For most print publishers, online ad revenue (from the online version of their print publications) has represented only a modest percentage of total ad revenue — sufficiently small that they still see themselves as principally in the print publishing business, since that’s where most of the money comes from. Online advertising revenue has been growing at many times the rate of largely shrinking print ad revenue, but the day when total online revenue would eclipse total print revenue seemed far off.

Today we learn from a TNS survey of 100 CMOs at Fortune 500 companies that this day may not be as far off as you might think. The survey was conducted in Sept 2005 and then again in November. The results are sobering for magazines in particular (and for once, not for newspapers, but that business model is already halfway down the drain anyway).

Overall online advertising revenue is expected to increase 32% over last year to $16.6 billion in 2006. Total ad spending certainly isn’t going up 32%, so where are those dollars coming from? Fortunately, TNS had the wherewithal to ask a media mix question in both surveys, which they can now trend:

  • Online advertising as a percentage of total ad budgets went from 17% in September to 23% in November.
  • Magazines advertising as a percentage of total ad budgets went from 22% in September to 15% in November.

Well, there you have it. The largest advertisers now plan to spend proportionally more of their ad dollars online than in magazines. (Of course, there’s a margin of error here, and who can believe that newspapers are going up from 12% to 16%, but directionally, you can’t escape the writing on the walls.)

So, what’s the big deal? Why not have half of publisher’s ad revenue come from online ads and half from print ads? Oh, right, this is a business, so we actually need profit, not just revenue. Hmmm, where are all those pesky fixed costs coming from? Well, there’s edit, but then there’s printing (ouch), paper (ouch), postage (ouch), and on and on.

I wonder how many magazines have already seen their total profit from online advertising eclipse the profit from print advertising. How long will these publishers continue to subsidize their printing presses?

Magazines and newspapers have been laying of staff to save money in an effort keep publishing profitably. Yesterday, McGraw-Hill announced 500 layoffs. Back in December, it was Time Warner. In September, The New York Times. There’s constant blood-letting at US News, including top talent. I Want Media has a tracking page for media layoffs.

How long before publishers decide to keep the human talent, and lay off the presses instead?

Life After Print

All right, you say, what if we killed print and went all online? Then what? According to Robert Cringley, in his piece How Pay-Per-Click Is Killing the Traditional Publishing Industry, that would be the beginning of the end. Cringley makes two key arguments:

  1. There is less proportionally less ad inventory online, so revenue would be significantly less than in print.
  2. The accountability of pay-per-click advertising will steal what little revenue there is left.

These arguments have several flaws which give hope to the future of publishing without print.

First, it doesn’t matter if there is less REVENUE if there is also less COST. All publishers know (the messiness of edit staff allocation aside) that online advertising is significantly more profitable than print advertising. So if the bottom line is sound, publishers can adjust to a different top line dynamic.

Second, Cringley assumes online display advertising will continue to be valued the same as it is now. When the inflated cost of unaccountable print goes away, and online is the only way for advertisers to reach a valued publishing brand’s valued audience, publishers can charge more.

Lastly, as the the threat of PPC, how do you build a brand on Google? What is the value of a Google ad to Mercedes, Coke, Intel, or BP? None of these brands is likely to be purchased directly online through a single, trackable click on a text ad. And if all the money were going to PPC, why would Google have experimented with selling ads by CPM?

The inability to measure brand advertising remains a perennial problem. But the value of brands is perceptible, if not entirely measurable.

So as long as there are companies whose business objectives go beyond quick, linear, online transactions, there will be opportunity for niche online media brands to create value.