Traditional and pure-play local media companies are reaping healthy profits from digital sales, according to a new report from Borrell Associates. According to its Benchmarking Local Online Media: 2012 Revenue Survey, local digital operations of traditional media companies account for 49 percent of earnings (before taxes, etc.), while Internet pure plays reported margins of 20 to 30 percent.
Last year, digital revenues increased 9.5 percent across the industry. Media companies are also offering a richer mix of ads and services, including search engine optimization, contest management, mobile app development, social media campaigns, and consulting, offering a strong contribution to the bottom line.
"Most local media are doing a great job of jumping into local online. The challenge is, there's a lot of competition out there, regarding pure-play sites especially. Pure-play media companies are taking up a larger share than they have before," says Larry Shaw, vice president of research for Borrell.
Newspapers are earning the lion's share of this, thanks in part to digital-only subscriptions, as well as a significant increase in spending on local media by businesses. Newspapers still get 87 percent of digital revenue from display advertising, raking in an average of $2.1 million in 2012.
Borrell also noted a bifurcation between content and ads: instead of ad-supported content, an increasing amount of content is self-supporting, thanks to paywalls. For example, The New York Times is now making more money from subscribers than from advertisers, while Angie's List, the review site for service providers, is set to surpass the NYT this year in number of paid subscribers. In all, some 350 newspapers erected metered paywalls last year.
Gannett topped the revenue list in 2012 after Borrell consolidated its revenues from ShopLocal, Career¬Builder, PointRoll, and Reviewed.com with the company's other media properties. Even among its traditional media properties, digital has mostly overtaken traditional ad sales in each category, adding up to 25 percent of its total gross revenue.
Still, newspapers' share of local advertising has shrunken, even as the total pie has grown, according to Shaw. He says, "Now, it's more evenly split among all media out there. The pie itself is getting larger - and most of that is going to local websites."
In TV land, digital revenues grew 17 percent on average last year, and Borrell forecasts growth of 23 percent in 2013, thanks to digital offerings beyond banners and video pre-rolls. Like newspapers, local TV stations have begun to sell marketing services. Still, the average station gets just 4 percent of its total revenue from online advertising, with 72 percent of that coming from banner ads.
There's more pie to be had: per-station share of all local advertising was for the most part less than 4 percent.
Radio stations grew online revenue on average by 22 percent, outpacing the general growth in local advertising, thanks to web banners, email ads, and streaming audio. But radio stations are missing out on sales of targeted banners, which are providing a nice revenue jump for other local media, Borrell said.
Shaw explains that radio and television have grown digital revenue more in part because they got a later start. "The technology wasn't there for radio and TV to develop usable local websites. Now, bandwidth is no longer an issue, and you can see video over your mobile device. This has allowed radio stations and TV to jump on [the] bandwagon. But they're behind the game because newspapers started out there sooner."
The report analyzed data from three sources: Borrell's proprietary database of ad revenue and expenses for local online operations in the U.S. and Canada, including radio stations, daily newspapers, Internet pure plays, weekly newspapers, local broadcast, and cable TV stations; its own local ad spending estimates by digital marketing region; and a survey of 197 digital executives.
The most successful local media, the report says, are transforming themselves into digital media agencies. "What appears to be forming is not a dominating local website in each market but a go-to digital marketing company that makes sense of interactive media for local businesses," the report said.
Adds Shaw, "There's still money to be made out there and growth to be had."
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Susan Kuchinskas has covered interactive advertising since its invention. The former staff writer for Adweek, Business 2.0, and M-Business covers technology, business and culture from Berkeley, CA.
March 19, 2014