Bob Cauthorn, President at CityTools

Digital Thought Leaders

Is the newspaper industry stuck in the wrong advertising model?

January 2008

Newspapers are still fishing for advertising in the wrong place. That’s the conclusion of newspaper veteran Bob Cauthorn in looking at how the advertising model has failed to adapt in spite of the massive leaps in content. His argument is that hyper-local is the way forward.

Bob’s estimate is that the average price of an ad sold in Google is $149. It’s a broad brush guess because the data is never available, the point is clear: you can build a big business on small budgets. This comes at a time when US newspaper ad revenue falling more than 8% year-on-year for the third year in the row, building a momentum of 30% since 2005.

“Once upon a time everyone wanted to advertise with us. The thing is that we drove out the smaller advertisers as we ratcheted up the prices to the larger advertisers at the high end.” It’s a brutal way of looking at the industry but not without strong foundation.

The question he asks is “what if there was money all around us that we blinded ourselves to?” The San Francisco Bay Area makes a good case in point. It’s the fifth largest market in the US and yet the San Francisco Chronicle had only 4300 unique display advertisers last year. That’s only 2.2% of the businesses in their district.

His argument is that newspapers only touch a tiny slither of the economy, and his argument is that you need to migrate to self-service models of advertising development and delivery. In the US this form of ‘self-provision advertising’ that built Google’s revenues is something every newspaper can now tap into directly.

Here in the UK self service models started over a decade ago. In 1998 at The Daily Telegraph we were building self-service recruitment advertising, but like so much of the internet sector’s fortunes, timing is everything: the agencies were not digitised, the clients couldn’t process responses by email, the market simply wasn’t ready for it.

But today in the technically developed markets, this is the norm. Bob cites several reasons why the goals of the advertisers are aligned so closely to the goals of self-provision. It’s a compelling argument and leads him to conclude that “this is a model that is not only productive for the newspaper, but it’s also much better insulated from the economic and structural shocks we’re seeing in the US.”

Small advertisers are excited by any channel that allows advertisers to talk to their prospective customers at the moment of interest. Digital platforms deliver this brilliantly by turning the tables, putting the communication choice and tools in the hands of the user. That means there’s a clear goal alignment between web media property and advertiser.

The takeout? Mass media plus the local environment creates the perfect model for small ads. Bob’s CityTools product portfolio could make it as one of the major platforms. Their roll-out of user generated content tools in the US is just the start, the tools are multi-lingual and even though they keep their cards close to their chest, the business ambitions are global.

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