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From AJR,   November 1999  issue

Nibbling on Newspapers' Bread and Butter   

Car, real estate and job sites are eroding newspapers' classified revenue.

By David Carlson
David Carlson is a former AJR new-media columnist.     

WHEN RALPH LOWENSTEIN bought a new car, it never occurred to him that he could be doing something to damage the newspaper industry.
Lowenstein loves newspapers. He reads at least two a day. He's also worked at them and taught about them as a journalism professor and dean. But when he went shopping for a car, he never looked at a newspaper. He didn't read a single classified, or scan one solitary display ad.
He did his shopping on the Web, checking car manufacturers' sites to narrow down the type of car he wanted and blue-book-type sites to estimate the worth of his trade-in.
This might not seem surprising if Lowenstein were 25, or even 45. But he's 69, and his method of shopping for a new car definitely is not his father's method. He is not alone, either.
Forty percent of new-vehicle buyers use the Internet during the purchasing process, according to J.D. Power and Associates, a California-based market research firm. That August figure is up 15 percent from a year ago. More than one-quarter of used-car buyers now access the Net during at least some portion of the process, says a study the company published in July.
Among the most popular are "vehicle-locators" such as autobytel.com and carpoint.msn.com, the study shows. They house huge databases of information and offer cars for sale. They "are so versatile that they could one day make traditional newspaper classifieds obsolete," says Chris Denove, director of consulting operations at J.D. Power. Another popular venue, the study shows, is The Kelley Blue Book, a vehicle price site at www.kbb.com.
Automotive ads are not the only kind being affected by online sites. The Web increasingly draws home buyers and job-seekers, too. Some 19 percent of all home buyers use online sources to find a house, according to an October 1998 study by the Newspaper Association of America. (Fifty-eight percent of buyers rely on newspaper advertising.) Further, the number of classified ads in employment categories is down this year at dailies in Dallas, Los Angeles and New York, the Conference Board Inc. reported in August.
This movement away from newspapers and to the Web is a matter of great concern for newspaper companies. Print classified is the largest revenue producer for newspapers with circulations greater than 70,000, accounting for about a third of all revenues on average, according to Bob Friend, research director for the Inland Press Association. We're talking big money here, in the neighborhood of $18 billion a year.
This phenomenon is not likely to stop or even slow down, forecasters and analysts agree. Jupiter Communications, an Internet research firm, estimated that online classifieds accounted for just 1 percent of the overall classified market in 1998. That number, Jupiter says, will rise to 6.4 percent by 2003.
This increase will not generate huge online revenue, Jupiter suggests, but it will affect newspapers and other traditional classified providers to the tune of $3.2 billion, or 13 percent, in 2003. "It's clearly a threat," says Michael Beebe, a publishing analyst at Goldman Sachs in New York. "My expectation is that it will cause an erosion of print classifieds."
Newspapers certainly have noticed and have moved to counter. Just as online competitors such as Monster.com, a national employment ad site, are trying to capture newspaper revenue, newspaper companies are banding together to fight the online classified battle. CareerPath.com was founded by the New York Times Co., Times Mirror, the Tribune Co. and the Washington Post Co. These companies, along with Gannett and Central Newspapers, also are involved in Classified Ventures, which packages print classifieds with online ones. AdOne, acquired in January by Newhouse's Advance Publications and Hearst and now involving A.H. Belo and Pulitzer, has a site called classifiedwarehouse.com.
Even with moves such as these, Beebe says it will be a long, uphill battle for newspapers. The consortia "are a better idea than nothing at all, but I'm not sure there is a right answer," he says. "Newspapers may have to sacrifice some of the print franchise in order to build the Internet franchise, and that may mean cannibalizing themselves. If newspapers aren't ready to cannibalize themselves, there are lots of other people out there ready to do it for them."
For his part, Lowenstein decided to buy a new Oldsmobile from a conventional dealer after doing his shopping on the Net. "It was much more convenient to do my shopping online, and I walked into the dealership knowing exactly what I should have to pay," he says. "That gave me confidence I've never had when buying a car before."
His new car definitely is not his father's Oldsmobile.