As If Metro Was Not Already Giving Publishers Heartburn by Taking Their Younger Readers
Now It Is Going For the Jugular Targeting Classified Advertising Revenues By Converging With New Web Sites

Philip Stone March 14, 2005

As circulation losses increase at an even higher pace in 2005, mainstream newspapers could satisfy themselves that local advertising revenue was picking up somewhat. But now that revenue could be in jeopardy with the announcement that Metro newspapers – the free tabloids found in 76 cities around the world that have seriously hurt the paid-circulation business of newspapers they compete against – want a piece of the classified action.

And if they are as successful at going after that revenue as they were in taking readers away from the mainstream media, then this could really hurt.

Classified advertising has traditionally been the money cow for newspapers. For many, their fortunes rise and fall on the recruitment ads, housing, items for sale etc. Revenues have been soft for the past five years and mainstream newspapers continue to face a “challenging operating environment” as Standard and Poors puts it. Not helping matters is how advertising is flowing into the Internet, some of it at the expense of newspapers.

Growth in job advertisements is considered an accurate measurement of how economies are improving and that classified revenue has been increasing in many countries over the past 12 months. Newspapers, still seeing soft national advertising, are relying on classifieds ensuring 2005 will be a decent year. Standard and Poors says that employment ads will serve as the main basis for US newspaper advertising income increases in 2005.

The problem for the mainstream publishers is that Metro has also spotted that the classified business is picking up, and it wants to dominate that part of the business, too. If Metro does to the classifieds what it has done to the circulation of its competitors, then many newspapers could well find themselves in financial crisis.

Metro is using the Internet as its convergence tool with its print editions to seek classified revenues. That gives mainstream publishers a perfect lesson that they should be embracing the Internet in similar ways, rather than cutting back on online activities to supposedly protect print revenues, as many are doing.

Metro’s first classified advertising site is in Sweden – where the company first began its business. The site went live with about 900,000 classifieds, although the majority of those came from robots combing other sites.

Soon to follow will be Finland, Denmark and the Netherlands, with the business plan calling for rollouts in the 17 countries where it publishes its 53 editions, serving 76 cities in the Americas, Europe and Asia.

How dangerous to mainstream newspapers is this move by Metro? “The threat of losing print advertising dollars to online media is very real. In fact, it’s already happening, particularly in classifieds,” according to none other than Rupert Murdoch who spoke this week to a gathering of US editors in Washington.

Some surveys already claim that Internet classified advertising revenues are on par to the revenues received by the newspaper industry.

Metro’s success stems from publishing free newspapers that appeal in particular to young readers. Having gotten some 15 million readers daily, it hopes to leverage that loyalty into surfing additional web sites it is planning for such topics as music downloads and dating in addition to classifieds.

“Metro International has been waiting for the right time to launch into this area and we believe that the current size, growth, and profitability of online make this the perfect time,” according to Pelle Tornberg, Metro’s president and CEO.

Metro is said to be investing some $10 million for the sites it will establish within the first 12 months.

There is no question that mainstream newspapers will have to adapt if they want to continue counting on classified revenues. “I don’t think we have come to terms with the degree to which we need to change as sales organizations,” Tom Mohr, former Knight-Ridder corporate classified manager who is now head of Knight-Ridder Digital, told a recent meeting of classified ad sales managers.

“As an industry, we have in some ways, let me tough, failed miserably in the ways we have responded to the competitive threats we face. I see the need for very aggressive, very significant transformational change.”

Don’t say you weren’t warned.