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Traditional media, including TV, Yellow Pages and newspapers, face a central paradox and challenge that was explored in Lincoln Millstein's keynote at Drilling Down on Local. In a very thoughtful presentation, he advanced a skeptical view of the revenue potential for online media.

He made the point that there were "community newspapers" doing more than US$100 million in annual revenue, while marquee Web property MarketWatch (recently acquired by Dow Jones for roughly half a billion dollars) had only US$35 million in annual revenues.

His point was that there simply wasn't enough inventory/capacity online to deliver the kinds of revenues that traditional media have historically generated. He called that "The Paradox of the Growth Imperative."

However, the part of the equation that he didn't fully discuss was the pressure being generated by changes in consumer behavior. Basically, usage is moving online for broadband consumers and there's little or no usage growth for traditional media in major U.S. markets. The growth is online.

Right now there's a gap between what consumers are doing and where marketers are putting their money. Of course, there's not going to be a 1:1 substitution of online dollars for offline spending — that fundamentally can't happen (at least now), according to Millstein. And it won't. Traditional and online media are ultimately complementary.

But if usage is moving online (and youth would rather, e.g., give up TV than the Internet), marketers will ultimately need to be in front of those consumers. The central question for traditional media with online businesses is: how do we replicate the revenues and margins of traditional media online?

That's a fundamental challenge. Millstein would I think agree. He said as much.

This issue of the growth and revenue potential of online media, but search in particular, was explored extensively in the final conference panel, Branding and the Future of SEM. While this can be debated, I believe the answer lies in developing the tail (as well as new products that can command higher prices). That's a long-term proposition.

I asked the panelists whether the marketplace would wait for the tail to develop to permit the kind of inventory that would eventually allow for offline-like revenues.

Barbara Coll wasn't sure. In the past couple days, analyst Safa Rashtchy, who was supposed to be on the panel but dropped out because of earnings announcements, set a price target for Google of US$250. Yikes!

While that may be justified in the near term, those sorts of expectations create dynamics that are ultimately contrary to the long term health and development of search as an ad medium. As Millstein said, one disappointing quarter and these highflying stocks could lose a quarter of their value.

It's impossible for these companies to generate 50%-100% revenue growth consistently over time. Look at eBay, which has been hammered for growing only 44% and 36% in the U.S. in its past two earnings announcements.

Both traditional and new media each face their own very real challenges then. And there are no easy solutions for either of them.

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