As traditional media revenues decline, digital dollars grow

The first quarter reports are slogging in, and for media companies, the numbers continue to paint a picture of ongoing decline.

Today, McClatchy Co. posted that first-quarter revenue fell 10 percent, which included an 11 percent decline in newspaper advertising revenue and a 5 percent decline in circulation revenue. But digital-only revenue – not tied to newspaper upsells – increased 10.2 percent.

New York Times Co. reported a 7.5 percent decline in advertising revenue and a 3.7 percent decline in circulation revenue. Gannett Co. reported almost identical declines – a 7.3 percent decline in publishing-ad revenue and a 3.9 percent decline in circulation revenue.  But digital-ad revenue was up for both – up 15 percent for NYT and, at Gannett, up 12 percent.

Media General Inc. reported similar declines – a 10 percent loss in newspaper advertising revenue and a 3 percent loss in broadcasting revenue. MG’s digital revenue from its newspaper and TV websites grew by 20 percent – but was offset by losses by its standalone deals business,, which was hurt by Google’s latest algorithm changes.

Those algorithm changes – ironically nicknamed Panda – put a much larger hurting on content-mill businesses, which game search engines with shallow, mass-produced content in order to deliver remnant ads. Forbes reported this week that, since the change: Google traffic to Demand Media is down 40 percent. Associated Content and also fell off a cliff.

Put all of this together and you can draw the floorplan for the rest of 2011.

  • Cost reductions are coming to newspaper companies. Again. And the layoffs will have to be deep and fast in Q2 to have any effect on the overall year. It may be too late already.
  • These layoffs and cost reductions will further distract media companies from the necessary job of digital transformation. This isn’t a prediction; it’s past practice.
  • The cushion media companies enjoyed in 2010 – when political and stimulus spending propped up the broadcast side and print had a slight breather in its precipitous fall – is gone. The cushion? Spent – but not on overhauling infrastructure to be digitally thriving entities.
  • While the newspaper industry focuses on NYT’s pay-wall execution – 100,000 subscribers and counting – it’s local digital ad revenue that continues to present itself as the double-digit growth engine.
  • Content mills – once thought to be a threat to local digital ad dollars – are, with a twitch of a Panda, likely to become as extinct as those sad, obese bears. (Exhibit A: Demand Media’s stock fell 40 percent this month.)
  • That leaves local digital dollars up for grabs. AOL’s Patch is trying to rush in, but is building an infrastructure as cumbersome as the ones it hopes to disrupt. Its best shot at success is to strike hard in Q3, when cost cuts at media companies become apparent to readers and advertisers.

Local digital dollars may be, as Journal Register Company CEO John Paton says, stacking dimes. But with U.S. newspaper ad revenue falling 48 percent in the last four years, those dimes look pretty good. In fact, an entrepreneur would see them as an untapped silver mine.