Suburban media companies, like digital pure plays, have experimented with several ways of generating profitable revenue. Three typical methods involve: 1) fees for content usage or registration, 2) product sales, and 3) advertising and promotions.
Content Usage Fees
Charging for content has proven to be very difficult. The history and culture of the Internet plays heavily against paid content. Only in rare cases do users part with their money. Even those that have requested registration in exchange for free content have suffered significant setbacks. In the end, this model has proven to be a failure for most media companies.
Product Sales
Several media companies have tried different types of product sales. In theory, media companies are uniquely positioned to promote products owing to their ability to leverage newspaper advertising space. In practice, however, selling products is not their core strength. Moreover, established online habits show users would rather use eBay to buy products than their local media company. Newspapers have enjoyed limited success selling news content, photo reprints and online-only listings. However, revenue potential in these areas is limited.
Advertising and Promotions
Newspaper companies are having more success leveraging their core competency in advertising and promotions, and hiring dedicated sales people to sell custom, online offerings.
Bundled Revenue. Jobs, Real Estate, and Autos. Almost all newspaper companies kick-started their digital businesses by bundling print and online classifieds. The actual amount allocated to online is often arbitrary as there are no established metrics for assigning relative value to print and online. When anecdotal evidence of customer demand and testing of comparative response rates are considered, the value of most online classified ventures today may, in fact, exceed what is typically allocated. Regardless, even low evaluations of online value can substantially boost total digital revenues.
The problem for most newspaper companies is that demand for paid classifieds is falling steadily owing to competition from internet pure plays, many of which offer free options and far superior services. So, by attaching online classifieds to expensive print classifieds, newspaper companies are now failing to compete effectively in this space.
Clearly, new competitive strategies are required. A critical question, however, is to what degree media companies have missed their opportunity to compete online in this space effectively. Many successful pure plays already exist in each vertical area. What competitive advantage do traditional media companies have that would allow them to come from behind? It is this question that has inspired many newspaper companies to seek partnerships with internet leaders rather than build new brands.
Display Advertising. Although banners, blocks and buttons represent the earliest form of online advertising, and have been assessed negatively by some advertising experts, they offer value to advertisers when used intelligently. This is especially true when ads are locally or topically targeted, have a high production value, and contain strong offers. Adding animation or video further heightens an ad’s effectiveness.
The major weaknesses of online display ads are that they: 1) generally lack visual and topical relevance to page content, 2) generate a low ratio of “click-throughs” to ad views, and 3) are often poorly designed and executed by creative people who lack an intimate understanding of the medium.
