Knowledge Bridge

//Kevin Anderson /August 31 / 2012

News groups must deliver advertising innovation to survive

Digital technology is disrupting not only journalism but several other industries as well, just ask the music industry or brick-and-mortar retailers.

• The music industry is about half the size of its peak in 2000.
• In just five years, Amazon increased its global sales from $10.72bn to $44.1bn in 2011, according to Retail Week.
• In the US, newspaper advertising has been cut in half since it peaked in 2005.

Digital media consultant and ex-newspaperman Alan Mutter says that the digital disruption of retail didn’t just coincide with the decline in newspaper advertising but is linked. He sees the next threat to newspaper revenue coming from a potential in “preprint advertising”. Preprint ads are glossy advertising inserts produced by major national retailers in the US, and according to one source quoted by Mutter, they account for, on average, 70% of advertising revenue at US newspapers. Over the past five years, preprint advertising has grown to become a larger percentage of advertising for US newspapers. However, that much needed source of revenue is now under threat by changes in retail. Mutter says preprint revenue is under threat because:

The digital revolution, which is (a) unraveling the business models of many of the big-box retailers who historically have been the biggest buyers of preprint advertising and (b) encouraging even healthy bricks-and-mortar retailers to shift from high-priced print advertising to targeted and inexpensive digital formats.

Some retailers are even foregoing traditional advertising and going directly to consumers via their own websites, email offers and social media, Mutter ads. He adds:

Even thriving bricks-and-mortar retailers today are trying to improve the efficiency of their marketing by seeking low-cost and highly targeted advertising options.

This is why advertisers and advertising revenue has shifted to innovative new advertisers such as search-based advertising and social networks. As the Economist noted last year, in 2000, Google only captured 1 percent of advertising spending, but now it captures almost half. Google now earns more than the entire US newspaper industry. Facebook is in the process of rolling out a new advertising service that will allow companies to “target their ads to existing customers based on their phone numbers and e-mail addresses”, according to technology news site CNET.

Disrupt your own business before others do

Over the last five years, many news organisations have done a good job of delivering editorial innovation, but they still lag behind digital competitors in terms of delivering advertising innovation. One key lesson is that it is better to disrupt your own business before others do.

Some news groups, such as Scandinavia’s Schibsted, noticed the trends in other markets early, and moved to invest in digital advertising solutions. Newspapers in the US blame online classified service Craigslist of killing their classified business, but Schibsted used them as inspiration. Craigslist launched in 1995, and to compete with online classifieds in their own market, Schibsted launched classifieds site Finn.no, even though it went head-to-head with the group’s newspapers. Finn.no was spun off in March 2000. In a 2010 interview with Businessweek, Schibsted’s Chief Executive Officer Rolv Erik Ryssdal said

We weren’t afraid to cannibalize ourselves

Schibsted bought Blocket.se in 2003, and it is now one of the five largest sites in Sweden. In 1997, the company launched another classified sites focused on car sales. The site, Bytbil.com, is now used by 95% of all car dealers in Sweden. The company has classified advertising sites in 20 countries in Europe, Asia and Latin America, and in 2010, its classified business was the third largest globally, trailing only Craigslist and eBay.

Schibsted realised early on that digital advertisers are looking for ads that perform, and if you don’t deliver that, someone else will.

Data: Delivering better editorial and more revenue from advertising

Digital technology also allows you to know who your audiences are. That’s good for editorial staff in that they can better serve the needs and interests of their market, but data is also extremely important in delivering relevant audiences and higher performance to advertisers. Advertisers want to send very targeted messages, but you can’t help them achieve that if you don’t know who your content reaches. It is essential to invest in technology and market research so that you know your audience better. In September, we’ll be looking at how to generate higher returns via advertising and data-driven techniques to get better ad performance.

The key is that you need to focus your digital innovation efforts and resources not just on delivering editorial innovation but also advertising and revenue innovation. In digital media, you’re not just competing against other news organisations for audiences, but also social networks and search engines for ad revenue.

Article by Kevin Anderson