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By now it’s no secret that advertising revenues of traditional media – newspapers, magazines, television, and radio – have been falling for many quarters. Indeed, they started to post year-to-year declines well before the onset of the recent recession. It is also common knowledge that as advertising through traditional media has dropped, advertising on the Internet has grown, though it, too, is showing the earlier recession’s effects in merely single-digit gains in 2009, compared with upwards of 20% growth in recent years.  While traditional media, especially newspapers, are suffering from a decades-long decline in demand, the recession hit very hard in auto, real estate, and employment linage. Some of the lost linage may be cyclical, and newspapers could regain some of those ads, beginning as early as the first quarter of 2010. Other ad volume, especially the classified advertisements, has likely migrated to the Internet, never to return.  There are some examples: Monster Worldwide, Inc. (MWW) provides online job listings, while Cars.com and Apartments.com advertise those consumer necessities and are owned by a consortium of media companies, including Belo Corp. (BLC) Gannett Co. (GCI), The McClatchy Co. (MNI), and The Washington Post Co. (WPO).  Advertisers have transferred revenue to the Net for several reasons, including cost and the chance to target customers more accurately by showing ads on sites that appeal to them.

 
The Newspapers’ Defense

In an effort to retain as much advertising revenue as possible, newspapers and other media companies have created websites on which they offer access to content and advertising.  For the most part, advertising on the papers’ sites grew in 2009, though the growth was from small bases and did not come close to offsetting print ad revenues that plunged 20% to 40% in 2009, depending on the paper and the region. But much advertising has gone to websites not owned by the newspapers, such as Google and the myriad sites that appeal to market segments.  Google provides links to the papers’ websites, and, to date, the newspapers have run a lot of their stories (“content”) free of charge in the hope that, once on the site, a Net surfer might read some advertising.  Papers also pay Google to be among the first websites referred to in a search.  But newspapers contend that Google benefits from being able to show pieces of articles or photographs without paying the paper anything.  They also believe that the people Google sends to their sites are just “fly-by traffic’’, reading one article of interest and nothing more.


The News Corp./Microsoft Possible Gambit

Rupert Murdoch, CEO of News Corp. (NWS), owner of The Wall Street Journal, newspapers in other countries and television stations, has long held that newspapers would have to find a way to charge money for their content. For its part, Microsoft Corporation (MSFT) has recently introduced its search engine “bing”.  It has been rumored that Microsoft might pay News a considerable sum to keep News Corp. content off Google. That might direct more web searchers to bing. To date, News and Microsoft have not announced any deal. With over $35 billion in cash, Microsoft can afford to pay News a hefty sum, but it probably would not fully offset revenues lost from Google. Moreover, Google appears to have responded by making it easier for newspapers to limit free access to their sites through Google News. And whether or not Microsoft and News are negotiating some sort of pay-for-exclusivity arrangement, the software giant is seeking to distinguish bing from Google to encourage web searchers to use the new engine.


The Bottom Line

It’s impossible to conclude with any accuracy the extent to which newspapers’ problems result from the development of the Internet, as opposed to a secular shift away from newspapers as sources of news and advertising and the ravages of the recession. Papers are beginning to charge for content, and that’s likely to continue.  Indeed, Google’s recent steps to offer papers ways to limit free access to their stories through Google may accelerate the trend.  But it’s equally important for newspapers to prevent websites from simply publishing their content without permission or paying for the privilege – something that is quite widespread now. In the end, content management, ownership and control, already a contentious issue, is likely to grow in importance as more content owners look to profit from what they own.