Maybe Internet Advertising Won’t Save Newspapers

revenue10.13.08.jpgRemember how online advertising was supposed to save the newspaper business? Old media outlets would pump money into their Web sites and revenue would explode until it made up for the shrinking amount of dollars funneled toward print. It was brilliant.

That was a fun fantasy. According to an article in today’s New York Times, online revenue fell for the first time in 18 quarters in the second quarter of 2008. “It was down 2.4 percent compared with last year, to $777 million, according to the Newspaper Association of America,” Stephanie Clifford’s story states. “It was the only year-over-year drop since the group began measuring online revenue in 2003.”

So what’s the problem with online newspaper advertising? It would appear to be twofold: the reliance upon advertising networks and, strangely, too much inventory.

While bigger newspapers can charge $15-$50 per thousand pageviews (CPM) for advertising on their homepages, they increasingly rely on advertising networks, which pay around $1CPM, to sell excess inventory. A study conducted by Bain & Company and the Interactive Advertising Bureau and cited by the NYT article revealed that “30 percent of the ad spaces sold on their sites came from networks, up from 5 percent in 2006.”

As a result, while inventory has increased, revenue has fallen. A. H. Belo’s revenue sunk 12 percent, Lee Enterprises nine, E. W. Scripps eight percent and the Tribune Company four. Gannett saw a three percent increase.

Some media outlets have begun limiting the amount of inventory on their sites and have also been able to stop using advertising networks.,, CNN and other Turner sites have all gone this route. Perhaps newspapers should pay attention.