Now It’s Confirmed: Some of That Double Digit Internet Advertising Increase Forecast For Each of the Next Five Years Will Come Directly From the Pockets of Newspapers

Philip Stone May 8, 2005

While mainstream newspapers are bemoaning circulation declines, and trying to get the young more interested, they were at least secure knowing that while the industry’s $47 billion spend hasn’t grown much over the years it is still 40 times more than Internet advertising. And even though Internet advertising is forecast to grow by some 30% in 2005, that was supposed to be all new money; advertisers were not withdrawing from print. But an important new survey has just put the lie to that!

According to Forrester Research, traditional advertisers say they are now starting to shift their spending away from print – newspapers, direct mail, and magazines – to fund some of the increased 2005 Internet spending.

Forrester questioned 99 of the top US marketers, and found that 47% planned to spend more online in 2005 at the expense of traditional channels. Eight-Four per cent said they planned to increase their 2005 online ad spending by at least 25%.

The main problem for newspapers is the perception that the Internet now offers more value for money given the greater time and influence that the Internet now plays in the lives of many families.

The report, “US Online Marketing Forecast: 2005 – 2110”, basically says that within the advertising community there is an ongoing reappraisal of how people spend their leisure time – watching television, reading newspapers, surfing the Internet – and that with Internet usage now close to the time people spend watching television that advertisers were readjusting their spends accordingly.

Charlene Li, one of the report’s authors, said on her blog site, “The growth (in Internet spending) is coming from marketers having to make tough decisions about allocating scarce advertising dollars — in many cases funding online channels from traditional channels.

And she warned, “The key is perceived effectiveness – most marketers saw traditional channels like TV and print becoming less effective over the next three years. Given the pressure marketers face to make every dollar count, they will shift spending to channels they believe are more effective.

“But note: this doesn’t mean a wholesale flight away from traditional media – I think it is more of an adjustment in the marketing mix that takes into account the greater time and influence the Internet plays in our lives.”

She did not place a value on the advertising spend that newspapers could expect to lose in the next five years. But McKinsey & Co., warned the industry recently that it stood to see its classified advertising revenue alone take a $4 billion hit by 2007-- all lost to the Internet.

That reinforces that those newspapers that have embarked on policies aimed at protecting print revenue even at the expense of revenues they could earn on the Internet are merely sticking their heads in the sand.

"The key is perceived effectiveness."

Charlene Li

As Frank Varga, publisher of the San Francisco Chronicle told a meeting of publishers recently, “ We cannot be a one-platform publisher any more. We are going to have to be a multi-platform provider of information.” Or put differently, newspapers need their share of the Internet revenue pie to supplement what they stand to lose from their print editions.

All is not lost by any means for print newspapers, but many will need to change their ways. One scenario that is gaining attention is that eventually most people will rely on television and the Internet for their supply of international and national news. Since all that information is available on multiple sites for free it’s a tough sell for the print edition. But, the thinking goes, forecasts are pointing to portals like Google and Yahoo, becoming so successful that many newspapers will adjust by becoming more local and regional, providing that type extensive coverage not so readily available online.

The trick for those newspapers will be in successfully converging the print edition with their web site so that neither gives the entire package away but rather they complement one another and that they heavily cross promote one another.

The scenario continues that with their success those Internet portals will see their advertising rates climb to such a level that print advertising could well be seen as a bargain.

Forrester forecasts that by 2010 Internet advertising will reach $26 billion  -- more than half of the current newspaper spend. Already there are signs that the major portals are running out of inventory and that advertisers are turning to secondary sites, even looking to place considerable campaigns on blog sites.

And it’s not just the Internet. Marketers believe the next big platform will be mobile telephones.

All of this paints a particularly dark picture for newspapers. They knew they had circulation problems,  -- some major US papers saw declines of as much as 5% in just the past six months alone -- and they knew that national advertising in particular remained weak, but they were secure that the advertising spending was not being diverted, it just wasn’t being spent.

Now it’s a new, more frightening ball game. With new advertising targets such as mobile phones plus increasing the number of Internet sites that get some of the spending, the question many publishers should be asking themselves is how much will be left for them.

The basic answer is that those who participate in the multi-channel approach to providing consumers with the information they require can still do very well. Those that think they can pull it off remaining just a one-channel provider are going to be in for some very nasty shocks – and not as far off as one may have previously thought.