June 28, 2022

The Tough State of Local Advertising

We all know that the local media market continues to struggle, and there is a multitude of reasons why. But it’s interesting to see how, in aggregate, things look so rough, but then in the micro sense, we still see things that are working.

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Now let’s jump in…


Whether it was intentional, last week’s Axios Media Trends has two stories that show two very different states of the local advertising business. First, there’s the story about digital revenue surpassing print revenue by 2026.

U.S. newspaper publishers will lose $2.4 billion in ad investment between 2021 and 2026, largely due to print advertising losses. While digital will grow marginally, it won’t be enough to stop the industry from losing ad revenues overall.

Print advertising will fall from $7 billion last year to $4.9 billion by 2026. That 7.7% compound annual growth rate (CAGR) is well ahead of the global average decline, which is -5.1% CAGR.

We’ve known the ad business is dying, but seeing it spelled out like that is gutting. Compared to the hyper-targeting that a Facebook or Google ad can provide, a banner ad on a newspaper’s website won’t cut it.

But what’s so remarkable about this is that, while newspaper print revenue continues to drop, there are some areas where local ad revenue is growing quite nicely—and in print. For example, in a second story on Axios:

N2, a local magazine company, will rebrand next week as “Stroll,” bringing all of its 650+ local print magazines under the same branding, executives tell Axios.

Why it matters: The rebrand marks a major milestone for the company, which has grown to bring in more than $131 million in annual revenue.

What’s next: The company will expand to more local cities. It plans double down on a digital platform product it offers for local real estate agents in major cities.

Altogether, “our company is on track to double in revenue in the next 4-5 years,” Dixon said. The company has no plans to sell the company or go public, he noted.

This is a genuinely fascinating model. In a nutshell, it’s a franchise model. An entrepreneur can license the brand and “become a publisher,” as its site’s big call to action says. The entrepreneur has to sell local ads and help create content—as long as it fits Stroll’s editorial guidelines. Stroll provides the framework, the printing services, design, and other things to make it easy to run the magazine.

It’s just like McDonald’s. Rather than building a brand and the infrastructure from scratch, the entrepreneur depends on Stroll to do much of that. Stroll gets a cut of the ad revenue, similar to how a McDonald’s receives a cut of sales.

I don’t intend any of this to disparage the product. On the contrary, there’s a reason franchising works so well. There are economies of scale that these entrepreneurs would never be able to achieve on their own. But, by working with Stroll, they can do so much more.

In the above quote, Axios reports that it generates more than $131 million in annual revenue. It’s hard to say whether this is gross or net revenue. But this revenue continues to grow—primarily print revenue—while newspapers continue to shrink.

But it’s also not a good comparison. Stroll has over 650 magazines. It generated $131 million in annual revenue. But some of that comes from its “local digital marketing company,” which means it’s not all magazine revenue. But if we assume it all came from magazines, that would mean, on average, it generates $201,000 in revenue per magazine at the high end. If the $131 million of revenue is net revenue, my guess is that each magazine makes about $1 million in gross revenue (giving Stroll a roughly 20% cut).

Compare that to newspapers. According to US News Deserts, there were 6,700 newspapers in 2019. Let’s assume that stayed flat for argument’s sake and newspapers generated $12 billion in ad revenue. That’s an average of $1.8 million in revenue per newspaper. We know that’s not real because there are only 3 national newspapers and 157 metro & regionals, which likely get the bulk of that. This leaves a little over 6,500 papers that get much less revenue.

So, what’s the problem?

In big part, I think it has to do with the product. A monthly magazine that is free for readers and is filled with lifestyle content is an easy read for people. There’s nothing controversial, which makes advertising significantly easier. And the costs are likely lower because of the reader contribution model versus one of the many NY-based magazine brands, not to mention the thousands of daily newspapers.

Ultimately, the real winners are the scale plays. The major national newspapers and Stroll, the franchiser, win while the smaller players have to fight to keep their businesses growing. But, in local, even scale can sometimes matter. It’s ironic.

CPC vs. CPA: It’s all performance

Digiday has a story about how publishers are trying to get retailers to take cost-per-click ad deals over the more guaranteed cost-per-acquisition many commerce sites have grown dependent on.

The first quarter of 2022 wasn’t the most successful for some publishers’ commerce businesses. But a few media companies are hoping to avoid this downward trajectory with new pricing models for affiliate deals. Execs hope this strategy will to bring in more retail partners and take advantage of their audiences’ changing online shopping habits.

But attracting new retail brands makes up for any potential revenue loss, according to execs with Vice Media Group and Leaf Group’s Hunker, which are each experimenting with the CPC model. It also gives publishers new insights, including which emerging trends and products consumers are interested in before they reach the point of purchase. Not all commerce sites, like The New York Times’ Wirecutter, however, are convinced. The Times’ team has opted for a CPA model, with leadership believing that a CPC model requires too much work from its team because of how involved direct deals with retailers can be.

It helps to think about advertising through the level of performance. The reason CPMs are the lowest is that advertisers are only paying for a view. CPC generates more per action because the user has to do something. And CPA is the best because the partner gets an actual deal, so giving the publisher a cut is a no-brainer.

If you know enough about your audience and can create the right content to get a user over to the retailer, and then the retailer can get the conversion, CPA is the best strategy because it is the tightest link to purchase.

So, publishers looking to transition to CPC deals are trying to generate revenue even if there is no sale. In reality, there’s nothing wrong with this, but it is essential to remember that CPC is still a performance play. If you’re not generating revenue for the retailer, they will reduce the CPC they’re willing to pay.

That doesn’t mean it’s not worth testing, of course. According to the story:

“[CPC] allows us to see, is this a retailer that’s interesting? Is there any audience connection there? And then [if there is], we can maybe restructure that deal in a different way. So it’s a great environment to kind of test and learn,” Haik said, adding that eventually these brands can be pulled up to a higher yield CPA model if the CPC tests are successful.

This makes a lot of sense to me. The publisher can experiment with many different offers, see what the audience likes, and then upgrade the deal if there’s interest. That’s the right way to think about these sorts of deals.

However, if publishers think that transitioning to CPC is safer or more predictable, they’ve got another thing coming. It’s all performance. CPM, CPC, CPA, or whatever, it’s all performance to some extent. If the brand can’t relate your clicks to purchases—or if revenue drops from you as a source—then budgets will be cut. No acronym will change that.

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