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Newspapers Commoditizing Web Ad Inventory; Reducing Revenue in the Process

It seems every time I pick up my local newspaper it’s cut back on editorial pages and instead added lots more advertising. Many publishers around the country have applied a similar tactic to their online publications–increase the number of advertising spots–but new research suggests that approach my now be backfiring.

…after 17 quarters of ballooning growth, online revenue at newspaper sites is falling. In the second quarter, it was down 2.4 percent compared with last year, to $777 million, according to the Newspaper Association of America. It was the only year-over-year drop since the group began measuring online revenue in 2003.

While newspapers have increased their online audiences, they’ve also increased the amount of online content, which in turn has led to a glut of display advertising spots. In effect, there are now more ad units than advertisers, forcing many publishers to turn to ad networks to sell off their remnant advertising–often at a deep discount.

It’s a vicious downward spiral. Create more content, create more ads, but fail to find enough advertisers to fill those spots. This, in turn, brings down the average CPM rate.

With networks, “unwittingly, I think, the publishers commoditize their own inventory,” said Paul Iaffaldano, the general manager of the TWC Media Solutions Group, which sells ads for the Weather Channel and

It’s not all doom and gloom. Some publishers have realized that less can really mean more. They’re reducing the number of advertising spots and creating demand for their content.

“We’re going to reduce the number of ad sizes we use and the number of units,” said Christian Hendricks, the vice president for interactive media at McClatchy. “It is a case where yeah, you could probably sell another advertiser by creating another ad space,” but that could hurt the revenue over all, he said. Online revenue at McClatchy rose 12.5 percent in the second quarter; a year earlier, revenue dropped 2.2 percent.

McClatchy also tries to avoid ad networks. “We don’t want to get in the habit of filling every little space we have with remnant,” Mr. Hendricks said.

The question is, will enough publishers realize they need to pull back on the number of ad units they sell, before the online newspaper space collapses under the weight of its own saturation?