With McKinsey Warning that Newspaper Classified Advertising Revenue Could Take a $4 billion Hit Within Two Years, Knight-Ridder Fights Back Offering Some Classifieds for Free On Most of Its Web Sites

Philip Stone May 30, 2005

McKinsey had warned newspaper publishers in April that their classified advertising revenue was going to take a $4 billion hit by 2007 – that’s about 9% of the $46.7 billion that newspapers earned from 2004 advertising. The losses are forecast because so much of that advertising is increasingly moving to the Internet where it is posted for free or for much less than a newspaper charges.

So now Knight-Ridder has made the decision that if you can’t fight them then join them by  basically dipping its toes in the cold water and allowing free classified ads for household items and other merchandise on most of its newspaper web sites.

At least it’s a start, but the truth is that those merchandise ads are not where the real money is – that is with job opportunities and real estate, and in those categories at the moment Knight-Ridder is going to continue to charge full price on the web. The real question is how long it will take for those barriers to drop, too.

Knight-Ridder made its decision based on a seven-month test that permitted free ads on its newspaper web sites for merchandise worth less than $200. The tests showed that the ads brought more people to the web sites and they accessed not just the free ads but other categories, too.

US newspapers are suffering because of web sites like Craigslist that charges for classified advertising in its home base of the San Francisco Bay Area plus New York and Los Angeles, but at rates far lower than print, and otherwise offers free advertising elsewhere throughout the US and many countries.

Even San Francisco Bay Area job postings cost no more than $75, about 10% of what a comparable print ad would cost.

With prices like that it is no surprise that media consultants such as Classified Intelligence estimate that Craigslist has cost San Francisco Bay Area newspapers some $50 million to $60 million annually. The Craigslist site holds twice as many job offerings as do the four San Francisco Bay Area daily newspapers.

One would think that the financial damage Craigslist has wrought in San Francisco would be a message that print publishers in other markets would be paying close attention to – that if they don’t do something in their own market to protect their classified advertising revenues then other will come along and take it away. It is the point consultants have been stressing to print publishers, but apart from the Knight-Ridder blink there is little to show that the message is getting through.

What should be worrying print publishers is that web companies like EBay, probably the world’s largest international web marketplace, are taking an increased interest in classified advertising on the web. Last year it took a 25% stake in Craigslist, and in May this year it bought two international companies prominent on the web for housing, employment and merchandise classified advertising.

But there are business models that can compete with the likes of EBay and Craigslist. Newspapers should never forget their strength is “local” and local can work for classifieds, too.

If you wanted to buy a used PC at a knock-down price would you prefer to buy it from someone across the country or across town, the latter where you could visit before purchase to pound on the machine to make sure it works?

The most important thing that print publishers have to understand is that they do have a serious problem – it’s amazing how many don’t see the Craigslist threat. But if they can take advantage of their own strengths in the local marketplace then all is by no means lost. 

Doing nothing, however, is not going to work.