Benchmarking Local Media’s Digital Revenues

In 2002, local media companies accounted for 75% of all the digital advertising sold in local markets. It was mostly just banner advertising on newspaper and TV websites. Today, it’s 18%. Fortunes have reversed, with search and social media advertising sold directly by pureplay internet companies accounting for 82% of all locally spent digital advertising. Google and Facebook alone account for 77%.

Local media’s 18%, however, represents a not-too-shabby $12 billion. In its 15^th annual Benchmarking Local Media’s Digital Revenues report, Borrell Associates assesses digital sales for 10,700 local media entities and have been able, for the first time, to show what their “Addressable Market” is for digital advertising. In short, it averages 18% in each market. That is, traditional media companies’ addressable share of digital advertising is 18% of what’s spent on digital ads in that market, on average. In some markets, however, it’s 33%.

Borrell Associates also found that there are dominant local media players in just about every market. In 68% of the cases, it’s a daily newspaper. But TV and radio are top dogs in some markets.

“As we document the march of national digital media into the local woods, it’s clear that media companies are experiencing the same intrusion as their retail advertising customers. Local competition is coming from businesses that don’t need a physical presence in the market. It’s no longer true that a printing press, broadcast tower or even feet-on-the-street salespeople are needed to snare local advertising. The internet pureplays have proven that,” the report says.

This year marks a milestone for local advertising, the report says. “For the first time, local businesses will invest more of their marketing dollars in digital media than they will in community-based print and broadcast media. It’s hardly a shocker, given the fact that digital media advertising has enjoyed two decades of relentless double-digit growth rates while traditional media has struggled.”

“Still,” the report notes, “we must point out that national internet pureplay companies dominate the  flow  of digital advertising through every local market, no matter what size. Compared with the ad revenue generated by Google, Facebook, Yahoo!, Bing, LinkedIn and Twitter, local media forms the thinnest part of digital advertising’s longtail.”

Whether local media companies will be able to retain that 18% share remains to be seen, the report says. It’s been eroding steadily, from a dominant share of 75% in 2002. “In 2016, most community-based media companies grew their digital revenues well below the national average growth rate of 27% for digital advertising. Newspaper companies averaged 5% digital ad-sales growth in 2016, while TV, radio, cable systems, and local magazines averaged about 12%. Meanwhile, one of the biggest market forces of all — Facebook — grew by a whopping 62%. (First-quarter results for 2017 showed 43% growth in its U.S. advertising base, indicating a slowdown in growth, but not by much.)”

In some markets where search advertising and social media aren’t as pervasive, “old media” companies, the report finds, “are responsible for one-third of the digital advertising sold — principally on their own websites, in apps, or in programmatic networks.”

As digital advertising continues to grow, so do the negative stories, the report points out. “Headlines have been screaming about fake news, fake traffic, click fraud, ads adjacent to inappropriate content and a Russian-based scheme called Methbot that sapped $180 million from hundreds of local media websites last year. On top of that, there’s a growing concern of digital media’s viability. Last year, scores of publicly held pureplay companies reported losses.”

So how are local media companies really faring when it comes to generating digital dollars? The report says they “certainly pale in comparison to what the pureplays are pulling from their markets, but that’s because there are often so many of them plying local advertisers.”

However, it notes, “the biggest hometown digital player in most markets is its daily newspaper with, on average, $2.5 million in digital advertising per market. TV stations, cable companies and radio market clusters (3-5 stations owned by the same company in one market) made roughly $1 million each in 2016. Other competitors, including city magazines, local B2B publications, direct mail companies, generated from the tens to hundreds of thousands of dollars.”

Borrell Associates counts 884 TV stations in its database. For this analysis, it says it concentrated on 781 commercial broadcasters. “The average commercial station in the U.S. made $1,135,490 in digital ad revenue in 2016. Small-market stations averaged $530,635, while stations in Top 10 markets averaged $2,598,339. Growth skewed greater for large markets, possibly the result of a good year for political advertising in hotly contested markets spilling over to the digital realm.”

The average cable system in the report’s sample made $1,130,033. Small-market systems averaged $201,255 each, while large-market operations averaged $3,161,978.

The average daily newspaper in the U.S. or Canada made $2,489,934 in digital ad revenue in 2016. The smallest newspapers averaged $193,807, while the largest averaged $16,812,209.

The average weekly newspaper in the survey made $72,630 in digital advertising in 2016. The smallest-circulation papers averaged $11,974, while the larger-circulation weeklies averaged $158,320.

The report makes several recommendations “for those who wish to be survivors”:

• “Determine your market share and ‘share of wallet’ for each advertiser. This extends to all advertising, not just digital. Advertisers continue to adjust the dials, making decisions today about which local companies serve them best. A decline in market share indicates that advertisers have begun buying something you’re not selling.

• “Determine where your company wants to be in terms of digital revenue as a percentage of total ad revenue. A good initial target for directories is 35% and for local newspapers 25%, but as print advertising declines, these percentages will grow (as long as digital revenues don’t decline as well). For broadcasters, a good initial target might be 20%.

• “Do what the internet pureplays can’t do: Spend time with the customer, listen, and serve. This means either partnering with, reselling or managing that your advertisers want to do with Google, YouTube, Facebook, LinkedIn, Twitter, Craigslist, Pinterest, and any other digital marketing company you don’t own.

• “Expand digital service offerings. The larger, more successful media companies are finding that digital services are nectar that attracts the bees. Advertisers are interested in someone who can script and shoot a video infomercial and post it on YouTube. They’re interested in SEO, or how Facebook advertising works. They may be more in need of that advice than they are in buying an ad in your media because they see their digital presence as their advertising. More than two-thirds of advertisers see their web or social media presence as ‘advertising,’ and many are seeking advice from sales reps on how to manage those channels.”