Borrell: Newspapers Power Local Online Ad Growth

Borrell Associates released a report last week that projected local online ad spending would increase by 46% and hit US$3.9 billion in 2005. The Kelsey Group€™s forthcoming forecast is somewhat more conservative (except in the paid search category). However, it focuses exclusively on Internet Yellow Pages (IYPs), Local Search and Wireless (what we call €œdigital directional media€). Borrell€™s estimates include local TV and newspapers. Certainly we agree in a general sense with Borrell€™s findings and conclusions€"local advertising online is growing quickly.

Interestingly, Borrell asserts that local newspapers have the largest share of local online advertising and that IYPs have €œslipped.€ In one sense this is a straight €œempirical€ question. However, as a general matter, the newspapers are under siege on all sides (recent free classifieds entrants such as Zixxo.com and LiveDeal only add to the danger). So I am skeptical of Borrell€™s assertion about the relative health of online newspapers. While online ads represent a growth engine at companies such as Knight Ridder Digital, none but the top tier of U.S. newspapers have a coherent online strategy. And even the top newspapers have been slow to execute.

As a case-in-point, a report released recently by Peter Zollman€™s Classified Intelligence, entitled €œCompeting with Craig," argues that San Francisco Bay Area newspapers and their related online units have lost €œbetween US$50 and US$65 million in annual revenues€ in the employment category alone. Another interesting and somewhat remarkable fact: According to research from Morgan Stanley, eBay has, by a ratio of almost 6 to 1, more classified listings than all U.S. newspapers combined. (Yes, you read that right.)

I believe that some newspapers will regain their footing in 2005 and launch more effective online offerings. But there are challenges they must overcome, which IYPs do not face€"the conflict between editorial and advertising, for example.

Later this week, The Kelsey Group€™s forecast will be released; and later this quarter the ILM program will be publishing a White Paper on newspapers and local search.

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