Wednesday, May 04, 2005

The Next Challenge Facing Newspapers: Internet Coupons

Various Internet sites have been feeding upon print newspapers like sharks feeding on a dying whale. The Internet sharks have fed upon the newspaper’s franchise on news, editorials and classified ads. The next course in this meal is coupons. Can the newspapers, in their weakened state, fend off the assault on their coupons, or will this provide yet another meal for fleet of foot Internet companies?

Let me just quote a few facts that paint a picture of the fate of the newspapers:

* The combined weekday circulation of all U.S. dailies has dropped from 62.8 million in 1985 to 55.2 million in 2002. That gives it the lowest penetration of any medium. That trend is accelerating due to the impact of the Internet. (Forbes)

* "Newspaper readers are dying off faster than they can be replaced," said industry analyst John Morton. "It's a trend that's been exacerbated by the Internet. It's a fairly deep problem and it's not going away."

News aggregation sites like Google and Topix have cut into the newspaper’s franchise on day-old news by providing richer fresh news for free.


The blogs have torn into the newspaper’s franchise in editorials. Instead of getting only the opinions newspapers deem fit for print, Internet users can get diverse opinions on any topic through blogs.

Classified Ads:

As mentioned in one of my previous postings, classified ads are simply much better on the Internet. Here are a few facts that support this point:

* According to market researcher Classified Intelligence, San Francisco bay area newspapers lose $50M - $65M in classified revenues annually as a result of Craigslist’s free online classified ads.

* In 1997 there were 141M classified ad listings in newspapers and 4M in eBay, by 2003 there were 602M listings in eBay and 120M in newspapers. (Morgan Stanley)

Media baron Rupert Murdoch spoke to the American Society of Newspaper Editors April 13, 2005 about the impact of the Internet on newspapers, and all but proclaimed the death of the newspaper as it exists today.

“…We today face the more immediate challenge of transforming our offline classified businesses into online marketplaces. And not just for the traditional cars, jobs and real estate categories. What we’re learning is digital natives increasingly are finding their dates, their plumbers and their restaurants online.”

This brings us to the next major section of the Internet to come under attack by the Internet, namely coupons. Pick up any local free newspaper and it is apparent that local advertising funds these operations, and a good percentage of the local advertisements are coupons users can clip and redeem. Coupons also comprise a significant number of the run of press (ROP) ads in major newspapers. On top of this, the coupons in the Sunday newspapers, called free standing inserts (FSI), represent a multi-billion dollar business. But coupons, just like classified ads, are much better on the Internet.

Consider these facts:

* There were about 350 Billion coupons distributed last year in the United States, with a redemption rate of about 1%.

* 77% of the US population uses coupons and there were 16 coupons redeemed for every man, woman and child in the U.S. last year.

* According to the Newspaper Association of America, 42% of the Sunday newspaper readership is due to the FSI coupons.

* Online content drives 4 offline transactions for every 1 online transaction, 98% of all commerce is offline, and 80% of that commerce is concluded within 20 miles of where people live and work. In other words, online content has a large and growing impact on local sales, which is where the real money is.

* Internet coupons currently represent less than 1% of the total coupon market, but their use grew 111% in 2002 and 365% in 2003.

The trends are pretty obvious, couponing is big business, and it is moving online at an accelerating pace. The reasons are simple, online coupons replace the entire coupon clipping, saving and management headache. You simply search for the coupon you want and print it when and where you want. If you’re at work and want a coupon to save on lunch, just print one from the Internet. What could be easier?

Until now, newspapers have acted like fish out of water when it comes to the Internet. The majority of the newspaper websites are pretty weak, and that’s being generous. Unless they start fending for themselves, newspapers will soon become lunch to yet another breed of Internet competitor attacking their local advertising and couponing franchises.