Sunday, October 30, 2005
BUSINESS MODELS: San Diego Union first major daily to give away private-party classifieds
By David Washburn
SAN DIEGO UNION-TRIBUNE STAFF WRITER
POSTED: August 28, 2005
In an attempt to maintain readership of its classified advertising in the face of competition from growing Web sites, The San Diego Union-Tribune will begin offering free classified ads to individuals.
Beginning tomorrow, the newspaper will offer three free lines of advertising for seven days on its classified pages and Web site to any individuals wanting to sell a car or other merchandise worth $5,000 or less. The offer does not apply to commercial advertisers.
Although newspapers nationwide constantly offer deals to lure classified customers, the Union-Tribune is the first big-city daily to give away ad space on this scale.
"It is a bold move," said Gordon Borrell, president of Borrell Associates, a media consulting firm in Virginia. "This is the model of the future for newspapers."
Classified advertising has long been a profit center for newspapers, and a decade ago giving away classified advertising would have been looked upon as heresy.
But declining readership and Web sites such as eBay and San Francisco-based Craigslist have changed the dynamic in recent years, industry experts say.
In 10 years eBay, which allows people to auction merchandise online for a small fee, has grown from a startup operating out of a San Jose living room to a $3 billion behemoth.
Though not nearly as big as eBay, Craigslist also has become a force. Founded in 1995 by Craig Newmark, it began as a sort of counterculture message board for young people in the Bay Area. It gradually expanded and is now the place in most major cities for the under-30 crowd to sell merchandise, find apartment rentals and offer services, as well as search personals and job listings.
"You have this guy in San Francisco who has suddenly created the Google of the classified advertising business," Borrell said. "Newspaper publishers have to sit up and take notice."
While eBay and Craigslist have thrived in the new millennium, newspapers have watched their readership drop to historic lows. And their once fat classified sections have become much thinner.
"Seldom has a new medium come along and completely killed another," Borrell said. "But . . . the Internet is squeezing newspapers into a niche product. Classified is being walloped."
Unlike display advertising, classified advertising is considered content, and when there is less content there are fewer readers, experts say."In this day and age when newspapers are struggling for readership, offering free classified can be an enticement to read the paper," said John Morton, a newspaper analyst in Maryland.
Classified ad revenue for U.S. newspapers has declined steadily since 2000, and is expected to be about $16 billion this year . about equal to what it was in 1997, according to the Newspaper Association of America. Hardest hit has been help-wanted advertising, where revenue is half of what it was for newspapers in 2001. Automotive classified advertising has performed almost as poorly, with six consecutive quarters of decline.And real estate advertising, the lone winner in recent years, had its first declining quarter since 2000, according to the newspaper association's data.
Recent second-quarter earnings reports among large newspaper companies indicate that things are getting worse.Knight Ridder, which owns 32 newspapers including The San Jose Mercury News, The Miami Herald and The Philadelphia Inquirer, reported classified auto advertising down 7.1 percent in its larger markets and off 6.6 percent at smaller newspapers. Other chains posted similar results.
The McClatchy Co., which owns newspapers in Sacramento, Modesto and Fresno, reported auto classified sales down 7 percent. And Tribune Co., owner of the Los Angeles Times, Chicago Tribune and other papers, said classified sales were off as much as 9 percent.
The Union-Tribune is a privately held company and does not release financial results. But executives said the newspaper's classified revenue has actually grown by double-digits over last year's.
Most of the growth can be attributed to San Diego County's hot real estate market, said Dexter LaPierre, the Union-Tribune's director of classified advertising. Ads for automobiles have declined, and employment ads are up slightly from last year.But in the past 10 years, the number of classified ads placed in the Union-Tribune by individuals has dropped by 30 percent. And the paper has lost circulation in recent years.
"Newspapers are still an efficient advertising buy. In many markets the newspaper is the only true mass medium left," Morton said. "The Achilles heel is that if circulation keeps declining, it will no longer be an efficient buy."
Using free classifieds to try to grow readership may be a gamble, but the newspaper is gambling with a relatively small portion of its overall revenue, said Scott Whitley, the Union-Tribune's director of advertising. Ads bought by individuals selling merchandise account for less than five percent of the paper's advertising revenue, he said. The paper will still charge car dealerships, real estate firms, landlords and employers for their ads.
"This is not a move out of desperation," Whitley said. "It really is about growing readership with content . and advertising is content." Other observers, including some newspaper advertising executives, said the Union-Tribune is on the leading edge of a trend.
"I think every newspaper will have to seriously consider that move," said Pete Casillas, the classified advertising manager for The Miami Herald, which this year began offering free ads for merchandise valued at $500 or less. "I would not be surprised to see other newspapers follow suit very quickly."
Analysts said that if this becomes the norm, newspapers may be able to "one-up" Craigslist. "I can't imagine that it is a mistake. There just too many pluses to it," said George Whalin, president of Retail Management Consultants in San Marcos. "Auto Trader and small newspapers can't do it . it's their livelihood. It gives (the newspaper) a competitive advantage."
David Washburn: (619) 542-4582; firstname.lastname@example.org
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