A Looming Threat to Newspaper Advertising

Article excerpt

The biggest fear that newspaper managers have about the Internet is that electronic competitors such as Microsoft's Sidewalk and CarPoint might steal away advertising, especially classified.

Now, I have never been especially worried about this, figuring that newspapers know how to sell advertising and will be able to do it on the Internet just as well as in print. Competition for advertising on the Internet likely will turn out to be fiercer, and therefore less profitable, than newspapers are accustomed to, but a paper's brand name should be a big advantage in the fray.

What I do worry about, though, is the ability of the Internet to eliminate the need to advertise in news publications altogether. Already some retailers have put up Web pages either acting alone or in alliance with a portal company providing access to the Internet. In effect, these retailers offer an electronic catalogue: Buyers can pick out products on the computer screen, pay with a credit card, and have them delivered to their homes.

The prospect of substantial retail sales becoming disconnected from the traditional advertising-supported media is very real. Half of all U.S. households now own a personal computer, and that will likely increase to two-thirds before long. A third of households are connected to the Internet, with more undoubtedly on the way.

So far online shopping, which has attracted the moniker "e-commerce," doesn't amount to much--about $8 billion last year out of $2.6 trillion in total U.S. sales, according to Forrester Research, a Cambridge, Massachusetts-based Internet research firm. But Forrester expects online sales to more than double this year, and it's not hard to envision the growth rate accelerating as more homes get hooked up and more people get used to the idea of purchasing online.

But there are some imponderables that, depending how they work out, could keep e-commerce from becoming a major threat to advertising spending. One is that some of the best-known Internet retailers, which have excelled in getting their stock prices to what I consider to be ridiculous levels, have also excelled in losing money.

An example is the online bookseller Amazon.com. Based on trading prices, the stock market recently pegged Amazon as somewhat more valuable than Gannett, which has nearly 10 times more annual revenue. (Amazon.com's revenue last year was $610 million; Gannett's was $5. …