Technology threats to advertising breach newsroom walls

Technology that allows advertisers and readers to better connect continues to drive economic changes in the news business. The Internet hammered the newspaper classified business over the past decade, and now new technology for placing display advertising on Web sites promises to challenge remaining news industry business models.

Many journalists don’t give much thought to what happened on the other side of “the wall.” But advertising pays the bills – including reporters’ salaries – in almost all news organizations. And changes that interrupt the flow of money from advertisers to publishers ultimately result in less cash for newsrooms.

“If a newspaper had umpteen million dollars in revenue from employment advertising, which was the most lucrative category of advertising at newspapers, bar none, and that category has dropped by 40, 50, 60, 80 percent — that has a significant impact on everything at the newspaper,” said industry analyst Peter Zollman, founding principal of Advanced Interactive Media Group.

“Advertisers have far more choices than they have 15, 20 years ago and are taking far more advantage of those choices,” Zollman said.

One such choice advertisers have is to bypass sales staffs and place ads directly on a variety of Web sites, using self-serve tools offered by companies including Google and Yahoo’s Overture. That change is creating opportunities for smaller and independent publishers to attract advertisers they could never solicit before, even as it challenges established publishers to find new ways to hold on to their clients.

“There are some very large companies that have become large because of the scale that they offer and the conglomeration of that scale,” said Brian Axe, product manager for Google’s AdSense. “The web is so efficient that it can break up that conglomeration… and provide power to the individual who can’t get that scale on their own but can get that scale through an automated [advertising] solution.”

Google’s program allows advertisers to bid on keywords that trigger the delivery of their ads on the company’s search results and on content pages published by participants in the AdSense program. Placement of the ads is handled by computer algorithms, rather than human managers. [Full disclosure: The author has used Google’s system both to place ads for and publish ads on several websites.]

“You can’t service that long tail with people because whatever money you are making goes away because of human handling of all the pieces — the negotiation, ad placement, etc.,” Axe said.

Once readers see new options for getting information they want from advertisers, automated or not, they respond. “People want different presentations,” Zollman said. The presence of new advertising forms, and new publishers supported by them, such as the community classified and discussion site Craigslist, gives readers alternatives they may have wanted, but never had a chance to use before.

“Craigslist is powerful because it speaks to a lot of needs. It’s friendly. It has a community feel,” he said. “And it works.”

These new alternatives are draining readers and advertisers from traditional publishers, and their newsrooms, the same way that lost-cost retailers like Wal-Mart have lured customers from more established rivals such as Sears and online auctions such as eBay have gutted newspaper classified sections.

Advertisers placing ads through AdWords helped Google book more than $800 million in revenue during the three months ending Sept. 30, 2004 (the latest for which data is available). That revenue more than doubled the almost $394 million Google booked in the same period one year before. Over the same periods, Google increased the amount it paid in “traffic acquisition,” the category the company reports is primarily based on payments to AdSense publishers, by 111 percent, to $302.9 million.

Yet traditional publishers continue to struggle to grow their advertising business. This week, Ken Lowe, president and chief executive of E.W. Scripps, cited a “stubbornly tepid newspaper advertising environment” as a drag on the company’s profits.

One advantage that traditional publishers have held over high-tech rivals is the ability to target ads based on reader demographics, rather than just keywords. But even that advantage might be lost to new technology.

“Google is constantly innovating in various areas and we’re looking at the wide spectrum of media that we could go after,” Axe said.

“From our standpoint, we want to make sure that whatever the proxy for [advertising] relevance is, it adds a lot of value,” Axe said. “We are looking at the demographic profiling … I think anybody would agree that it is annoying to have to give your demographics before logging on to a site. Perhaps there might be other ways to do that [demographic matching] as well.”

“I can’t say that we have anything concrete on this, but we are watching it.”

So are traditional news organizations doomed to watch their top lines evaporate? Not if the people working for them can change and help develop their own new methods to serve readers and advertisers.

“Don’t think the old way is going to be enough for survival,” Zollman warned. “The mistake of the average journalist is to say I don’t want to have to deal with this stuff – I’m a ‘pure journalist.’

“Well, there’s a lot a very exciting and very pure journalism in interactive media, and great opportunities to learn and increase your value to your company … and to increase your value to you.”

One opportunity might lie finding a way to enable “two-way advertising,” said Edgar Canon, CEO of GetLocalNews.com, a start-up building community news Web sites maintained by readers themselves.

“On the Internet, everything can be two-way,” Canon said. “Rather than just pushing a message to you about ‘this is my product’ or ‘buy this’ we can create advertising that establishes a dialog, a relationship, a two-way communication with the user about any particular product.”

“It’s going to take one of the advertisers and one of the publishers to take a risk and go for it.”

Still, traditional publishers retain many advantages that start-ups and high-tech rivals long for. GetLocalNews.com, for example, is now looking for traditional newspaper partners, offering its tools for gathering local content for readers while the newspaper promotes the sites and provides access to the paper’s sales staff.

“The Main Street merchant is lagging across the board in terms of using Internet advertising,” Canon said. “They are folks who are not necessarily using the Internet as much as other folks are. And they have this relationship-based advertising with local folks, whether it be the yellow pages or with local newspapers.”

Even as demographic changes bring more ‘Net-savvy entrepreneurs into local business, a human sales staff can cement relationships that automated systems cannot initiate and sustain, Canon said.

But if news sales staffs and newsroom journalists do not rise to the challenge from new rivals, and find new ways to satisfy readers and advertisers, their organizations’ financial health with deteriorate.

“For an old medium that has a successful business model, that’s been around a long time, that has shareholders who expect it to increase its revenue and maintain its margins,” Zollman said, “it is really, really tough to adjust and to reach the new audiences.”