Knowledge Bridge

//Kevin Anderson /June 8 / 2012

Ad networks blamed for driving down digital returns

With print revenue declining quickly for newspapers in Western Europe and the US, the hope has been that digital revenue would continue to rise and help offset the decline. For most publishers that hasn’t happened. Earlier this year, a report in the US showed that on average newspapers were losing $10 for every $1 of digital revenue they gained. Now, digital advertising revenue is declining as well, and it has lessons for all media making the digital transition around the world.

Reuters reported that overall in the US, digital advertising revenue for newspapers grew only 1% in the first quarter of 2012, making it their fifth consecutive quarter of declining digital advertising revenue, according to the Newspaper Association of America. At the New York Times, digital advertising dropped by 2.3%, but it was much worse at the Washington Post, which saw digital advertising plummet by 7% at its flagship newspaper site and also Slate.com.

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.

However, this is not just about US newspapers getting lower rates due to a glut of advertising inventory or the downward pressure on rates due to advertising exchanges. US newspapers actually capture a smaller slice of the digital advertising pie now than they did in 2003. While digital advertising revenue has galloped ahead rising from $7.3bn to $31.7bn in 2011, US newspapers share of digital advertising has hit an all-time low. In 2003, newspapers managed to capture 16.7% of all digital advertising in the US – not a great number, but respectable. However, by 2011, US newspapers managed to grab only 10.3% of digital advertising

Why are newspapers capturing less of the digital ad spending? Reuters says that while newspapers used to be one of the best ways to deliver an audience to advertisers, the industry doesn’t have the same advantage in the digital content market that it had in print. From Reuters’ analysis:

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.

The lessons for news organisations making the digital transition in any country is two-fold. The first, that we’ve mentioned previously on the Knowledge Bridge, is that advertising shouldn’t be the only source of revenue for your digital business. Most companies that have succeeded in digital have done so by building a range of digital sources for revenue including dating services, digital marketing services, events and even niche digital services such as holiday-home booking businesses.

Secondly, as Rick Edmonds at Poynter pointed out, news organisations have been urged to stop selling their advertising inventory through ad exchanges. Instead, news organisations should develop ways to develop more targeted ads and develop other “premium-priced ad placements”. Fundamentally, the lesson is that advertising innovation is as important for your long-term sustainability as editorial innovation.

Article by Kevin Anderson