* Online advertising revenue rose 1 pct in 1st quarter
* Fifth straight quarter of declining online ad growth
By Jennifer Saba
June 7 As more U.S. newspapers cut back on print
to reduce costs and focus on their websites, a troubling trend
has emerged: online advertising sales are stalling.
In the first quarter, digital advertising revenue at U.S.
newspapers rose just 1 percent from a year ago, the fifth
consecutive quarter that growth has declined, according to the
Newspaper Association of America, a trade organization.
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.
For an industry savaged by the erosion of print advertising
dollars, significantly boosting digital revenue is necessary for
survival. But the double-digit online growth rates that many
newspapers used to enjoy -- and on which their hopes for a
prosperous future rest -- could be a thing of the past.
At the New York Times Co (NYT.N) digital ad revenue at its
news sites, including nytimes.com and bostonglobe.com, fell 2.3
percent to $48.5 million in the first quarter from a year
earlier. At the Washington Post Co WPO.N, the decline was even
worse, with revenue dropping 7 percent to $24.2 million, mainly
at the website of its namesake newspaper and online magazine
"The online share that newspapers are getting is smaller
even though it's the greatest goldmine of advertising growth
we’ve seen in a generation," said Ken Doctor, an analyst with
Last week, ratings agency Moody's issued a report calling
the U.S. newspaper industry's outlook "negative" because of the
"relentless" declines in overall revenue. [ID:nL1E8H1ADK]
"At this point, there is no evidence digital strategies are
returning most daily newspapers to positive growth," wrote
Moody's senior credit officer John Puchalla. "It is merely a way
to moderate revenue declines."
Newspaper executives have long touted digital advertising as
a bright spot in an industry plagued by declining print
readership. For instance, New Orleans will become the largest
U.S. city without a daily newspaper this fall, as the New
Orleans Times-Picayune prepares to print just three days a week
to cut distribution costs and to focus online. [ID:nL1E8GOI5M]
Some publishing executives are still optimistic about the
long-term outlook for digital, blaming the slowdown on the
Scott Heekin-Canedy, president and general manager of the
New York Times Co, said digital advertising is becoming just as
sensitive to economic swings as print. "We actually saw a dip
associated with uncertainties," he said. "We heard it from
advertisers and saw it in the spending patterns."
The New York Times Co gets 10 percent of its revenue from
digital ad sales and 35 percent from print ads. Print and
digital subscriptions generate 48 percent of revenue, while
miscellaneous sources account for the rest.
Steve Hills, president and general manager of Washington
Post Media, labeled the falloff a "temporary slowdown" in a weak
economy and a technology issue related to how content on its
websites is published.
But there's another problem that is less temporary: the rise
of ad exchanges that put downward pressure on ad prices.
BEHIND THE SLIDE
Advertising exchanges are electronic platforms that allow
buyers to bid on and purchase advertising space at drastically
reduced prices. Many websites -- not just newspaper sites --
rely on these exchanges to sell unclaimed advertising spots,
known in industry parlance as excess inventory. The thinking is
it's better to get something than nothing at all.
But it also trains ad buyers to expect lower advertising
prices. "It's like a publisher trying to sell me an Armani suit
for $3,000 but I can walk around the corner and buy it from
Google for 90 percent less," said Shawn Riegsecker, chief
executive of Centro, an agency that specializes in buying and
selling digital ads, and counts many newspapers as its clients.
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.
News Corp's (NWSA.O) Wall Street Journal, which does not use
advertising exchanges, enjoyed double-digit growth in digital ad
sales for the quarter ending March, according to Michael Rooney,
chief revenue officer at Dow Jones' Consumer Media Group. He
declined to say how that compares with historical trends.
Robert Dickey, president of U.S. Community Publishing at
Gannett Co Inc, the largest U.S. newspaper publisher,
acknowledged there is pressure on ad prices. But he argued that
advertisers want to be associated with strong news brands.
"What we show our advertisers is that our audience and our
performance for them is higher than what they are going to find
at other types of sites," he said.
HAVE AND HAVE NOTS
At Gannett, its national paper, USA Today, faired better in
the first quarter than did its local properties. USA Today's
digital revenue rose 25 percent in the first quarter, with video
becoming a big drawer of ad money, said newly appointed
publisher Larry Kramer. That compared with 11 percent growth in
Gannett's U.S. Community Publishing division.
Overall, however, the newspaper industry's share of online
advertising dollars is shrinking. U.S. online advertising
revenue is forecast by research firm eMarketer to rise 23.3
percent to $39.5 billion this year, on growth in video
advertising and Web search ads.
Auto dealers, retail clothing stores and other local
advertisers still use newspaper websites to reach people online,
but that segment is also facing insurgent competitors such as
daily deals site Groupon Inc (GRPN.O), search giant Google Inc
(GOOG.O), and e-commerce leader Amazon.com Inc (AMZN.O).
"If you look at the top 20 companies that made all the money
in local Internet advertising, more than two-thirds ... have
nothing but advertising ... It’s not about the news." said
Gordon Borrell, CEO of Borrell Associates, citing websites like
Autotrader, Yellowpages.com and Groupon.
Some newspapers are trying out new formats and experimenting
with different types of ads on their websites to try to goose
"Newspaper companies have acknowledged those trends and
there is a lot more innovation on the online side that's not
immediately reflected in the numbers," said Caroline Little, CEO
of the Newspaper Association of America.
(Reporting By Jennifer Saba; Editing by Peter Lauria and Steve
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Keywords: NEWSPAPER DIGITAL/ADS
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