“The days of easy online money for traditional local media are over,” declares a new report on online local ad revenue. The fifth annual “What Local Media Web Sites Earn: 2007 Survey” from local media research firm Borrell Associates, indicates the upheaval in local media has yet to settle, particularly for newspapers which are experiencing a drop in the rate of online revenue growth. Television and radio properties — mere blips on the in-stream ad screen — along with niche local sites and large, pure-play Web sites like Google, Yahoo and Realtor.com, are gaining ground.
Local advertisers are poised to spend $7.5 billion on the Web this year, up over 31 percent from last year, according to the report. Newspaper sites still command the lion’s share of those dollars, accounting for almost 36 percent of local online spending in 2006. However, Web newspapers’ share of all local online ads dwindled 8.2 points over the past two years. The research firm expects that rate of growth to slow more as pay-for-performance search ads continue to grab dollars from display advertising.
“They tied their online revenue too closely to their core businesses and those businesses are in decline,” said Gordon Borrell, president of Borrell Associates. Many newspaper publishers, as well as other online arms of traditional local media operations, have ended the practice of up-selling online media to buyers of print, TV or radio properties.
Instead, they’re building online-only sales staff. Indeed, Borrell reports the number of Web-only local salespeople grew 26 percent last year; firms such as Hearst-Argyle, Gannett and Fox Interactive Media either created new interactive divisions or added new interactive sales staff.
Since 2002, local online advertising revenues as a whole has grown from $1.65 billion to $5.7 billion in 2006. Newspaper Web site revenue rose from $655 million in ’02 to $2.6 billion last year. TV stations made $430 million in 2006, up from $55 million in 2002, while radio stations went from being completely off the radar in 2002 to garnering a mere $125 million last year in online ad revenue.
While online newspapers take in almost 36 percent of all local Web ad dollars, pure-play sites collect 33.2 percent. Yellow pages sites earn 11.7 percent, while local magazine sites garner 9.2 percent. TV and radio station sites bring up the rear with 7.7 percent and 2.2 percent, respectively.
Television and radio sites are expected to grow ad revenue by leaps and bounds, with TV site dollars increasing 40 percent to $602 million by the end of ’07, and Web radio revenues rising 51 percent to $189 million. Compared to newspaper sites, TV Web sites have been slow to produce and sell video content to advertisers, but that is changing. The Borrell report predicts video advertising on television sites will hit $89 million this year, up from $32 million last year.
Auto advertisers drove the majority of local online ad revenues for TV and radio sites in 2006 — 21 percent for TV sites and around 18 percent for online radio stations. Although radio sites are expected to grow revenues by more than 50 percent this year over ’06, they will continue to collect less than 3 percent of all local online ad spending.
“They’re growing a lot more because they’re starting from a base of almost zero,” said Borrell of TV and radio sites.
Though local media firms find themselves competing more and more with Web pure-plays like Yahoo and Google, many are aligning with those very companies in the hopes of connecting with national advertisers. Notably, Yahoo has joined with several newspaper publishers to distribute its classifieds listings across the newspaper sites, while eventually hosting newspaper site content on Yahoo; the relationships also provide Yahoo access to local newspaper sales staff.
In addition, Hearst-Argyle Television today announced it would give local video content to YouTube in exchange for ad revenue.
Borrell Associates has surveyed an increasing number of local media properties for its report, reaching 2,855 for this year’s study. “The more we expanded the more we realized that the biggest sites are getting bigger,” said Borrell, noting it’s “getting tougher and tougher” for newer small sites. However, he did stress that niche sites that have been around longer are gaining ground.
“Fighting among the existing sites is really intensifying,” he added.
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