Newspapers: Not a Zero-Sum Game - A Minus-Sum Game

Henry Blodget analyzed the future of newspaper advertising this week, concluding that “the $42 billion that was spent on print newspapers in 2007 isn’t going to vaporize–it’s just going to go somewhere else.” By 2017, $10 billion of it will go to surviving newspapers, $2 billion to outdoor, and $30 billion to digital — of which, he predicts, $5 billion will go to newspaper web sites and $25 billion will go to “Google (GOOG), Yahoo (YHOO), Craigslist, eBay (EBAY), Amazon (AMZN), job sites, blogs, mobile ads, video ads, etc.”

But I disagree. Much of the advertising that is still in newspapers will vaporize. Much of it already has vaporized. Papers in top markets are down tens upon tens of millions of dollars each in classified revenue that has disappeared. Those former advertisers are using free or near-free substitutes to bring in and serve customers: craigslist, real estate agents’ own sites, car dealers’ own sites, and other new competitors. That’s not even to mention the cheaper sites — Monster (MNST), et al — that took real market share but at lower revenue. That newspaper revenue is gone forever. I’m not whining about that. It’s the new reality of the post-scarcity economy. This will only continue.

Now add Google and its power to get more and more targeted in a more efficient and transparent (well, translucent) marketplace. That is to say, the same marketing power will be bought for less.

Now add more changes in the marketplace itself. There has been a tremendous consolidation in retail with all department stores becoming one — Macy’s (M)— and big-box and mall retailers that spend more on national than local budgets and Wal-Mart (WMT) killing stores but not advertising locally itself. Yellow Pages will also migrate to mobile Google maps, I predict.

And there is the overall trend of advertisers replacing ad dollars when they create instead direct relationships with their consumers. Bob Garfield identified that in his Chaos Scenario 2.0 and I wrote about that here.

So you see plenty of revenue vaporizing. It’s not a zero-sum game. It’s a minus-sum game.

Now at the same time, if papers are smart, they can use online and its laser targeting to serve a new population of hyperlocal advertisers that never could afford high-priced papers before. But as I can tell you from first-hand experience, papers are not built for high-volume, low-cost advertising like this. So those advertisers will go to Google and local blogs.

Gallows humor: Friend Steve Gorelick sends me the Onion’s analysis:

A recent glut of feature stories on the death of the American newspaper has temporarily made the outmoded form of media appealing enough to stave off its inevitable demise for an additional 21 days, sources reported Monday. “People really seem to identify with these moving, ‘end-of-an-era’-type pieces,” Washington Post editor-in-chief Leonard Downie, Jr. said. “It’s nice to see that the printed word is still, at least for now, the most powerful medium for reporting on the death of the printed word.” Downie added that the poignant farewell Op-Ed he recently penned was so well received that he will be able to hold onto his job for up to six more days.

Comments

[Ames Tiedeman:]

Look, Sam Zell just bought a bunch of newspapers. News print is not going away any time soon.

2008 May 04 10:24 AM

[Joe:]

It's an interesting article. I dare to throw in a few more points:
right now there only is talk of newspaper ad revenue. What is maybe
still to come are considerations or facts for whatever about the
total ad spending.
Consider for instance ad spending for the auto industry 2006:
$ 13,5 billion, not included car dealers.
Chrysler was bought for $ 7,4 Billion last year by Cerberus.
(I just lifted this from the net: a Nielsen report to that:)
www.nielsenmedia.com/n...

Ad spending all in all could be considered huge, irrespective of how
the economy is doing.
And this, also just lifted from the net, total ad for 2007:
adage.com/mediaworks/a...

Ironically formulated, ad spending is some sort of pagan religion
guaranteeing all sort of miracles, ranging from resuscitating someone
from the dead to healing all sorts of other illnesses, and certainly,
on top of that, ad spending works wonders in each and every
case for the advertiser. A company only has to spend sufficiently
and the success is guaranteed. (Just contact any of the big
ad agencies and you're in touch with the super-natural.)

And on not to forget the consumers who sometimes have the
habit of blocking, averting, skipping TV ad for instance, ot
shaking out all the fliers, etc. coming with a paper, before they
start reading it. ...
Somehow it is a matter of "conflict" and interest, of cost -
efficiency, of consumer habits and so forth. An open matter in
my opinion.

2008 May 04 12:31 PM

[Jeff Jarvis:]

And Sam Zell is having to sell Newsday because he doesn't have the cash to maintain the purchase because his purchases in a recession aren't throwing off that cash. Not pretty.

2008 May 04 08:20 PM

[investorslive:]

Looking at the following for Monday, all the big boys will take a break and consolidate (GOOG, AAPL, BIDU, RIMM, V, MA) its only healthy... now we have the MSFT YHOO saga...

www.investorslive.com/.../

2008 May 05 01:07 AM

[Robert Ivan:]

I woke up this morning thinking about the bicycle shop I used to frequent in my hometown. The were family owned and in town since forever. When big box stores started coming up, people bought their kid's bicycles there instead of the family shop. Business faltered and then their world changed completely as a walmart and toys r us was built in town. They went bankrupt.

The upside is that there is new bike shop in town. They sell and repair high end road-bikes and mountain-bikes. They participate in local events. They sponsor local riders for the amateur circuit with little things like free tire tubes and wheel alignments. They have a loyal and growing customer base that the big box stores cannot touch.

Newspapers take note. Adapt to the market.

2008 May 05 11:49 AM

[Tim H.:]

I work at a Print publishing plant for Gannett. Don't ask about working for them because I never chose too (Company got bought out in 2000 by GCI). Excluding how I feel about Gannett. I can tell you that even in these troubling/downsizing times. We are printing all kinds of commercial print other than just newspapers. Print is changing and downsizing. But there will always be a segment of population that is not tech savvy. That will never have computers etc... Now my timeframe? Well how about my life time (I am 44). The key is finding a business model that keeps the companies if not thriving at least surviving. Case in point: WPO's Kaplan educational services. Newspapers can diversify there company. GCI offers a nice dividend at it's current price (over 5%).

2008 May 07 12:49 PM