At Nexpo this year, MediaSpan Media Software (with its newspaper interests formerly known as Harris & Baseview) introduced itself to the newspaper industry with an emphasis on local media and online services (see Newspapers & Technology, May 2006) and poised itself to offer newspapers product lines that integrate print, online and wireless, to help publishers grab their piece of the pie.

Recently, Newspapers & Technology again caught up with Chief Marketing Officer Mark Zagorski to talk about how newspapers can generate profits from their online efforts.

Newspapers & Technology: Can newspapers make money online?

Zagorski: Absolutely. In fact, in many markets the local newspaper Web site now generates more revenue than the top radio station in the market. And, it is not just classifieds that are driving revenue. Specialized content sponsorships, local sports promotions and advertiser directories are stretching the boundaries of what newspapers used to think of as their standard business model. There is real money to be made, and it is being made by papers large and small that have made a commitment to change. 

N&T: What do you view as the biggest opportunity for newspapers in the online space?

Zagorski: There are many opportunities for papers to make money, and almost all of them have to do with a newspaper’s ability to exploit their position as the premier hyper-local information source and to drive local transactions based on the contextual basis for this hyper-locality.

What I mean by this is that when the large portals try to geo-target offers based on relevant context, they are often wasting advertiser money on a Web user that is not really “local.” Just because I am looking at a Google map of Pittsburgh or doing a search on my favorite team, the Steelers, doesn’t mean I can walk down the street and buy a Roethlis-”burger” at the South Side Wendy’s, (I live in New York). The ad and context are related, but the target (me) is not relevant because I am not local. Most local newspaper readership is truly local and, therefore, the context and geography make a much better fit for local advertisers who look to make local, offline transactions. This needs to be hammered home to local advertisers who are attracted by the allure of the big-name portals going after their ad dollars.

 

N&T: What do you view as the biggest threat to newspapers’ online profitability?

Zagorski: There are a lot of companies looking to snare eyeballs and local ad dollars away from newspapers to be sure, but those challengers can be confronted, and in my opinion, beaten. The real threat to online success for newspapers is internal - the lack of real commitment to changing the current business model. The newspaper Web site can’t be a poor imitation of the print edition. The online classifieds can’t be a “value add” to the paper’s listing. But, because the “exchange rate” for dollars in print for dollars online is not one-to-one (i.e. print dollars lost are not converting equally to online dollars), newspapers tend to treat their online efforts as an ugly stepchild, as opposed to a strategic necessity. Although this is beginning to change, it is not happening fast enough, and until the online business is fully integrated into every aspect of how a local paper operates, their ability to be truly competitive and maximize the ROI for their efforts will be challenged.

N&T: How can newspapers better compete online, both locally and nationally?

Zagorski: Newspapers already have the biggest brand in the market, and in many cases, the largest regular audience of any local media property. But, they need to focus on going beyond just taking the print edition and moving it online to fully extract the value from their reader relationship.

New features that create an environment that contains content and applications that can’t be found anywhere else are critical to maintaining their base and bringing in new customers who may not even read the print edition. On the local front, this could mean hyper-local, micro-community reporting, such as live blog coverage of neighborhood community board meetings or junior high sports events. Grassroots, community-driven information is something that the big online players would love to have, but will never invest in getting. Nationally, newspapers need to join a network that can help elevate the local property to an advertiser base that may not know that they exist, and in most cases would find it very cumbersome to buy advertising on.

The scary fact is that over 70 percent of the $16 billion in national online ad revenue projected for 2006 will be spent on just 10 properties. Mid- to small-size newspapers have to be part of a group that has the reach to get in front of national advertisers to get a piece of this pie.

N&T: Are there any examples of newspapers that you think are doing it right in terms of the direction they have taken with their online efforts?

Zagorski: Some of the larger papers such as The New York Times and Washington Post have done an excellent job online, but in effect they are not really “local” papers; they are more like national portals that happen to have the home base of a big city. When you get to the next level, the successes aren’t as discernable, but there are some great innovators out there, and many are interestingly enough, smaller newspapers. The Vindicator in Youngstown, Ohio, (a MediaSpan customer) has done a great job, as they have integrated many features that make Vindy.com a true local portal, like restaurant guides, staff blogs and local interactive sports games. Plus, they have partnered with national properties like Tribune’s Shop Local to drive additional revenue. They have built a great model, which combines custom local promotions, specialized content and third-party partnerships to create a great online business.

N&T: What advice would you give newspapers in trying to devise a profitable online strategy?

Zagorski: Make the commitment now and do so in a real way. Integrate the delivery of content to the Web as part of the normal workflow so that the online product is not seen as a separate entity, but as a part of standard operating procedure. Using the same systems and processes to deliver information both on and offline will keep costs down and have the added impact of making the online product part of the fabric of the operation.

But it is not just about keeping costs in check, it is about investing in areas that can help differentiate a paper locally and attract new advertisers. Give reporters handheld video cameras and have them shoot their own video while on the scene (now you can sell pre-roll video ads and go after TV dollars). Reach out to new advertisers who have never advertised in the print edition because the demos were wrong or because of a perceived lack of interactivity, and create new opportunities for them online that fit. Even go beyond your normal base of local advertisers by hooking up with a network to get at national dollars as well. The key is to look for as many ways to monetize the relationship with the reader as possible by leveraging the content and brand that you already have, and layering on functionality that is unique.

N&T: How much of a threat do the Googles of the world pose to newspapers?

Zagorski: The time to act is now. It doesn’t matter what size market you are in, the threat from national online portals that desperately want to steal local ad dollars is real.

This is no longer just about protecting employment classifieds from Monster, but keeping your relationship with the local pizza shop and dry cleaner strong.

According to Donna Bagatin’s Tech Blog on ZD.net, Sheryl Sandberg, vice president of global online sales and operations for Google, [recognizes that there is a huge local opportunity and] was quoted as saying at an investor Q&A, “Local has a very interesting property in that it is very highly monetizable. We think there is tremendous opportunity to bring those people [local advertisers] online and bring them into our advertising product.”

Google doesn’t mess around, and they are coming after the next tier of newspaper dollars - display ads - in a real way. It is time for papers to change their models. Newspapers have got to get their arms around the fact that they are in the information and advertising business - not in the print and paper business. If railroads would have figured out that they were in the transportation business instead of the “train” business, they would have built airplanes instead of cutting costs and ripping up rail in order to compete. It is that kind of death spiral mentality that will leave newspapers stuck in the station.

Google is in the business of delivering targeted information to consumers. Whether they are ads or search results, online, a PDA or even on the radio (via a recent partnership with DMarc) Google doesn’t care about the medium or the method. They are driven to fulfill their mission. Newspapers need to think the same way and forget the nostalgia of “ink-stained fingers.” As Jack Welch so eloquently put it: “Destroy your business before someone else does it for you.”