negative economic reality of video based advertising and the conflict between TV ads and Internet video ads.  To clarify, it is negative for the major networks and those that benefit from aggregated audience, distribution and ad spending.  For individuals and small companies it remains positive (e.g. a video blogger or small comedy group can make real money).  This may not obvious in the short term.

Newspapers, and presumably magazines, are suffering from the SAME basic problem.  Print ad dollars are drying up faster than online dollars are making up the difference for LARGE PUBLISHERS (NY Times, Tribune, etc. etc.)

Don’t let anyone fool you either.  This is REAL MONEY.  The industry lost billions.

Total advertising revenue in 2007 — including online revenue — decreased 7.9% to $45.3 billion compared to the prior year.”

Do the math.  That’s at least 2.5 billion in ad loses in 2007 to the 2000 NAA members.   That’s 1,250,000 per newspaper.  This includes the GROWTH in online advertising.  At that rate, and it’s accelerating, many companies will have to consolidate and/or get out of business.

For reference in the US, and all these come with some grain of salt:

*Note: This is all REVENUE, not profit.  That’s important because every other category costs a lot more than internet, in most cases.

2008 is not going to be good for most publishers – the advertising market stinks and will continue to stink until disposable incomes come back up and consumers start buying more crap again (tvs, video games, music, new cars).  Online advertising growth will stay flat or maybe slow a little bit as most high margin online advertising is driven by crap (tvs, movies, video games, new cars). Magazines had a nice 2007, but it is misleading as almost all growth is in Medical, Drugs, Health, and Food.  Celebrity obsession rags (People, US Weekly) and general news (Time, Newsweek) are the growth mags because they carry adds for that stuff.  Any mags in tech, tv, or big ticket items are losing ground almost exclusively to online and/or some form of digital.

For more info and justification for above argument see who buys all the ads in print and online. (here’s a combined traditional mediums top 10 list. Also check out more spending lists)

Note though that there may be as much as $3 billion spent in Political advertising in 2008.  This should be taken out of the final numbers this year to determine an apples to apples “size of the ad market”.


Why do most traditional print/publishers continue to suffer seemingly without any competitive urgency?


Follow the money. Online and Digital are still only a tiny fraction of the money most publishers are taking in.  Most larger print publishers have almost no stake in online and losing 1,250,000 in print is less than a 1% for the top 35 magazines and even less for the top newspaper companies.

The consequences (financial, brand, audience, talent) for not succeeding online for most publishers are not painful enough yet.  It’s going to take another 10 years before the losses in print scare executives into online urgency. By then, though, most of these top publishers will be at the mercy of a larger digital company.

What’s funny though is that the market (VCs, angel investors, acquirers) already see this and only value these print companies at 1-3x annual revenue where their digital competitors go for as high as 7-15x revenue (or in the case of facebook like 150x, hahahaha).  Do you think that means anything to publishers?  Oddly enough, I don’t think it does.

Another Big Question

Ok, so besides lack of financial incentive, what else is going on to keep publishers from being successful online?

Distribution Misunderstanding

Publishers do not control the distribution like they used to.  Large publishers have almost no advantage in distribution.  Perhaps publishers have a disadvantage due to their established workflows, outdated asset management, and obsession with control.

Publishers largely do not have internal knowledge of online distribution.   It’s not likely to change anytime soon either because they are reinforced for that ignorance by the hundreds of online companies that bank on that ignorance and sell them services (Brightcove, Pluck, KickApps…) that will solve their distribution problems with the publisher lifting a finger.  Don’t get me wrong, Brightcove, Pluck, KickApps and the hundreds of cool online tool sets are great and useful.  My point is the large publishers think there’s a magic tool or agent that can buy/generate them distribution online and these companies sell them on that misbelief.

Secondly, most publishers still do not understand that GOOGLE is the newstand, the grocery store check out line, the water cooler, the mail room, the tv guide, the movie directory, the local guide.

Some say Yahoo! has an equal share, but it doesn’t.  Yahoo! is mostly a PUBLISHER.  It receives a LARGE amount (10%+) of its traffic from Google and most of its organic traffic is not in its distribution features (search,video,  directory, maps) but in its mail, stores, forums.  (Remember yahoo gets to count traffic to all of its sub properties like geocities, yahoo stores, news, finance, movies…).

No one Googles for Google.  Google directly has 50%+ of search and indirectly drives 10-30% of the traffic on other MAJOR publishers/portals and 50-70% of traffic to smaller publishers.  Google also owns online video and a huge stake in blogging (the other main distribution mechanisms online)

Getting Google (Youtube, maps, blogger, news) traffic efficiently must be the number 1 traffic activity if a publisher hopes to last online.

Major publishers are horrible at syndicating their content to the general public.   They are slow to embrace mechanisms like RSS, MRSS, aggregators, tag clouds, geoURL, openID, openSocial, etc. etc.  They are slow in getting into the social network and twitter like things.  When they do get in all the good real estate is gone.

In short, traditional publishers are still chasing the belief that they can be original destinations, buy out a corner on the internet and brand equity will carry them.

Productization and Convergence

Print publishers moving online compete in a wider pool than just the other major print publications.  They compete with online only content destinations, social networks, video sites, tv networks, individual bloggers/vloggers.   Publishers are being forced into producing non print content to compete (games, photos, videos, interactives) and they aren’t good at it.  How could they be?  They are staffed with art direction and editors/writers not game developers, videographers and interactive designers.  It’s not bad or good, that’s just reality and the skills required to produce a great print publication do not translate to online.

A large website or web experience cannot primarily be about reading and/or passively viewing photos.  It must involve utility and interaction – search, messaging, mapping, visualizing, sharing, mashing and so on.

A large website cannot contain just its own content.  It must bring together other relevant web connected assets.

Users do not equal readers.  The same user may read offline and use online, but their behavior in both mediums is totally different.

The medium (a computer/pda/phone screen) is not great for long reads (for a variety of reasons).

Websites are not viewed in the same form/layout as they come of the production line.  That is, the publisher cannot control even the most basic design parameters (screen size, font size, screen real estate) it can only optimize for most likely format.

Printers have to produce non print assets and doing so efficiently and compellingly is hard work.  Users expect photo galleries, polls, videos, audio, interactive data visuals.

Online moves at a pace traditional publishers can’t handle in their workflow – publishers pursue perfection.  They have multiple levels of “editing” to make sure every layout and word is correct.  Large websites typically QA on the fly and users are very forgiving of errors (partly because they aren’t TIED to the brand and don’t value perfection over speed and availability).  i.e. NY Times can’t put a BETA on their front page and have a mistake in production.  Websites can and do and get away with it.

Publishers typically don’t have product managers like software companies.  Editors work directly with technologists and its rarely pretty.  Without a central in the trenches head considering edit, sales, layout, design, interaction and so on, a website doesn’t have a chance.

Technology is secondary to editorial in most traditional publishers.  Online TECHNOLOGY is EDIT, EDIT IS TECHNOLOGY.  All the big online companies have tech-edit types.  People who both do code and do content.

and… TECHNOLOGY = EDIT = POWER USERS.  Yup, the success stories online all involve power users who control product strategy and drive content creation almost as much as key employees.

Publishers are very far away from ever letting users to dictate much of anything in their experiences.

And more…

Publishers are a long way away from being able to deliver quality interactive experiences and they aren’t going to be able to license their brands to online properties to fulfill that.  Brands don’t matter as much online OR brands online aren’t as difficult to create as traditional media. (maybe.)

Classifieds, Local Directory and Job Ads aren’t owned by the Papers and Mags Any More

Craigslist, online YP and job search sites stole the print business a long time ago.  We see the damage today done by what started 10+ years.  Without those nearly recession proof ad streams, print has been left with brand ads/national ads which ARE NOT recession proof.

Without these revenue streams to subsidize less monetizable editorial concepts print publications must sell their editorial souls in the form of advertorial. (Don’t believe me? pick up a back issue of your favorite mag or newspaper from like 10 years ago and pick up a recent one.  Lemmeknow what you find… 🙂 ).

In the end, publishers must work harder to attract and retain users and advertisers because the steady classified revenue isn’t there anymore.

Counting Things Hurts Pricing

We compress online ad prices simply because we can count and audit online entities fairly accurately (or perceive we can do so).  Media buyers online count everything and there’s really no way to avoid owning up to the performance of campaigns.  Buyers can count the ads and the traffic it generates.  There’s no loosey-goosey “brand awareness” meta metric.  It’s now, “Deliver me uniques and the right uniques or stop getting my money!”

Run the standard deviations on ad revenue by print publication circulation and you’ll see that the prices do not correlate to audience very well.  There’s some accounting for composition+audience but even that is dubious.  And, no, ad pages (akin to impressions/pageviews online) has almost no correlation either.  See below graph for circulation (x axis) against annual ad revenues (y axis)

Magazine Revenues By Circulation

People magazine is number 1 in revenue but is well behind many other more “targeted” publications for circulation.

Magazine ad sales success is so much tied to quality of ad sales team, existing relationship, agency perception, ease of working with the company and other “soft” qualities.  Add in a fair amount of “we buy print because we’ve always bought print.”  It is not about Ad Impressions, Ad Performance, nor Direct Transactions Generated.
Newsprint prices are also localized in some since.  If you are the only paper in town and you own circ in that town, you can raise the price.  Online doesn’t have that restriction.  The ad prices are normalized more universally.

Put it all together and online ad prices will never reach print rates.  People magazine makes almost a billion dollars on a readship of less than 5 million.  Facebook and MySpace reach over 50 million people at least 10 times a month and don’t do that kind of money (Myspace might be close).  Look at that difference!  10x the audience…

Methods of counting print and online are so different most print companies have trouble making sense of both and weaving a cohesive story for advertisers.

What Can Publishers Do?

Nothing different, really.  Or rather they will do what the consequences dictate.  A lot of money will be lost by some companies and a lot of individual people will get left behind over a long period of time.  Advertising will grow and advertiser options will diversify.  The pool of dollars available as a publisher will increase, but the amount of spend they land will not keep pace with the growth of advertising over the long term.  That is, more publishers maintaining a smaller pieces of the pie.

Individual creative types and developers will continue to flourish as long as consumption increases (which it will and always has.)

Those willing to experiment before their financial sheets bully them into doing so should do so aggressively.

They should spend the considerable slushfunds generated from high print revenues on HIGH VALUATION online properties.  A dollar spent in online goes much further than that same dollar in a magazine or newspaper.  Excelling in interactive production requires experience and practice.  They need to spend the money now so that in 5-10 years the have experience beyond writing, layout and photography and have command over the various distribution opportunities.

Publishers should acquire start ups now.  Use that cash to buy highly valued fast growth companies before their valuations and user bases. sky rocket.  Aggregate the digital talent before Google and MicroHoo get it all…

Again, doing this will betray the financies in the short term.  Luckily in 2008 a publisher can hide experiements and acquisitions in soft ad market conditions.  🙂

For Advertisers

Spending more online would be a GOOD IDEA, especially in 2008.  The ad rates are going to fall out and you can get huge chunks of good inventory very cheaply.  Most video and rich media inventory is probably sold out at less than 30% internet wide, meaning there’s a steap discount on inventory now.

Plus your ads can reach 10x more people at a lower cost than full out print campaigns.  (I know, I know, certain demographics are in print, not online… bah! even AARP.org has over 2 million UUs per month!)

Besides the obvious pricing benefits and reach increases, you creative will be cheaper to create and easier to deploy.

To prove my point I propose a challenge to any agency, ad exec, or brand manager:

Give me half of your print/tv/radio budget for a particular product, service or content franchise.  You keep the other half.

I bet, over a one year period, I can drive more revenue and profit with online than you can with traditional media.

Not that I wanna do your work for you… 🙂


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