New Yahoo / AT&T Deal Means New Competition in Many Newspaper Markets

by: Ken Doctor

It turns out that newspaper sales forces weren't the only child in the Yahoo (NASDAQ:YHOO) APT family. Yahoo Newspaper Consortium members now have a brother, and he's fairly full grown.

Today, Yahoo and AT&T (NYSE:T) announced a deal to enable AT&T's 5,000 local salespeople to sell display advertising, based on Yahoo's behaviorally targeted (BT) ad engine.

The development is a potential game-changer in the local ad selling game, which itself is in throes of revolution. Just last week, McClatchy (NYSE:MNI) announced that digital revenue is now generating 17.3% of its overall intake, and the company has been focused on online-only sales, getting beyond the strictures of bundled print/online buys. Hearst and Scripps have been among the Yahoo Newspaper Consortium members touting their successes with APT, which has doubled prices in some categories. Most significantly, 8000 or newspaper salespeople have been re-trained over the last year, though, clearly only some of them are really actively engaged in selling the new products.

The new local ad-selling mandate: Eliminate the order-taking culture traditional to newspaper companies, and focus local ad salespeople on "consultative selling." You know, understand what the merchant needs and then pull out of your briefcase a tailored program to help them get customers in the door. The biggest prize to be pulled out of that magic briefcase: buying targeted audience in one of more than 300 categories.
Now AT&T salespeople will be able to pull the same trick out of their AT&T bag.
Is it direct competition?
No, and yes.
No, largely, in the old world. Yellow Pages have largely sold service-oriented businesses. In that old world, YP, broadcasters and newspaper publishers largely co-existed, not worrying much about the overlaps as all enjoyed good margins. Yellow Pages advertising is about 70% service-oriented, says Peter Krasilovsky, a veteran YP watcher. Newspapers, of course, have been more product-oriented, think cars, homes, and big-screen TVs.
Yes, though, I believe, in this emerging new world. With traditional advertising eroding everywhere -- on broadcast TV, in phone books, in newspapers -- all local ad sellers are throwing the old rules out the window. They are all, to varying degrees of execution, going after more businesses in the local market with more products to sell.
Krasilovsky notes that the "Yellow Pages people are increasingly aggressive going where the newspaper people are," and points to today's announcement that Idearc (OTC:IDARQ) -- home to and publisher of the Verizon Yellow Pages -- has launched an auto portal. Krasilovsky is skeptical that today's Yahoo/AT&T deal will make major marketplace difference soon. He says that YP salespeople are used to walking down the block, selling everyone, and have learned how to sell "eight or nine" products, on both points distinguishing themselves from newspaper salespeople. Those facts, and the historic service/product distinction, lead him to believe the competition won't be, well, that competitive.
Until a year or two ago, I might have agreed. Newspaper people used to sniff at smaller businesses, saying they were too small to go after.
Now, as I talk with them, I hear how they've recognized that Google (NASDAQ:GOOG) and Yahoo self-serve have created a new market. SMB -- small medium businesses -- are a big target, for them, I'm told, repeatedly. They are actively working re-seller deals with companies like Yahoo, Google, WebVisible, ThePort and others, eager to find scalable ways to reach those new businesses, to becoming successful consultative sales companies. Re-selling other inventory in addition to their own site inventory (selling inventory is a major part of the Newspaper Consortium deal) is another key, they believe.
Newspaper publishers, YP publishers and broadcasters are all re-shaping their businesses. First comes cost-cutting (that's what was behind the "surprising" Gannett (NYSE:GCI) and McClatchy earnings this past week, not revenue growth). It 's the re-shaping of the local sales pitch, though, that is the growth initiative. The hope: a re-shaped local sales program, a great new bag of sophisticated ad tricks, will pay big dividends when an economic recovery finally kicks in.
So newspaper publishers, it looks like, got a head start. They're still in various stages of implementation with Yahoo. There have been many hiccups along the way. On today's Yahoo quarterly call, even CEO Carol Bartz acknowledged that APT had "overpromised."
"We have thrown a lot of bodies at this because it is [technically] inefficient," she said. "Next year," she hopes to move out some of those bodies, but Newspaper Consortium members will tell you that more people -- support people -- are needed, as Yahoo grapples with its new role as vendor.
In addition, the jury is still out on how much incremental revenue, again in which categories, at whatever pricing, sticks in the market. The answers are absolutely fundamental to the numbers newspaper companies will be able to report in 2010.
Overall, though, today's Yahoo/AT&T deal represents new competition for beleaguered newspaper companies.

Once AT&T sales reps got up to speed (and that's certainly an intriguing question, given the newspaper company implementation experience), they'll be competing head-on with newspaper reps. Open up the Yellow Pages, and browse through furniture dealers, appliance sellers, home services of all kinds now coveted by "newspaper" companies. Sometime in 2010, that local furniture dealer will be seeing a newspaper rep one day, selling newspaper space, local online news site space and Yahoo-inflected products. The next day, the same dealer will get a visit from a YP rep, selling YP space, online site space and Yahoo-inflected products. Maybe, in 2010 or 2011, local broadcast sales people will join them, if Yahoo believes they would add to the mix. That's today's picture.

The next shoe to drop may well be Yahoo's expected hook-up with Microsoft (NASDAQ:MSFT) on search. If that partnership develops, Yahoo will presumably focus on APT and the display side of the business and Microsoft, using Bing, will power search -- replacing, we would think, the Yahoo search and paid search most of the Newspaper Consortium members use. Lots of potential plusses and minuses to work through there.

In the meantime, Yahoo can claim to have grown its local salesforce -- at relatively small incremental cost (most of the ad selling is on a revenue share basis) -- by more than 50%, and newspaper companies have gotten still another spur to transform their businesses more quickly.

Disclosure: No positions in companies named.