AOL’s Patch network is pulling in an average of just $41,000 in ad revenue annually from each of its 860-plus community sites. Still, Patch’s year-to-year increase in revenue soared 110% because the network was starting from such a low base. Meanwhile, the average annual revenue of independent local commerce and news sites (which include a wide range of local digital properties) was $265,000.
Those are some of the especially interesting nuggets in Borrell Associates’ recently released report on local online ad revenue. (Go here to download free summary.) The survey covers 6,284 sites in all media — pure-play digital brands, newspapers, broadcast radio and TV, cable and satellite TV, and directories.
The total media haul in online ad revenue in 2012 was $18.5 billion, and that number is projected to grow by 31% in 2013, to $24.3 billion, Borrell said in its data-packed report.
Who’s biggest on the block depends on how “big” is measured. Daily newspapers, for example, are the winners in per-site revenue, with an average of $2,187,000 compared to $1,445,000 for networked pure-plays. But in overall local online revenue, pure plays are tops – commanding 47.1% of the $18.5 billion ad revenue pie in 2012 vs. 23.6% for newspapers.
The pure-play numbers include not only news sites, like Patch, but also commerce-focused ones like Autotrader, Groupon and Yelp, which are not as numerous but generate much greater revenue per site.
In looking at the categories of ad revenue, Borrell found that displays ads, which have taken a lot of heat in the industry for their supposed increasing irrelevance, remain the dominant choice of businesses. But targeted display has moved ahead of run-of-site display, and targeted grew 260% vs. a 26% decline in ROS. Much-ballyhooed video ads account for only 18% of the total revenue, the report says.
In another area of revenue — digital subscriptions — Borrell found that “when paywalls are instituted [on sites], web traffic declines, and then gradually returns to pre-paywall levels after 12 to 14 months.”
It also said that “web advertising seeks buyers, not readers,” indicating that news sites should, as more of them are doing, focus on attracting a modest-sized core of engaged readers rather than stretching for big traffic numbers.
The report also produced some eyebrow-raising numbers on hefty profitability from online ad revenue that many sites are reporting.
“The biggest untold story of local online ventures is the tidy profit that many are amassing,” the report said. “A small independent that made $350,000 last year generated a $100,000 profit. A TV website made $3 million in digital sales and reported $2 million in profit. Even one of the largest local online advertising entities, Autotrader.com, claimed a sizable profit – $300 million on nearly $1.2 billion in revenue.” (A glaring exception among commerce pure plays was Foursquare, which, according to Borrell, “made a measly $2 million last year.”)
But the report urged caution on the big-profit reports: “Are the numbers believable? The headlines from this [report] might be tweeted far and wide by digital managers, but aren’t likely to be retweeted by skeptics who believe the financials are illusionary.”
Borrell had these additional cautions on pure plays and the “legacy” media of newspapers and TV and radio:
“Some local-focused pure plays like Angie’s List, Realestate.com, Local.com and Patch are not yet profitable or barely profitable. They still have to tweak their offerings and shed some costs to prove viability. Traditional media companies rushing to create digital agencies are faced with the task of separating control of new media business development from old-media managers.”
But despite these caveats, the report was optimistic that pure plays would remain the dominant platform in local online revenue, especially when all streams are considered: “It’s clear [because pure-plays are] going beyond selling ‘a website’ and are now selling a cornucopia of digital advertising and marketing products to local customers.”
Tom Grubisich authors The New News column for Street Fight. He is editorial director of LocalAmerica, which is partnering with InstantAtlas to develop sites that will present how communities rate in livability. Local America is featured on the Reynolds Journalism Institute’s Pivot Point site.