Papers Still Dominate Local Online Ad Spending -- But Are Losing Share

By Jennifer Saba

Published: June 06, 2007 11:30 AM ET
NEW YORK Newspaper Web sites might reap the most from local advertisers spending online but a new study reveals online newspapers are losing share. According to Borrell Associates, newspapers controlled more than 35% of all locally spent online advertising in 2006 but that dominance is declining: Online newspaper share decreased 8.2 points over a two year-period.

"It's likely to slip more this year," the report warned, "as the industry grapples with the Web's transformation from a banner-advertising and pay-for-listings medium -- familiar formats for newspapers and their existing advertisers -- to one that is dominated by video advertising and paid search."

The study found there is no slowdown of advertising dollars flowing to the Internet either, rather more competition is honing in on newspapers' turf. This year, analysts with Borrell forecast that local online advertising is projected to increase 31.6% to $7.5 billion and Internet giants like Yahoo, Google, and others are scrambling for those dollars. Borrell found that pure-play sites represent 33.2% of local online ad spend.

"The local marketplace is shifting," analysts observed in the study. "The come-from-behind sites operated by radio and TV stations are gaining small bits of share ... The Internet 'pure-play' sties -- those not affiliated with traditional media -- are gaining local market share."

Newspaper companies teaming up with Google, Yahoo, Monster and others, stand to gain suggested analysts. For example, Yahoo's domestic advertising growth slowed from 36% in 2005 to 19% in 2006 and in the Q1 this year, Yahoo's growth is almost flat, up 0.4%.

The alliance with Internet companies will allow newspapers to tap into national ad revenue or as Borrell calls it "found money." Analysts wrote that those newspapers that participated in the survey and are involved in national advertising networks still received on average 93% of their revenue from local advertisers in 2006.

The study said that those newspaper sites that are succeeding do so because of a combination of factors including staffing online-only sales people that target non-traditional advertisers and by instituting higher online ad rates.

Furthermore the study revealed that the average newspaper Web site's revenue equated to about 15% of all locally spent online advertising in 2006. However, there were papers that reported much larger percentages, in a few cases, 50%. Not only did these sites maintain a separate online sales staff, the sites depended less on classifieds. The top performers received 62% of its online revenue from classifieds as opposed to 71% for the average newspaper Web site, according to the report.