The US newspaper industry is facing some very bad news: growth in digital ad revenue is declining. A story published by Reuters today states that, according to statistics from the Newspaper Association of America, digital ad revenues at newspapers are up just 1% from a year ago, making this the fifth quarter in a row that growth has dropped.
Reuters reports that online ad revenues at the New York Times Company experienced a 2.3% drop to $48 million in the first quarter, compared to the same period the year before. At the Washington Post Company, online ad revenue fell 7% to $24.2 million, the article says.
What’s going wrong? Reuters says that experts blame the existence of too much advertising space online, the rise in discount-rate ad spots, and a tough economic climate in the US for the slowdown.
When the New York Times Company originally announced its decline in digital ad revenue, paidContent reported on an earnings call with CFO James Follo, who “explained that digital ad sales have long been insulated from macro-economic events. Starting in 2011, however, these ad sales began to be sensitive to the European debt crisis and other events that affect print ad sales.”
Reuters also reports that the rise in “advertising exchanges” – platforms that allow advertisers to bid on unsold online ad space, and purchase it at a radically cut price – have meant that many buyers are reluctant to pay full price for ads. Reuters quotes Shawn Riegsecker, chief executive of digital ad agency Centro, who said, “it's like a publisher trying to sell me an Armani suit for $3,000 but I can walk around the corner and buy it from Google for 90 percent less."
Yet despite the rise in ad exchanges and the tough US economy, according to forecasts published by eMarketer at the beginning of this year, online ad spending is actually forecast to rise significantly every year for the next five years. This includes predicted growth of 23.3% to $39.5 billion this year. So why are newspapers failing to get their share of the pie?
Reuters reports that advertising spending growth is mostly focused on video and search. Gannett’s main paper USA Today actually saw its digital ad revenue rise by 25% in the first three months of this year “with video becoming a big drawer of ad money”. A Pew study into the state of the media in 2011 said that video ad spending was projected to rise 54.2% this year. As previously reported, many big newspaper players, including the New York Times, are trying to get in on the game. But while video ads have big potential, the Reuters article implies that text news stories online often don’t have the same pull.
What’s more, Reuters suggests that newspapers are loosing out to sites that are entirely dedicated to advertising like Autotrader and Groupon.
A recent article from paidContent reports that mobile ad spending is heavily skewed in favour of search rather than display ads – also spelling bad news for newspapers. “According to a report from the Interactive Advertising Bureau, mobile ad buyers in Europe and Asia are spending almost three times more on search: a combined $2,284 million versus $858 million. In North America, the discrepancy is smaller but still tilted heavily in favor of search over display: $811 million versus $572 million,” says the article.
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