Yahoo and Newspapers: Playing with Fire
As Yahoo burns, the newspaper industry watches, hoping it won’t get singed.
The Google/Yahoo search ad agreement has drawn lots of comments over the past couple of weeks, but its impact on newspaper consortium members has gotten little attention. The deal itself, if implemented, won’t have much immediate revenue impact for newspapers, but its strategic game-changing impact could well present a new headache for the throbbing industry.
Yahoo appears to be in freefall.
Its execs are bumping into each other, heading out the door in the latest reorg. The softening online ad market doesn’t bolster the company’s hard-to-believe projected growth. Steve Ballmer is going hot and heavy after Yahoo engineers, and indicating that his once-and-future prey’s value is declining by the Internet minute. Amid it all, CEO Jerry Yang has gone Yahoo shirt in hand, traveling through the halls of Congress, explaining that his proposed save-Yahoo-partner-with-Google plan really won’t create an online ad monopoly.
In old times, newspapers would find this all great sport. They’d cover it big as the fascinating business story that it is, and that would be the extent of their interest.
Now, though, more than 40% of US dailies by circulation have hitched their 2009 growth wagons to Yahoo and its emerging AMP ad platform. AMP is the most important part of the newspaper’s consortium’s deal with Yahoo.
Yes, traffic programs and providing site search are helpful. It’s the AMP promise, though, that newspaper CEOs talk about when asked where the growth is coming from. In short, the promise of AMP is that of sophisticated, behaviorally based, audience-targeting ad delivery system. The hope: $10 CPMs will become $20 CPMs, as new targeting (in hundreds of categories from Boston-based young, SUV-driving moms to empty nester, small-town Midwesterners) improves ad effectiveness.
At this point, AMP is supposed to roll out, first at MercuryNews.com and SFGate.com by the end of 3Q. It would then move through the consortium ranks, being in place at most sites for most/all of 2009, promising tens of millions of dollars in new revenues. Amid a year of incredible Yahoo turmoil, signs still point to substantial Yahoo investment in getting the new system in place.
Most immediately though, here’s what at stake:
- Though Yahoo has talked about clearing $250-450 million annually from the deal to have Google to provide some search ads, newspaper companies are unlikely to see any additional search ad revenue out of the deal. That’s because publishers got search revenue guarantees out of Yahoo as part of their multi-year deal. The guarantees didn’t ramp; they were set at certain levels, depending upon assumptions of search traffic and search ad rates. So publishers’ guarantees have been exceeding actual earned revenues, at least for the most part. So even if Google is able to double ad rates, most newspaper revenues wouldn’t change. Midsize sites currently take in Yahoo search revenue in the four digits monthly.
- Put the arithmetic aside for a moment though and consider that newspaper publishers aren’t sure whether they’d be part of the Google search ad program. At this writing, Yahoo’s unsure whether the Google ads would be provided to newspaper partner sites (as opposed to Yahoo.com, the core destination of the ads) and newspaper partners are waiting for that answer, though, given the arithmetic above, it may be mainly an academic question.
The Google deal though raises two other big questions for all those newspapers — owned by MediaNews, McClatchy, Belo, New York Times Regional Group, Scripps, Hearst, Gatehouse, Media General, Lee, Cox and more.
#1 is what the Google deal portends for Yahoo’s advertising strategy. As Ballmer has recently said in summing up the Google/Yahoo search ad deal: "Google’s won." So if Google has won the search ad game (which accounts for 42% of the online ad market, according to IAB), then where does that leave Yahoo? Yahoo has increasingly talked about its lead in display ads (21% of the ad market), the kind of ads that AMP is intended to bolster.
Even Yahoo, though, has acknowledged that the line between search ad revenue and display ad revenue is a thin one, and one that may disappear.
Take this statement out of Yahoo, in a recent response to Microsoft’s offer, to buy just Yahoo’s search business, when it said it was no longer interest in the whole company.
"A deal for Yahoo search] would not be consistent with the company’s view of the converging search and display marketplaces."
Separately, of course, Jerry Yang and Sue Decker have made the point that display and search are two different worlds.
It’s hard to have it both ways.
Clearly, I think, Google with its mojo, its DoubleClick acquisition and the foibles of its two closest competitors (Yahoo, Microsoft), is becoming a monopoly in the online ad game. Recall that MSN has a little less than 10% of the search ad market, leaving the new Google/Yahoo partnership with 90% or so. That’s Boardwalk, Park Place and lots more, including it would seem all of Panama. After MSN, all that’s left for search marketers are companies like Kanoodle, Miva and Looksmart, each clearly in a second tier, and unable to satisfy the marketing needs of big advertisers.
To the question of whether search and display ads are really different worlds, a savvy industry exec put it simply: "At the end of the day, it’s all just real estate. " In other words, as ad and audience tracking technologies get better and better, it’s all about maximizing yield. If you’ve got a place on a web page for commercial messages, your technology should tell you whether a search ad, a display ad, or for that matter a video ad or gasp — even editorial matter that may spur more page views — is the best way to make money.
That argues for unified ad systems. Maybe Yahoo’s AMP is better than whatever Google’s working on, post-Double Click, but letting Google onto Yahoo pages is not the greatest harbinger that Yahoo could eventually win ad battles with the online ad leader.
#2: Beyond the intricacies and impacts of the Google/Yahoo deal (and whether in fact it musters anti-trust review on two continents and even Congressional Republicans talking up anti-competitiveness), Yahoo’s precarious state overall is most worrying to publishers. This year’s double-digit decline in print revenues and the halving of newspaper digital revenue growth rates has raised publicly the ugly word, "default." As the lights dim, publishers’ bet and reliance on Yahoo gets bigger and bigger.
Each week, it seems there’s another "summit" of newspaper consortium members — top sales teams (VPs, directors, managers) with Yahoo consortium execs — all focused on making the most of the emerging Yahoo-fueled sales opportunities, both on newspaper.coms and local Yahoo pages. (MediaNews was in to Sunnyvale just last week.) So any interruption in that sales momentum would be the worst possible news for the news industry.
The list of what could interrupt that momentum is lengthening.
The depletion of Yahoo’s staff, if accelerated, could slow down AMP development and implementation. We don’t know what’s going on inside Yahoo, but recent defections signal that lots of people might be taking their eye off the ball.
Further, Jerry Yang’s tenure has got to be coming to an end, and where will that leave his #2 Sue Decker? The exec leading the newspaper consortium build has been ex-Knight Ridder Digital head Hilary Schneider, who’s gained power in lockstep with Decker. If Decker ascends, well, maybe that wouldn’t hurt.
But given the blood being called for by Carl Icahn and other increasingly upset and litigious shareholders, don’t bet on Decker moving up. What’s more likely is new leadership, leadership called upon to reorient the company mightily, or as likely, prepare it intelligently for sale. New management certainly means at least a rethinking of the substantial resources Yahoo is devoting to the consortium.
The short-term negative: a confusion about priorities that slows AMP development down.
The potential longer-term positive: with national and search advertising growth both slowing, maybe local advertising really is the major growth opportunity Schneider’s been touting and new leadership doubles down on it.
Place your bets.