Classified ad pricing may fall to near zero - experts say

Are you preparing for the day when the price of a classified ad in your newspaper falls to pennies, or nothing? Gannett and Knight Ridder are. They know they need to reinvent classifieds.

The No. 1 and No. 2 newspaper groups in the United States, respectively, Gannett and KR foresee pricing pressure on classified ads like never before. Theyíre preparing for radical changes in classified ad business models ñ including major changes in sales strategies, and ìparticipation in the transactionî to capture revenue thatís disappears from the classified pages.

Mindful of the impact Craigslist, EBay, social networks and declining print readership are having on traditional classifieds, Mike Kment, Gannettís corporate classified advertising director, and Tom Mohr, former corporate classified VP at KR, spoke recently to newspaper classified ad directors. (Mohrís now president of Knight Ridder Digital.)

They didnít pull punches.
ìI sometimes donít think we have fully come to terms with the degree to which we need to undergo transformational change in order to be in a defensible position for the next five to 20 years,î Mohr said. ìAs an industry, we have in some ways, let me be tough, failed miserably, in the ways we have responded to the competitive threats we face. Ö I see the need for very aggressive, very significant, transformational change. And I see that beginning to happen.î

Mohr said newspapers have almost lost all advertising for apartments, although ìI think it can return.î And ìwe have now virtually lost the merchandise private-party category, or at least itís in serious jeopardy.î Thereís ìincreasing online risk in real estate and automotive, where you have the emergence of pay-for-performance models,î he said, and newspapers have had to fight ìa tremendous battle for recruitment (advertising)î as well.

Kment painted a bleak picture of private-party advertising ñ the ìlinersî that are the core of the classified section ñ and commercial merchandise advertising.

ìI think the price point for both private-party and commercial customers, relative to Ö bringing buyers and sellers together, is just slightly north of zero,î he said. ìIím not sure exactly what the amount is, but itís slightly north of zero.

ìThe great advantage that we have going forward is the proximity to the transaction,î he said. ìWe are by definition local, local, local. How do we bring (together) people who will benefit from being proximate to the timing of the transaction Ö and how can we monetize that? Because at some point weíre not going to be able to do what weíve always done, Ö kind of put our finger up in the air and guess how much more can we charge, because what we can charge is going to go rapidly down and itís going to go greatly down.î

Kment said newspapers have to earn transactional revenue. He mentioned a major city where Craigslist carried 12 ads for used pool tables while the metro daily and its Web site had none. What happens, he asked, if the newspaper offers those ads for free to recapture the marketplace, but then earns revenue in several steps along the way ñ for example, payments from companies that move the pool tables, and / or from people who replace the felt on pool tables?
Mohr said right now, most classifieds are bought rather than being sold.

ìI donít think we have come to terms with the degree to which we need to change as sales organizations. I have talked about it as the shift from being catcherís mitt to pitching machine. We have got to make a fundamental shift that increases the sales pressure in our market, not by 5 or 10 percent, but by 500 percent, or more.î

Competitors have found it easy to take away newspapersí business. ìFrankly, in most cases, we just let ëem do it,î Mohr said.

Kment later told me he thinks the price collapse will affect mainly private-party and small-business advertisers.
ìI donít have the same pricing or relative-value concerns about display advertisers, Ö particularly classified display advertising that features both branding and inventory,î he said. ìIím very optimistic. I think the fact that newspapers Ö have developed multiple platforms and strong local classified advertising markets, should give us all confidence that our foundation of ëlocalí and the trust implicit with our local newspaper brands is a tremendous comparative advantage relative to our competition.î

At the meeting, Kment said publishers and classified ad directors are ìkind of conflictedî by the need for change. ìWe all know weíve come a long way in the last few years, and itís become ever more clear that weíve got a long way to go. Weíre not even sure where that ëisí is that weíve got to go.

Whatever that ìisî is, it clearly doesnít include just doing things the way theyíve always been done. As Kment put it: ìIf we can be the ones to reinvent the business model and reinvent classifieds across our platforms (so they) may last another 50 years, or at least another few years, then we really will have done something. If all we do is we are present at the wind-down of what somebody else built a long time ago, that would be sad. So my challenge to you is Ö to really think about the responsibility we have to reinvent this business.î

Amen to that!

By Peter M. Zollman