Digital Advertising and Its Impact on Traditional Publishers
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Background document Digital advertising and its impact on traditional publishers Research by AMAS Ltd 38 Lower Leeson Street, Dublin 2, Ireland. Contents 1. Executive summary__________________________________________________________ 3 2. Irish audiences have moved online______________________________________________ 5 3. There is a global shift in advertising spend towards digital____________________________ 6 4. Irish digital advertising has underperformed but will grow ___________________________ 10 5. Globally, traditional publishers are challenged by the internet ________________________ 12 6. Irish media companies are losing ground to international internet companies ____________ 15 7. The newspaper sector globally is in turmoil ______________________________________ 23 8. Newspapers adopt strategies to counter the trends ________________________________ 27 9. Irish newspaper groups have missed opportunities and face commercial challenges ______ 34 2 1. Executive summary This document sets out how the internet is impacting on advertising models and revenues globally as well as in Ireland and the impact this has on traditional media companies. It does so in order to answer some important questions: • Where newspapers' difficulty with advertising is concerned, is RTÉ the problem? • Where the shift to online media is happening and challenging the newspaper sector, is this an Irish phenomenon? • Where it is happening, are there strategies that can counter the trend and help newspapers win revenues and share of a growing market? • Is the newspaper industry globally agreed on solutions? • Would the weakening of RTÉ as an online competitor strengthen the Irish newspapers’ presence in the online marketplace? • Have the Irish newspapers maximised their options in terms of pursuing vigorous strategies toward online growth? • Have the Irish newspapers over the past 10 years had the resources to invest significantly in online media? Have they done so? This document draws on research from authoritative sources on the digital advertising marketplace and the newspaper sector, in Ireland as well as internationally, to set out the factual position. The main findings and conclusions are: 1. Newspapers all over the world are being affected by long-term structural change in their industry, by audience fragmentation and by the economic downturn. These factors are affecting newspapers in Ireland. 2. The shift to digital advertising is an international phenomenon arising from growing internet use among audiences and the return on investment for digital campaigns. Advertisers are following audiences and are switching budgets away from traditional media to online media. The digital advertising market in Ireland lags other more developed markets. Online’s market share in Ireland is expected to grow significantly, at the expense of traditional media 3. The strongest competitors to Irish newspapers for online revenues are not traditional publishers such as other newspapers, RTÉ and other broadcasters, but are: 3 • Global internet companies such as Google, Microsoft and Facebook which have significant shares of the market in Ireland, as they have in other markets • Large international digital advertising networks some of which have little public profile but are increasing their shares • Internet-only offerings in the local marketplace which command lead positions in classified markets where newspapers used to dominate 4. Advertising revenue is being drawn out of the Irish market through campaigns on non-Irish sites which are popular with Irish audiences. 5. Newspapers in Ireland feel that they are losing out to RTÉ on the internet. In fact, they have not moved strongly or successfully to embrace the challenges and opportunities of the internet. Over the past decade they could have invested more decisively in digital but did not do so. By comparison, some other newspaper groups internationally have adopted strategies to compensate for declining newspaper revenues 6. The three main newspaper groups had sufficient financial resources from the mid 1990s onwards to invest in developing strong portfolios of internet properties. However, their investment strategies have been largely focused on traditional media opportunities while investment in online projects, in areas such as recruitment, property and motoring, has neither served to defend their base of traditional revenues nor capitalised on market opportunities 7. The strategies adopted by many international newspapers to online are drawn from the paid- content model used in print media. They differ from online publishing models, where content is free and is monetised through advertising and other revenues. Early evidence would suggest that the introduction of paywalls for mass market news sites has not been successful. 8. In the light of this evidence, restricting RTÉ’s online activities would be neither justified nor effective in assisting Irish newspapers. On the contrary, it would serve to weaken a successful Irish online provider and limit the indigenous Irish presence in the Irish digital market even more than is currently the case. 4 2. Irish audiences have moved online Irish audiences are now very much online. This is one of the many factors that have sparked the growth in online or digital advertising. A majority of the adult population, 77%, now use the internet for personal use.1 Broadband subscriptions currently stand at 1.5 million and have doubled within three years. The most recent official data for 2008 shows more than two out of every three households using the internet have a broadband connection. This has enabled Irish internet users to access much richer content, not just from Irish sites but from global sites. The average Irish person spent 13 hours online per week in 2009. The heaviest users are more likely to be urban, aged between 25 and 34 and belong to either the AB or C1 socio-economic groups. Also, the internet behaviour of Irish audiences, and indeed audiences throughout the world, is constantly evolving. The growth of social media sites is one example of this. Facebook which was only founded in 2004 has a global audience of over 500 million. In Ireland the Facebook user base has quadrupled within 18 months and stood at 1.7 million in August 2010. An active Irish user is likely to be on the site every day, increasingly accessing the site over a mobile phone rather than a PC and using the site to socialise, network and to share favourite internet content, from YouTube videos to news stories2. The internet is affecting the media behaviour of Irish audiences as it is with audiences all over the world. According to one surveyed average, consumers in Europe spend 12 hours a week using the internet, five hours reading newspapers and just under four hours reading magazines3. Even those who use both print and the internet spend longer using online media than they do with the printed alternatives. Such changes in media behaviour have affected and will continue to affect the circulation and advertising performance of the newspaper sector. Key fact: Any media company that wants to maintain and grow its audience in Ireland needs to include strong use of the internet at the heart of its strategy and ensure that its online offering is compelling and competitive with the best in the world. The question is whether traditional Irish media operators have done so. 1 Consumer ICT Survey Q2 2010 (published July 2010) 2 Source: Facebook, Jan 2009-Aug 2010 3 EIAA Media Scope 2010 5 3. There is a global shift in advertising spend towards digital Internationally, digital advertising has taken a greater share of advertising budgets at the expense of traditional media, a trend that is most pronounced in the US, the UK and the Nordic countries. Within digital advertising, there are three broad categories: • Search, which is dominated by Google and which has shown growth despite reductions in overall advertising budgets because of the global recession • Display, which covers a range of different formats and where traditional media companies such as newspapers and broadcasters with online properties draw most of their online revenues • Classifieds, which includes sites that advertise property, recruitment, motoring and other forms of advertising that used to be the preserve of traditional media In the US, digital advertising was worth $22.7 billion for 2009, with search dominating with a market share of 47% and display at 35%. Within the display category, video advertising has shown the most significant growth levels4 . In Europe, similar patterns are emerging with digital now the main form of advertising in a number of markets, including the UK. The graph below5 shows national shares of media spend. 4 IAB US 2009, PricewaterhouseCoopers 5 IAB Europe AdEx, 2009; Ireland was not included in this study as it predated the formation of IAB Ireland and the publication of equivalent Irish data 6 Digital advertising was worth £3.54 billion in the UK in 2009, with search accounting for 61%, display 20% and classified 19%6. While there was overall growth of 4.2% year-on-year on a like-for-like basis, display and classified revenues declined, by 4.4% and 5.3% respectively, while search revenues grew by 9.5%. The extent of digital advertising has increased for a number of reasons: • Increased internet use by audiences • Online’s ability to target audiences more effectively than other media and provide greater intelligence on the performance of advertising campaigns • Return on investment, with digital campaigns