• by Dave Morgan , Featured Contributor, October 26, 2006

It's make-or-break time for newspapers.

Over the last couple of months, I've spent a lot of time talking to newspaper companies about their digital futures, particularly when it comes to advertising. While I've had these kinds of discussions with them for many, many years, the current plight facing the industry has made these discussions take on an immediacy that I have never seen at any point in the past 15 years. They know that their future is now and that they had better figure it out fast. They know that their chance to dominate local online advertising as they have dominated local offline advertising is looking slimmer and slimmer. Google, Yahoo and Microsoft (GYM) are all lining up to take a piece of the $100+ billion local ad market as much of it shifts online.

What are newspapers' biggest competitive weakness relative to GYM? It's lack of scale and lack of vision. Yahoo and Google built their market positions first by establishing extraordinary scale and communicating a very compelling vision for the future into the marketplace and to their customers, partners and employees.

What do newspapers need to do to turn the scale issue around? Four things, I believe:

Set their digital divisions free. Newspapers need to stop the forced integration of online and print teams. These two groups are like oil and water, and the print people bring the online folks down. Newspaper should "rightsize" their print business according to future print revenues (anticipating at least a 5% year-over-year drop) and invest in their online business according to future online revenues (anticipating at least a 25% year-over-year growth). Forced integration online causes great customers and great talent to flee.

Think beyond the page. Local newspapers cannot simply repurpose themselves online. There are some excellent examples of how newspaper Web sites can reinvent their online editorial product in the current issue of Fast Company.

Embrace user-generated media. Newspaper Web sites need massive audience and ad impression scale. They will need to be twenty times bigger in three years than they are today. They cannot get this growth through newsroom content alone; not by far. As Fast Company noted, newspapers need to be the place where everything local is posted, shared, discussed, criticized, or mashed up. That means lots and lots of user content and very little "publisher control." That is what made MySpace and YouTube. That is the reality, and it must be faced.

Create local ad networks. Someone needs to aggregate every site and every page and every blog with any local connection onto local ad networks to create the kind of massive scale that advertisers want. This is already done on the national level; it should be done at the local level. This means that newspaper companies need to exclusively aggregate thousands of sites into their own networks, impose standardized ad units driven by their own centralized systems, and leverage their unfair competitive advantage--their large, local feet-on-the-street sales forces--to sell all of this inventory. They need to have bulk if they want to compete with GYM, and local ad networks will be key.

Are these ideas new? Absolutely not. Newspaper executives have been mulling these thoughts for years. Even if they do these things, can newspaper companies survive and thrive in a GYM-driven marketplace? Yes. They absolutely can. Google and Yahoo's combined penetration of local advertising businesses is still below 5%. That means 95% of the 12+ million small businesses in the U.S. are still up for grabs--and newspapers already know their names and are already selling them ads. That part of the market is theirs to lose--but it is now or never to make sure this doesn't happen.