The Yahoo sales partnership with newspapers got the feel-good treatment in the Saturday business section this weekend.
The article comes in the midst of a series of epically bad announcements from the newspaper industry: classified sales are plummeting, display sales a moribund mess because of the downturn in consumer spending, unwieldy capital structures driving old-line papers into bankruptcy even as last year’s heroic rescues of the Tribune, the Minneapolis Star Tribune and the Philadelphia papers collapse in flames.
Yahoo needs good press, and Hilary Schnieder is a respected and connected executive, so this article, even though the headline is a little less than timely, paints a hopeful picture around one important initiative for Yahoo and the newspaper industry at large.
I was particularly struck by one quote, which has a lot of the optimism that you often see around new sales programs that get off to a strong start. The sales reps are always excited, the clients receptive, and as you grab at the low-hanging fruit you spent months lining up in advance, you suddenly wonder, “What if it just stays this strong? The sky’s the limit.”
“If we could do just shy of $1 million in two weeks in a horrible economy, what does it mean for us when the economy turns?” asked George H. Cogswell III, publisher of The Ventura County Star.
Of course, business doesn’t often turn out that way, and it is rare that an entrenched business like the newspaper finds a new product that changes the game. But the partnership between Yahoo and the newspapers frames several critical questions about Internet advertising that are getting played out on the local and national stage.
- What is the topography of the Internet landscape for local media, and which legacy media players, if any, will successfully transition into the future?
- What is the ultimate value of online advertising? Is it driven by the CPM levels set by ad networks, or can content creators — both online and off-line — accrue a premium CPM for high-quality content that develops engagement around a targeted audience?
- Can the traditional economics of content be transitioned to the Internet landscape?
The benefits of the Yahoo/newspaper partnership are built around the legacy strengths of the two companies. The newspaper has sales people on the ground, an ability to demonstrate “brand quality” that can justify higher CPM’s, and credibility around an integrated media story. (The last point is an acknowledgment that despite all the of hand-wringing about the print and the internet and newspapers, almost all newspapers have done a terrific job of getting their news content online in a well organized and timely fashion.)
On the other hand, the newspapers do not have enough inventory to drive the retail rate up to level that can justify their sales expense, so broader distribution, with more inventory, into local and regional markets can help increase the value that they sell. Also, Yahoo brings tremendous skills in ad targeting, the ability to integrate search into an advertising campaign, and a brand halo that enhances the newspaper.
This is happening in the midst of tremendous pricing pressure in online advertising. While content sites target $20+ CPM’s, and CPC’s that support the higher CPM’s, ad networks are driving business at $5 – $10 CPM’s.
The premise of the ad network is that broad reach across a network of web sites with reasonably good content and reasonably strong brand identity can be as efficient for marketers as placements in one or two branded-content sites. And, the ad network buy can be much cheaper.
The chart above shows the traffic trends for newspaper web sites according to MediaMetrix over the past year. Aside from the big kahunas — The New York Times and Tribune Co. — in the market, the largest newspaper web sites do 6 to 8 million uniques each month. They have fairly mature traffic patterns, and for the large chains, the total represents the aggregation of many metro markets.
Apply a $20 CPM to 7 million unique visitors and you arrive at imputed revenue of $140,000 per month, or a run rate of $17 million dollars — a fraction of the revenue a major metro newspaper generates.
Of course, by bundling different packages, adding video, creating section sponsorships, the local newspaper sales force is able to significantly increase the revenue generated, but the $20 CPM is the baseline that they build from.
Reduce the CPM to $5, and the imputed revenue drops to $4.25M…not enough to run the servers and the ad serving technology needed to provide the content on the site.
So, when we read about the concerns about the future of newspapers, and the sustainability of quality reporting, the anxiety is being framed by a revenue environment that has shifted the economics of content. The question is valid and essential: what is the value of content on the Internet, and to what degree should Internet advertising support content generation. Are those economics achievable in a networked world? Or, are those economics even meaningful, or are they the legacy of a long-ago time when good journalism and good content took institutional resources and provided a social benefit?
