Centro Buys Real Cities, Emphasizing Online-Only Sales Importance
Important Details: Centro, which has become a major supplier of national online-only advertising revenue to US news websites, has bought the Real Cities national ad network from McClatchy. The price of the transaction was not disclosed.
The acquisition reinforces Chicago-based Centro’s leading position with regards to local and regional news sites, and poses new integration questions as many of Centro’s news site customers begin to move onto the Yahoo! ad platform, beginning next month.
Centro and Real Cities have been set up as two different kinds of companies. Real Cities began business in 2000, owned and run by Knight Ridder. In acquiring Knight Ridder in 2006, McClatchy then took over the rep firm for daily newspaper websites, some 1800 in total including niche as well as major destination sites. Centro meanwhile focused on the local sales market needs of major national and regional advertisers. To satisfy those needs, it then secured relationships with several kinds of local online media, ranging from newspapers to broadcasters to alternative weeklies. With its technology, widely introduced in 2007, it is able to play the role of matchmaker, linking advertiser geo-targeting with available inventory.
While Real Cites has been clearly secondary in revenue production to Centro for most newspaper sites, the acquisition clarifies the market somewhat and reduces the noise.
“It’s a scale play,” Centro CEO Shawn Riegsecker told Outsell. He says his company is growing at by 45% year on year, even with major declines in General Motors and ATT spending, caused by economic and structural shifts. Centro gains relationships with more than 100 new advertisers through the transaction.
Implications: The acquisition comes on the heels of the poorest online revenue reports issued by US newspaper companies in years, and the Centro/online-only connection is one to watch.
In their second quarter earnings announcements, four companies said that their online revenue growth had turned negative year-over-year, with Lee at -9%, Tribune at -4%, Belo at -12% and Scripps at -8%. Of the local newspaper companies, McClatchy outshone its peers, up 12.5% while other companies showed a little growth, but largely in the single digits.
The largely poor online revenue numbers, more than any other, showed the going-forward weakness of newspaper companies. The story many have told for the last several years (that rapid online revenue growth will repair the damage to the print business) is now harder to maintain.
In a series of reports (including Top 10 U.S. Public News Companies: Print-to-Digital Market Size and Share, January 31, 2008), Outsell has pointed out that the online-replaces-print-revenue math never quite computed, given that the news industry overall can count just 8% of its overall revenues from digital sources. Now that math is even more troubling.
Why, given the 15%+ continuing growth of internet-based advertising, do we see such poor online revenue numbers? The answer lies in the newspaper industry’s too-great reliance on classified “upsells” to stoke its online ad revenues. For a decade and more, as print classifieds ads (particularly for jobs, real estate and autos) were placed, they’ve been “upsold” to online placement as well. The upsell – forced on the customer or adroitly “presumed” – meant buckets of revenue in good times. That produced online ad growth rates of 25-35% in the 2005 and 2006. Now as the difficult economy has decreased print classifieds dramatically, the online upsells have gone with them, leading newspapers into or near negative territory.
Most publishers now agree that the answer to news company growth is online-only advertising. They began focusing in earnest on online-only ad sales – ramping up hiring and sales retraining – in 2007. Unfortunately, the results have yet to kick in meaningfully, though McClatchy CEO Gary Pruitt has made a recent point of saying his company was approaching the 50% mark in the percentage of ad revenue that is online-only.
Which brings us back to Centro whose business is indeed booming as national advertisers look for the best ways to target local readers – with online-only ads. So as local publishers focus on local online-only sales, Centro aims to be their major supplier of national online-only ads.
The last wrinkle here is Yahoo!. As newspaper consortium partners (see Insights, Yahoo! and Newspapers Cement Their Partnership, April 18, 2008) begin using Yahoo!’s ad platform this fall, they’ll start to reap the benefits of Yahoo!’s own ad-targeting technology. 2009 will be the year they learn how better to maximize sales and inventory yield, balancing their own sales forces and those of Yahoo! and Centro and harnessing the underlying, and increasingly sophisticated technologies powering those efforts.