• by Dave Morgan , Featured Contributor, April 17, 2008

The investment landscape in the online ad industry has recently been on my mind a lot; not just because I am working on ideas for a new start-up, but also because I was on a panel on that subject at Ad-Tech in San Francisco earlier this week. Among other topics, our moderator, Morgan Stanley Internet analyst Imran Khan, asked us to speculate on where the next big market opportunities were for digital marketing. We talked a lot about where we saw future potential growth areas, with most of our discussion centering on increased verticalization, non-U.S. markets, data-driven targeting, and mobile. As I've thought about that topic over the past two days, it occurred to me that there is another very big opportunity that we omitted: backfilling the impending collapse of a number of large media companies.

Yes, I think that we are going to see some dramatic changes in the media industry over the next four years. I think that the technology and communication disruptions that have transformed the media landscape over the past dozen years -- the massive reduction in the costs of reproducing and distributing content and communication -- are about to reach critical mass for a number of large, incumbent media companies.

First up, probably a number of newspaper companies are facing double-digit, year-over-year revenue declines, double digit cost increases, and substantial debt service payments that they probably can't meet. So, while many might logically expect offline media to just slowly decline in correlation with the shifts of consumer attention to digital channels, I don't think that it will work out that way.

I think that a number of companies are quite likely to get caught in an accelerating death spiral, since virtually every major offline major media company has significant fixed costs that they will not be able to slowly dial down. They're not quite like airlines that way, but they are close. And, unlike airlines, they probably won't be able to use the revolving door of bankruptcy reorganizations to restructure their businesses. The barriers to entry for digital competitors are too low.

So, as these mighty trees of old media fall, I think that we will see many new-media-like businesses sprout up and flourish in areas where old media had been shielded with its suffocating size and reach. Here are some of these areas:

New models for classifieds. Newspaper classifieds still control an enormous amount of ad spend from locally focused businesses. This money is going to be freed up.

Niche local print products. Many people still love print media products. Notwithstanding the fact that the business model for large, metropolitan, general-circulation daily newspapers is fast becoming untenable, there will be lots of opportunities for new, smaller and more niche-focused local media products, covering topics ranging from business to youth sports to parenting entertainment. These products will probably be significantly friendlier and with higher production qualities than the large, relatively bland newspapers that preceded them, and will do very well.

Alternative distribution businesses. Without newspapers to distribute free standing insets and other large locally focused advertising products, we will likely see the emergence of new alternative delivery companies to get those products to homes, together with other second-class postal products like magazines.

Sponsorship sales businesses. Without local newspapers in some markets, local businesses will be in dire need of ways to create impactful and "in-your-face" promotional opportunities to inform local consumers of store openings and sales and similar opportunities. This could give rise to more "productized" local sponsorship programs around community vents and programs, like arts and entertainment or sports. The ideas above are just a few of the opportunities that could arise if we lose some large media companies soon. What are some of the opportunities that you see emerging in that scenario?