Borrell: Promotions Will Dominate Local Media Ad Spend in 2013

Local advertisers are set to spend 81% more on promotions than media-based advertising this year, according to a new study by Borrell Associates. The report forecasts that growth in digital promotions will outpace digital advertising by 65% over the next four years, jumping from $32.2 billion in 2012 to over $80 billion in 2017.  The data underscores an ongoing shift in the role of local media companies in the local marketing mix as many look to move beyond their traditional role as owners of audiences to become marketing agencies for local businesses.

With digital spend accounting for less than 5% of the total promotions market share in 2012, offline continues to dominate;  but digital’s share is set to increase over the next few years as growth in digital discounting accelerates. At a local level, the report projects continued growth driven by a 30% increase in couponing as well as double-digit increases in offers and customer retention programs, as well as proximity-based campaigns through platforms like Foursquare.

Much of that growth is coming from mobile. By 2017, Borrell forecasts that mobile will account for three quarters of all spend on digital promotions, and nine out of every ten dollars spent in discounts will come through mobile programs.

Legacy local media companies have hustled over the past 18 months to find their place in a fragmented local marketing environment, bundling services like SEM, website building and promotions largely through partnerships with third-parties. It’s an ecosystem that’s as crowded as ever, but one that is emerging as a viable deployment strategy for technology companies looking to access the SMB market without onboarding the cost of scaling a sales force.

“Gannett, GateHouse, Belo and others have launched significant efforts to tap promotional advertising through these ‘digital agencies,’” Gordon Borrell, CEO at Borrell Associates, told Street Fight in an email. “In fact, I think you’ll find that about one-third of the newspaper companies in the U.S. have launched some sort of digital services arm, and probably another one-third are considering it.”

Where legacy media companies have hustled to invest in an agency approach over the past 12-18 months, the younger, and more limber hyperlocal media companies have been slower on the uptake. We’ve seen limited movement from the major initiatives, and only scattered activity among smaller, independent publishers.

“I fear that the hyperlocal sites might have replicated a bad business model — that of legacy media, which creates and controls much of the content, then sells advertising around it,” Borrell added. “As this report points out, ‘advertising’ isn’t as popular as it was 10 years ago. I think that’s why the legacy media companies are rushing toward the new model.”

Part of the issue is that the market opportunity, which most hyperlocal media startups exploit, is content-related. As local media scales back editorial coverage, and digital tools lower barriers to entry, startups can satiate unfulfilled demand for local information. But an agency model does not monetize content — it monetizes the languishing sales forces of scrambling local media companies.

In an agency model, content becomes an odd appendage, supported in large part by a somewhat synergistic, but not particularly related, marketing services business. It’s unclear what competitive advantage content production provides a Gannett or Gatehouse over a pure-play marketing company with an comparable sales force in an “agency” market.

Steven Jacobs is deputy editor at Street Fight.