It's The Headline That Newspaper Publishers Have Nightmares About -- “Online Ads To Overtake US Newspapers By 2011” – And Now It’s In Print

Philip M. Stone - August 9, 2007

Everyone knows that print’s slice of the advertising pie has been dipping annually while the Internet’s slice grows each year. But not until now has any reputable research company put a date on the crossover – but now one of the industry’s most reliable annual state of the industry reports has gone on record -- watch out for 2011.

Veronis Suhler Stevenson (VSS) has released its annual study on the US media sector. The annual report is considered within the industry as perhaps the most reliable forecast of media happenings, and it is thoroughly read in the executive suites. For newspaper publishers the bleak sound bite would be “In what should be a watershed moment in communications history, VSS predicts that Internet advertising –including pure-play websites and digital extensions of traditional media – will replace newspapers as the largest ad medium in 2011.”

James Rutherford, VSS Executive Vice President and Managing Director, put it simply, “The path of online advertising and newspaper advertising is a continuation of what we’ve been observing for many years, but it is finally getting to the point where the lines will cross.”

VSS says the Internet is expected to see 21% annual advertising growth through 2011 and that $62 billion spend trumps the forecast spend for newspapers at $60 billion. The question then becomes when will digital overtake  the broadcast television, cable and satellite ad spend which in 2011 is forecast to be around $86 billion.

Just how accurate should we assume VSS to be? “The VSS forecast features the industry’s most accurate spending forecasts, producing a margin of error of +/-2% for 9 of the past 10 years,” the report says. “The error of margin in the 2006 forecasts was 0.4%.” VSS is a private equity firm that invests buyout and structured capital into the media and communications industries among others, and no doubt it pays very close attention to its own forecasts in making its investments.

“We are in the midst of a major shift in the media landscape that is being fueled by changes in technology, end-user behaviors and the response by brand marketers and communication companies,” Rutherford declared. “We expect these shifts to continue over the next five years, as time and place shifting accelerate while consumers and businesses utilize more digital media alternatives, strengthening the new media pull model at the expense of the traditional media push model.”

One has only to look at the 2006 figures to understand why VSS is forecasting the crossover to come so soon. In 2006, Digital advertising on such platforms as the Internet, mobile, videogames and the like increased 36.6% to $26.53 billion, but traditional media grew only 2.4% to $183.21 billion, with newspapers being the major laggards.

“Leading national advertisers have accelerated the diversion of dollars from traditional print and broadcast media to alternative digital platforms to combat media and audience fragmentation, increased consumer control and multitasking, and the growing impact of advanced technology on conventional media models, Rutherford explained. “The result has been the extraordinary growth of alternative advertising and marketing.”

Since advertisers are paying such close attention to consumer habits the new statistics will also encourage them to further invest spend in digital, with the forecast that this year for the first time more time is expected to be spent on the Internet than in reading newspapers. The report said that such activities as the  Internet, video games and the like saw a total average use time per person in 2006 of 1631 hours – a 19.8% increase in five years – whereas time spent on such things as broadcast television and reading newspapers  averaged 1,899 hours per person, a 6.3% decrease in the past five years.

Indeed 2006 marked for the first time that the continued shift to digital media caused a slight decrease in the total time being spent consuming media, mainly because people tend to spend less time looking for specific information they need on a digital site whereas the process is longer thumbing through a newspaper or waiting for a specific news item on a 30-minute news program.

"On-demand digital technologies allow consumers to be more efficient, said Leo Kivijarv, vice president for research at PQ Media, which provided some of the proprietary information for the VSS report. Instead of leafing through several sections of a newspaper, readers are able to call up the two or three articles of interest to them almost immediately on a newspaper's website.

"Somebody goes online, they're very specific for what they're looking for," Kivijarv said. For instance last year people spent about 5% of their time reading newspapers and equal time reading Internet information, but this year newspapers are down to 4.9% and Internet is up to 5.1%, and there is no reason to suspect that trend won’t continue.

But within all the traditional media gloom there was some bright news. The digital boom means that newspaper digital sites are going to benefit very much from the increased digital spend, moving from $3.2 billion last year to $7.7 billion in 2010. The problem with that, however, is good as that may be it’s not good enough. Digital now makes up on average about 6% of a newspaper’s total revenue so even if that revenue doubled in five years it is still well short of where it needs to be to make up the losses that print will suffer during the same period.

Wrap it all together and the real story is that while spending on the communications industry as a whole looks healthy in the next five years, rising above $1 trillion in 2008, not everyone is going to benefit equally.

As Rutherford has warned traditional media owners, "Clearly, this (increase in spending) indicates healthy growth for the industry — it's growing faster than the GNP. But there is a lot of change, depicted by the shift in where the money is going."

And, unfortunately, there traditional media loses out.

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