Reflections of a Newsosaur: Online sales are flat-lining at newspapers

With total ad sales sliding 5.1% in the third quarter of this year, newspapers have set what must be some sort of record in the annals of American business by having their primary revenue stream fall for 25 quarters in a row.?

In 75 months of unremitting declines, the industry?s consolidated advertising sales have plunged from an all-time high of $49.4 billion in 2005 to what I estimate will be no better than $22.5 billion in 2012. The year-end revenue projection is based on historic trends.?

It is a testimony to the legendarily high operating margins of the industry and the considerable cost-slashing skills of contemporary publishers that nearly all the newspapers in business in mid-2006, when the trouble began, are still plugging along today. ??

But no industry ever cut its way to success. And the question, as newspapers mark six-plus ?straight years of contracting revenues, is what, if anything, they are going to do to turn things around. ?The nearly universal answer we have heard from editors and publishers is that they are going to transition from print to digital publishing. ?

That is the right answer. ?But the objective record shows that, to date, they have manifestly blown the opportunity. ?Let?s look at the numbers:?

On the eve of the Thanksgiving weekend, the Newspaper Association of America quietly updated its website?on Wednesday to report that print advertising revenues in the third quarter fell by 6.4% from the prior year to $4.5 billion, the lowest level for the period since 1982. To put the decline in perspective, $4.5 billion in 1982 dollars would be worth more than $10.3 billion today. ??

On the plus side, the NAA, a publisher-funded trade organization, reported that digital revenues advanced by 3.6% in the third quarter to a bit under $759 million. ?But the $23.5 million year-to-year gain in digital sales was too small to offset the $311 million year-to-year drop in print revenues. Thus, newspapers in the quarter lost more than $13 in print revenue for every $1 they gained in digital sales. ?

Unfortunately, as illustrated in the chart below, the pivot from print to pixels has been far too feeble for the last six years for digital sales to come anywhere close to replacing print revenue. Here is the long-term trend:

After peaking at an all-time high in 2005, print ad sales at newspapers began what would prove to be a six-year dive in the middle of the next year, falling by 2.6% in to $11.2 billion in the third quarter of 2006. That means print sales in the third quarter of this year were $6.6 billion lower than they were in the comparable period in 2006, reflecting a 59.5% decline. ?

In the same six-year time frame, digital sales at newspapers rose 19% from $638 million to $759 million. ?With the $6.6 billion drop in print revenue dwarfing the $121 million increase in digital sales, newspapers between 2006 and today lost a staggering $55 in print revenue in the third quarter for every $1 in new digital dollars.?

But, wait, it gets worse:?

As illustrated in the green line along the bottom of the chart below, digital advertising growth at newspapers has been all but flat in the last six years at the same time the over-all market for digital advertising (orange line) has grown explosively.?

While the Internet Advertising Bureau has not yet reported digital sales for the third quarter of this year, I have projected from historic trends?published by the trade association that the figure will come in at approximately $9 billion in the period. ?

Assuming my projection is correct, then the over-all market for digital advertising between Q3-06 and Q3-12 grew by 114% while digital sales at newspapers increased by only 19% in the same period. ??

One of the reasons newspapers are underperforming the market is that they have built their interactive businesses on the two weakest digital advertising categories: banner and classified advertising. ? ??

As reported on page 21 of this IAB presentation, the percentage of digital ad dollars spent on banner advertising in the first half of the year has dropped annually for the last three years. ? The percentage of dollars spent on online classified advertising has tumbled by more than half since 2006. ?

The single most significant digital ad category is search, which consistently has accounted for nearly half of all expenditures since 2008, according to IAB. Notwithstanding the growing desire of advertisers of all stripes to target specifically identifiable customers, transactional search is a format where newspapers never invested and never have been able to compete. By their inaction, publishers have been shut out of nearly half the digital market.?

Now, the same thing appears to be happening again. While the IAB reports that mobile advertising has doubled in each of the last three years, most newspapers have only rudimentary capabilities in this rapidly developing area. Publishers also are weak contenders in video, the next-biggest area of growth after mobile. ?

The challenges will keep coming. ?Not the least of them will be the innovative, target-marketing capabilities bound to be developed by Facebook, Twitter and dozens of other social media to capitalize on their expanding audiences. ?And who knows what lies beyond? ?

While publishers are preoccupied with managing the epic decline in print, they are losing sight of the future.?

Source: http://newsosaur.blogspot.com/2012/11/online-sales-are-flat-lining-at.html

kit homes boxing day radio shack bethany hamilton bethany hamilton after christmas sales stratfor