All The News That Clicks
Newspapers, radio, TV, and magazines are scrambling to boost their Web presence.
Most auto manufacturers spend lots of time and money figuring out who their customers are and how to reach them. Nissan knows that online is where to find them. Go to Oprah.com, and there's an ad for the Quest minivan. At Forbes.com, look for an ad for the Infiniti, Nissan's high-end sedan. Nissan America's online advertising spending is up 40 percent over last year, and it isn't about to slow down. "In the future, online advertising is going to grow rapidly, and it's likely that TV is going to be affected most," says John Rinek, director of media and agency management for Nissan. "We need to redirect our resources into areas that are paying off for us, such as online."
The online world is rapidly changing for advertisers--and for the media industry that depends on them for its livelihood. Long gone are the days when ad buyers handed over wads of cash for banner ads with the hopes of getting a few clicks. Now, the technology for delivering and measuring Internet ads is sophisticated and more powerful, allowing advertisers to be smarter and more demanding. This fact is not going unnoticed by print publishers and television executives, who are keenly aware that as their audiences are moving online, so are their advertisers. "Advertisers' expectations are greater now, and so is their involvement and knowledge of what they want their online advertising to be," says Peter Green, senior vice president of ad sales for Weather.com, the online arm of the Weather Channel.
To catch up, the media are in a feverish scramble to buy Internet properties and launch online initiatives that provide more Web pages that they hope will attract more viewers and, hence, more ads.
Last week Rupert Murdoch's News Corp. agreed to pay $580 million for Intermix Media, owner of the popular community website Myspace.com, which had 17.7 million visitors in June. The announcement came just days after News Corp. formed its Fox Interactive Media unit. The Washington Post recently launched dual home pages for its local and global audiences, which it hopes will increase advertising. And Yahoo! and Google, which are driven by advertising revenues, last week reported record quarterly earnings that indicated their growth shows no sign of slowing. Yahoo!'s revenues rose 51 percent from last year to $1.3 billion, and Google's revenues soared 98 percent to $1.4 billion.
Yet even as online advertising surges, it remains a tiny portion of total ad spending--3.6 percent, or $9.6 billion, in 2004, according to research firm eMarketer. It's expected to grow to 4.6 percent, or $12.9 billion, in 2005. Although Web commerce has been around for over a decade now, it is still a new environment for the advertising industry. Pricing is uncertain, and advertisers are still trying to determine how to best target their audience. The biggest spenders online are not yet the biggest old-media advertisers like Procter & Gamble and Pfizer. In May, according to TNS Media Intelligence, Internet phone pioneer Vonage spent the most online, serving up ads with an estimated value of $30.1 million. LowerMyBills.com came in second at $21.3 million, followed by Verizon at $19.5 million.
But traditional advertisers are starting to catch up, and Web publishers are scrambling to respond to their requests. Each type of medium is facing a unique set of issues. Newspapers suffer from shrinking circulations and the loss of lucrative real-estate and help-wanted classifieds. Television networks struggle with the rapid adoption of digital video recorders, which let people skip commercials. Free radio is dealing with competition from satellite radio and its more than 6 million paid subscribers.
Each one is turning to the Internet, where their advertisers increasingly want to be--and where they demand an answer to the question "Is the ad working?" says David Hallerman, analyst at eMarketer. That question is difficult to answer from a network television spot, and easier to answer from placing an ad on a page where someone has specifically searched for a product. "Online is absolutely an effective vehicle for us," says Michael Farello, vice president of marketing for the U.S. consumer business of Dell Computers, which spent $119.5 million online in 2004, according to TNS Media. "It's easy for us to measure--we can see where the clicks are coming from."
Relevance. At Dow Jones, which owns the Wall Street Journal , Barron's, and other news properties, being able to deliver highly targeted ads has been key to its online operations. It uses tracking technology to deliver relevant ads to readers wherever they are on their sites. If a reader searches for news about a specific type of car, for instance, Dow Jones tags that person as someone interested in buying a car. It will serve up auto ads, even if the reader moves on to read a story about healthcare or economics. Dow Jones acquired financial news site MarketWatch.com, in which CBS had an interest, for $528 million.
Even with such detailed information, says Gordon Crovitz, president of electronic publishing for Dow Jones, educating advertisers about the nascent medium remains a challenge. "I think we have overcome much of the damage done during the dot-com bubble," he says. "The challenge for publishers is to accelerate the process of helping advertisers understand the full value of online advertising."
Some advertisers understand it better than others, and they know what to ask for in their negotiations with media salespeople. Integrated packages are becoming increasingly popular among both publishers and advertisers, enabling companies to take advantage of promotional opportunities across various types of media outlets. During the NCAA basketball tournament in March, Nissan promoted its Frontier truck through ESPN's sports bars, on its website, on the TV network, and in ESPN magazine. At the Sporting News , advertisers are promoting in print, online, and on the radio. "The more educated our salespeople are across platforms, the better we are at meeting their needs," says Jason Kint, general manager of its online operations. "Our salespeople have to be able to talk in all languages."
At the Weather Channel, advertisers want integrated packages in order to maximize their exposure to weather watchers. Weather.com 's Peter Green says the company has learned that people watch the cable channel in the morning and check weather.com while at work, which helps it to customize a holistic strategy that works for advertisers.
As broadband connections become more widespread, television networks rely on Web video to deliver news to people where and when they want it. Both CBS and CNN recently expanded their free online offerings to viewers, with video clips accompanied by advertisements that cannot be skipped as they can on TiVo. And U.S. News is expanding its own Web offerings, particularly in the areas of education and consumer health.
Even radio is rapidly responding to the changing environment in its own unique way. The growing popularity of portable audio players has created a new market for podcasts, downloadable audio clips, which can come with brief advertisements or sponsorships. "Radio buyers are a lot more savvy than they were three years ago," says Marc Horine, who oversees new media for ABC Radio. "I get questions about podcasts every day now."
Faster Internet connections are allowing more creativity in online ads, which publishers expect will help lure more traditional advertisers online. Those ads that move across your screen and the video clips in the corner may be an annoyance to Web surfers, but they are gold to advertisers. And so far, it seems advertisers and publishers are not concerned about consumer backlash as Web pages become even more crowded and flashy. "Many people say they skim by ads online. On TV, it's time to go make the popcorn," says eMarketer's Hallerman. "It's called ignoring."
While many people ignore the ads, it's the ones who respond to them who matter most to advertisers. And it's not yet known what they are worth to advertisers. Some publishers selling integrated packages want advertisers to pay a flat fee for them, while others insist on charging by the click. Many content providers are still trying to figure out if they should be charging for their material. The New York Times will soon start charging for some of its editorial content, but not all. About the only thing that is certain in the economics of Web publishing is that nothing is certain.
Underpricing. At the Wall Street Journal , which pioneered the art of charging for editorial content and has 744,000 paying subscribers and among the highest online advertising rates in the industry, executives are still trying to figure out how online ads will change as more blue-chip firms enter the fray. "I think the industry is significantly underpricing online ads," says Crovitz. "The traditional laws of economics have not appeared in the online equation in terms of value delivered and value received."
Publishers are pitching advertisers using the specific demographics of their online audiences, with the hopes that a more targeted delivery of ads will lure a new class of advertisers. "Advertisers are used to thinking in terms of cost per click and cost per acquisition," says Caroline Little, CEO of Washingtonpost.Newsweek Interactive. "We have to really walk them through what it is they want to achieve online and how to do it. You can't just take a 30-second TV spot and slap it on the Web."
For many in the ad business, the memories of the dot-com meltdown loom fresh in their minds. They are leery of paying too much or committing too soon. Publishers, meanwhile, are loath to give up on a business model that has served them well for decades. For now, the two sides are jockeying for position--and power--while trying to grab as many of the dollars being tossed around as possible.
OLD MEDIA LEARNS NEW TRICKS
Major media companies have been spending money to beef up their online offerings. A sampling of recent deals:
Media Company CBS
Strategic Move Launching 24-hour, on-demand broadband network at CBSNews.com
Media Company Dow Jones
Strategic Move Acquired online financial site MarketWatch.com for $528 million in January
Media Company The New York Times Company
Strategic Move Bought information site About.com for $410 million in March
Media Company News Corporation
Strategic Move Acquired Intermix Media last week for $580 million; formed Fox Interactive Media division
Media Company The Washington Post
Strategic Move Acquired online magazine Slate.com for undisclosed amount in December; launched dual home pages
This story appears in the August 1, 2005 print edition of U.S. News & World Report.