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Can Digital Advertising Save the Fourth Estate?
On the potential risks and rewards of digital advertising for newspapers: an argument for innovation

The newspaper industry is arguably ripe for re-invention.

In 1704, the first newspaper advertisement was published. Ever since, newspapers have served their local and loyal community of readers, while pursuing new revenue streams in advertising. And so began an uneasy relationship with consumerism - newspapers can uniquely offer advertisers access to captive, local consumers while advertisers offer newspapers the potential for new dollars.

According to a study last year on U.S. shopping habits, 72 percent of Americans read or look at newspaper inserts regularly or occasionally, and more than half say newspapers are the medium they use to plan shopping. The newspaper has evolved into more than a trusted source for news; it is a conduit for the reader to connect with the larger community.

Digital advertising has been an undeniable groundswell for the advertising industry, representing the largest area of growth in years - Jupiter Research predicted that in 2012, U.S. online advertising spend will reach $34.5 billion.  In addition, Mary Meeker in her 2012 Internet Trends Report uncovered another $20 billion U.S. opportunity on top of that when factoring the time spent consuming online media versus the percentage of present overall online advertising spend. Combine this with another fact Meeker introduced, that 79 percent of the U.S. population is "online," and a massive opportunity arises.

Yet the data says that newspapers are falling behind. Recent numbers from the Newspaper Association of America (NAA) show that in Q1 of this year, digital advertising revenue at newspapers rose just one percent over a year ago; it is also the fifth consecutive quarter that growth has declined.  This is not for lack of effort or as some of the Internet people have assumed, lack of strategic vision. Person by person, you are going to find some of the smartest people around in the newspaper business, and most of the companies have built broad media businesses over the last 15 years.

A History Lesson
In the days of radio, newspapers focused on the fact that they had the reporters and in depth stories. Radio relied on the immediacy and urgency of breaking headlines, but the airwaves did not provide a means to deliver in depth information that readers could mull over and "study" the story. Newspapers capitalized on this, and journalism dug in and big name reporters were born.

Along came television and cable. Again the urgency of news was the forefront, and now it included sound and pictures. The important parts of journalism were often skirted and left consumers with just the headlines. Cable exacerbated the superficiality of local news content.

Advertisers found that TV and radio allowed for them to reach a national audience of more affluent consumers with disposable income. These great new electronic technologies were available only to the higher income class families. Newspapers, however, provided reach to local audiences and to all range of demographics.

The first wave of the Internet hit newspapers at the turn of the 21st century. Advertisers had a choice to move advertising online to reach huge audiences at a relatively low cost.

Early online newspapers consisted solely of stories online. Four years later found more and more papers offer the news in different formats for their online readers. Newspapers' online versions would break stories as they happened changing the 24-hour news cycle into the best combination of urgency, importance and thoroughness.

Still the print newspaper engages us. It provides a means to enjoyment, offering up a serendipitous discovery of the world around you. This too provides advertisers the same benefit. Shopping is a discovery experience that is both social and fun. It is done by leafing through advertising circulars and catalogs, window shopping through a downtown street, or browsing through the malls and shopping centers-often done with friends and family, a social experience. Internet brings us everything all the time. This is great but at the same time overwhelming.

What's Next for Digital Advertising?
According to the recent data uncovered earlier, the general outlook is less than rosy for newspapers and digital advertising. As the industry's share of online advertising dollars shrinks, most are quick to assume the worst for newspapers. But I would argue the numbers don't tell the whole story. Don't underestimate a centuries-old industry its potential for re-invention.

First, as has been pointed out, the economy has suffered in parallel to the latest numbers, which can explain some of the lag.

Also, keep in mind that this is not an industry new to adversity. Before the Internet - often regarded as the archenemy of the newspaper, there was radio, TV, cable... New technology innovation over the years has often challenged the traditional print industry and newspaper advertising. It creates an opportunity and a push to innovate.

Last, loyalty is a tricky thing. While some newspapers explore cutting back print schedules to drive more readers online for news and advertising, this can be a risky endeavor in light of generations raised on the smell and the ritual of the daily paper.

While newspapers still must serve relevant and timely news, while desperately working to build online revenue channels to avoid the gloomy forecast of an industry decline, they have to maintain trust and goodwill with their readership. With all of the complexities around advertising, readership and the Web, it seems less about the news than ever.

No one can ignore that times are changing. From the largest national newspapers to the smallest community papers, everyone is looking for an online advertising model that works - that bumps revenues and also brings value to readers.

Serving a local community well can derive from both news and advertising if the value and quality are high. Digital advertising done right can be a boon to an industry in flux and innovation may very well save the "Fourth Estate" - in fact, innovation is being driven by some of the largest newspaper publishers directly. They recognize the need for a universal platform - one that brings advertisers to millions across local markets, brings the major brands (and revenues) to the newspapers, and serves consumers with valuable offers and information to make online, mobile and local shopping easy and fun.

There is a need for innovation...and re-invention. No need to call the coroner. I predict that newspapers will survive, and thrive, by embracing the next wave of digital advertising innovation - namely mobile, social and the Web.

About Ben T. Smith
Ben T. Smith IV is CEO of ShopCo Holdings, a startup focused on reinventing online discovery shopping with a social experience. He is also a Venture Partner at Accelerator Ventures and co-founder of MerchantCircle.com and Spoke.com. Ben blogs at btsiv.com, and you can follow him on Twitter at @bentsmithfour.

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