$7.5B sales plunge forecast for newspapers

The newspaper industry is likely to be the next one calling for a bailout… if these projections are accurate.

Should this forecast prove to be correct, sales would tumble by 16.5% to $37.9 billion from last year’ s depressed level and the industry will have lost a staggering 23.4% of its revenues since producing a record $49.4 billion in sales in 2005.

[From Reflections of a Newsosaur: $7.5B sales plunge forecast for newspapers]

More interestingly, the online newspaper sector has been growing significantly over the last couple of years and online news sites have done all the right things with regard to adding video/audio content, expanding features sites, syndicating third party content and services, and courting interaction with the audience. We can quibble that they aren’t doing enough of the above, but the fact remains that online audience has consistently grown and key metrics, like time spent, have improved.

The elephant in the room is the ad networks and declining value to newspapers as their core audience grows and online inventory expands. I argued as much in this post, suggesting that at it’s core the newspaper business (and associated advertising sales operation) is inherently local while ad networks are generalized.

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Ad Networks Race to the Bottom

The Interactive Advertising Bureau (IAB) and Bain & Company today announced the release of a benchmark study which suggests that online publishers are increasingly turning to sales intermediaries known as ad networks to sell off excess inventories. The use of “ad networks” surged from 5% of total ad impressions sold in 2006 to 30% in 2007, according to the newly released “Digital Pricing Benchmarking Study” from Bain, the global business consulting firm, conducted in coordination with the Interactive Advertising Bureau.

[From Use of “Ad Networks” Surges Six-Fold as Media Companies Step Up Monetization of Unsold Online Advertising Inventory]

Keep in mind that the above study is being promoted by the IAB… for a more sanguine look at online ad networks you should read this piece in MediaWeek:

“While ad networks and their cousins, ad exchanges, offer an efficient way to unload inventory that would otherwise go unsold, common complaints are that networks amount to paltry ad rates, low-rent ads and, ultimately, the threat of undermining a brand’s value. “

Why is this a race to the bottom? For starters, the only real differentiator that the 300+ ad networks can control is price and even there the unit metric is entirely direct response based, as opposed to brand metrics that advertisers care about equally if not more so than how many people are clicking on the ad unit.

I’m still learning my way around the online advertising space but I do know enough to suggest with some certainty that simply commoditizing a fungible product leaves you with little maneuvering room in a very crowded and noisy marketplace.

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