Friday, April 21, 2006

New West Network and SunValleyOnline become partners

The New West Network (NWN) is a well-backed enterprise focused on covering the changes in the Rocky Mountain West which is region transforming from an agriculture and extraction based economy to a more mixed economy with significant high tech and tourism industries (typically one of their top 3-4 industries economically). New West found that the traditional media in the communities throughout the Rocky Mountain West weren’t adequately covering this transformation. NWN and (SVO) recently established a relationship where SVO is an affiliate of NWN since they complement each other.

Roughly a year ago I began informally advising the owner of the SVO business. It’s a local site focused not surprisingly on Sun Valley, Idaho. He started it 2 years ago and it has grown into a major presence in the Sun Valley and surrounding area. I have had interest and involvement in local online businesses since I managed half of the Sidewalk (later purchased by Barry Diller’s CitySearch business) cities. [Sidewalk is a whole other story I may blog about at one point that gives a window into big and engineering-driven company politics.] Virtually all of the big Internet players (Google, Yahoo, Microsoft, IAC and AOL) covet the large pool of local ad dollars that are typically captured by monopoly newspapers and yellow pages. To date, the only real success the big guys have had is capturing local advertisers via Search that is most likely affecting yellow pages spend.

The thing that has made the dollars that especially the newspapers have captured attractive for the big guys is the ever growing disparity between media consumption and media spend and the audience loss newspapers have suffered. Consider the following:

  • Overall population: 4.7x usage to spend for Internet while 0.3x for Newspapers + Magazines
  • Youth population: 11.3x usage to spend imbalance for Internet while 0.4x for Newspapers + Magazines (usage weighted towards magazines)
  • The average age of a newspaper reader is ~60 – an age group that has typically passed their peak spending years and have already made decisions on what brands they are loyal to
  • Adults 18-54 have the Internet as their #1 media choice (45.6%) vs. newspapers (3.2%)
  • Free classifieds such as Craigslist and Google Base are eating away at the most profitable portion of newspapers business

While much has been written about newspapers demise, they are still quite profitable especially in small markets. In fact, the Wall Street Journal recently wrote about the success of one of Lee Enterprise’s newspapers in Bismarck, North Dakota. Lee is an Iowa-based owner of newspapers (mainly in small towns) with nearly $900M in annual revenues. Coincidentally, Lee has a newspaper in the Sun Valley area. Doing “back-of-the-envelope” math, one finds that a site like SVO has anywhere from 1/15th to 1/40th the amount of revenue that the local newspapers have yet they have an audience is as big or bigger than their newspaper counterparts.

Since the online local ad market is of ever-increasing focus by the big and emerging Internet players, I expect I will blog periodically on what I’m observing in this local community (Sun Valley) as it ought to be a microcosm of what’s happening on a broader level. Understanding the inherent strengths and weaknesses of both the Internet players as well as the local newspapers and yellow pages will be instructive for other arenas. There are many reasons why small businesses which make up the bulk of newspaper advertising spend in a market like this are only spending 1% of their budgets online yet their customers are spending more than 30% of their time consuming Internet media. The real question is when the consumption vs. spend gap will close as it has done on a national basis even though that disparity is still large.

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