Newspaper on newspaper standAlthough many media pundits have declared that newspapers are in a death spiral, group buying may -- just may -- have an antidote.

Let's jump through the math. In 2009, the Newspaper Association of America logged roughly $25 billion in advertising revenues. Three-quarters of that was from display advertising. That's a shocking $23 billion plunge from the 2000 bubble high of $48 billion.

But the NAA says print ad declines are now moderating, and I believe it. After all, 50% of Americans still use paper checks and are way past saturation with plastic or debit cards. Add in online newspaper ads of $2.8 billion, and you get to almost $28 billion in 2009 ad revenues -- during the Great Recession. I'd expect the declines to continue, but keep in mind the newspaper business is still quite profitable in many markets.

Partnering With Groupon and LivingSocial

So, what's needed to really turn around the segment is a new source of revenue growth. Online display ads will fill some of that need but not enough to compensate for the ongoing print declines. The disparity between CPMs in print and CPMs for display are simply too large. Yes, display ad will be a fast-growing business, in the low- to mid-double digits But not fast enough to save the newsies. So what next?

A much more likely prospect for fast revenue growth is group buying. In fact, most of the major newspapers already have a group-buying white-label deal in place or have plans to do so. The Chicago Tribune has actually partnered with Groupon. LivingSocial has an active newspaper partner program. Even smaller newspaper chains are pushing into group buying.

Why not? Add a java script to a box on the home page. Tell your sales force to upsell a deal-of-the-day. Collect checks. Repeat. The technology provider for group deals handles payments, couponing, customer service -- everything.

From Zero to $3 Billion in Two Years


This business is a perfect fit for the existing newspaper sales force, which has a deep Rolodex of local customers. The content, also, is also perfect newspaper websites. Publications can easily slice and dice offerings to key them to user interests or to Zip code, a capability that will soon be plain vanilla in most group-buying offerings. And what about the revenues?

Consider this. Groupon is on track for a revenue run rate of $2 billion. LivingSocial is looking at $500 million. Collectively, the rest of the 180 or so group-buying sites likely will pull in at least another $500 million. That means the segment has gone from nearly zero to $3 billion in global revenues in two years.

U.S. newspaper sites get 102 million unique visitors per month. Groupon had traffic of 21 million, but only 21% of those visitors were in North America. (I realize that it's more powerful to have an email subscriber, but this is the easy comparison metric for now, due to the deemphasis of papers on email newsletters to readers.)

So on a pure traffic basis, newspapers still have huge momentum. They also have another powerful, but counterintuitive tool. My local paper now includes a plug for the daily deal on a wrapper that must be removed to get to the front page. I read that deal every day. I'm a dinosaur in that I still like to get a print paper.

If Group Buying Keeps Exploding, Watch Out


But there are plenty of dinosaurs left. The NAA says "81% of women in a management or professional position with a household income of $100,000 a year or more read a newspaper in print or online; 73% read the print product." In essence, they're "opting-in" for a daily-deal plug, albeit one that's less powerful than an explicit email sign-up but one that'll still deliver the goods to an audience that's paying attention.

Let's say newspapers manage to capture 10% of all domestic group-buying transactions. That's a generous estimate because most of them already have a white-label service and get only 50% or less of the 30% to 50% of gross transaction that the group-buying service generally captures. So, put the actual revenue pass-through at 5%. At present, that would be something less than $100 million.

But if group buying continues to explode, it's quite conceivable that it could be a $30 billion business within a decade. 10x growth over 10 years is totally doable for disruptive trends. Witness Google AdWords and its amazing rise. The yellow pages business ($12 billion) and radio ads (many billions) are ripe for the picking. Keep in mind that local ad spending right now is over $140 billion per year in the U.S.

So, group buying now represents less than 1% of that, based on Groupon's North American revenues backed out of its traffic market share. Five percent of a $30 billion business is $1.5 billion (I suspect that number is low). Add to that the ongoing growth of display ads and slower decline in print ads, and group buying might just be enough to stall the downward spiral of newspapers.

This is a highly speculative exercise, and your mileage may vary. But let's talk in a few years and see what's happened.

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13 Comments

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leemillssd

This is a great article and rings true with what I've been seeing in the newspaper industry as a Board Advisor for Deal Current www.dealcurrent.com - the first company in the private label daily deal space. Group buying deals provide tremendous value for users and are great fit for newspapers since they already have relationships with local advertisers, a loyal following / subscribers and need the new ad product revenue to survive.

December 21 2010 at 3:11 PM Report abuse rate up rate down Reply
linda

I would much rather have my morning coffee and read the newspaper at my leisure than have to log on to find the latest news. This is my relaxing part of the morning and would really hate to find it discontinued. Of course, like most other folks, I have found less "news" in the "newspaper". Maybe I'm just an old f---, but I'll bet many others feel the same. I go online in the evening to see the latest news, so I believe both avenues are important. I am a retiree.

December 15 2010 at 6:17 PM Report abuse rate up rate down Reply
blfintommy

People that have been posting should stop attacking the liberal newspapers- there are no better alternatives to puppy training that I can think of. My puppies always preferred the NY Times (especially the editorial pages. So remember liberal newspapers serve a purpose.

December 15 2010 at 4:47 PM Report abuse +1 rate up rate down Reply
hi bev

You people are just plain stupid. We have an opportunity to saves jobs and some of you are so stupid you don't care or what do anything about it. Unbelievable. And then you wonder what is happening in this country. You are willing to drive all over the place unnecessarily and then wonder why gas prices keep going up. Some of you like to gripe about everything but when you have a chance to do something productive all you do is complain and do nothing. If you aren't a solution then you are part of the problem.

December 15 2010 at 4:26 PM Report abuse +1 rate up rate down Reply
katrina030810@gmail.com

Definitely the newspaper business will benefit from the group buying trend. Group buying has helped many types of businesses and the newspaper business will also be one that can take advantage of it. More and more consumers will get informed on daily deals therefore, there will be high traffic in the promotion of every business. Consumers can also take advantage of deals that offer great discounts. On the other hand, if you want to see daily deals with amazing discounts from all sorts of deal sites listed in one collective buying website, check out www.GroupBuyUnited.com.

December 15 2010 at 4:17 PM Report abuse rate up rate down Reply
Megabob

A way to save the "news"paper business????? Stop being so ultra left wing!!!! Get your lips off Obama's butt and start telling the whole truth!!!

December 15 2010 at 4:01 PM Report abuse +4 rate up rate down Reply
lilbit

YOU KNOW WHAT KILLING PART OF THE PAPER IS THE FACT THAT THERE IS NO LONGER A BOOKLET TV GUIDE IN THE SUNDAY PAPER THAT HAD TV SCHEDULE FOR THE WHOLE WEEK WHEN THEY PULLED THAT OUT OF THE SUNDAY PAPER THE SALES WENT DOWN 38 TO 40 PERCENT THAT SHOULD TELL THE HIGHER UPS SOMETHING , THEY THOUGHT PUTTING A DAILY TV GUIDE IN THE PAPER WOULD BOOST SALES BUT ALAS IT DID NOT WORK , ALSO INCASE YOU DIDNT NOTICE THE BASIC CABLE HAS DROPPED THE TV GUIDE FROM BASIC CABLE AT THE SAME TIME UMMM MAKES ME THINK CABLE HAS A DEAL WITH THE PAPERS IF THEY WENT BACK TO THEWAY IT WAS THEY WOULD GET MORE SALES ON SUNDAY

December 15 2010 at 4:00 PM Report abuse +1 rate up rate down Reply
thescot

newspapers are worthless propaganda site for lieberal bias, and America is showing them what can come of being biased. Our local joke of a paper is so lieberal all the news is written on the left hand side of the page.

December 15 2010 at 3:55 PM Report abuse +1 rate up rate down Reply
fgr732

who wants to save the newspapers???????? they have been lying to the American public for decades--the sooner they go the better

December 15 2010 at 3:49 PM Report abuse +2 rate up rate down Reply
j66427

All they have to do is stop being the propaganda arm of the liberal/democrat party. They must not realize that intelligent people stopped reading them because of the leftist bias, and democrats are too stupid to read anything. Dems get their news and marching orders from the propagandists on TV at CNN, MSNBC, CBS, NBC, ABC and the joke that is "public television".

December 15 2010 at 3:34 PM Report abuse +3 rate up rate down Reply