Centro's Real Cities Signals Online-Only Ad Push, Fueled by Technology

Today's announcement that Centro is taking over the Real Cities Network isn't really an exclamation point. It's more like a period, marking movement between eras. Centro has brought local news websites significantly more revenue over the past several years. Real Cities, on the other hand, was a vestige of Knight Ridder (KR Digital, specifically, in this case) and one of spare parts that McClatchy acquired when it bought the KR papers.

In essence, Centro -- which has become an even more important revenue source as it brings online-only national advertising to local sites -- eliminates some of the noise of the local marketplace in taking over Real Cities. Real Cities repped about 1800 websites in its network. Most of them are also working with Centro, which targets local sites of all kinds -- daily newspaper, broadcast, alt weeklies + -- in delivering local and regional audiences to advertisers. Centro does gain relationships with advertisers, maybe more than 100 new ones, considering that many of them were duplicated.

"It's a scale play," says Centro CEO Shawn Riegsecker.

There is still noise to be sure -- lots of networks and exchanges out there, and the Tribune-Gannett-Hearst-led QuadrantOne still trying to find its footing. But today's announcement sets up 2009 as an intriguing year, focusing acutely on online-only advertising. On the one hand, we've got the newspaper consortium focusing on the adoption of the Yahoo ad platform (starting in September and rolling into at least 1Q next year). On another, we have a new combined Centro/Real Cities. Shawn Riegsecker says his company is growing at a 45% YOY level, even with major declines in General Motors and ATT spending, caused by economic and structural shifts.

Online-only growth is what newspaper companies need.

Tribune reported quarterly earnings yesterday, and said digital revenues had dropped 4% YOY. That's because of classified upsells of course. They produced now-seen-to-be-illusory 25-35% annual growth rates in good times, and now they are dragging online revenue -- the old bright spot in newspaper revenue reports -- down into negative territory. Tribune was the fourth company, after Lee, Belo and Scripps to go negative in the second quarter in digital revenue, with those above the line gasping for positive air.

McClatchy proudly announced in its earning call that it was approaching 50% in the level of online revenue that was online-only -- not upsells. Gary Pruitt's gang isn't alone. 2008 has seen a profound mindshift, accompanied by much hiring and staff re-training, all aimed at making this transition. Unfortunately, it's another case in which the newspaper industry is reacting late, after things have turned, well, officially negative. But it's the right move.

We can all see that McClatchy's move is another in a series of the Pruitt Strategy, enunciated clearly as emerging (!) out of the current mess as a "smaller, more efficient company". He pulled off the sale of the Star Tribune at what turned out to be a good time, got out of Shop Local (long a non-performer), is busy having other companies print his papers (Boise, Bellingham) and now is getting out of the Real Cities Network game.

Here, we can see a survival strategy getting into place. Focus on what you are good at: local content production and local sales. And....importantly use other people's technology. That's the other clear message from the Centro takeover of Real Cities: ad technology is key.

I was there at the founding of Real Cities, some time about 1998. We envisioned it as a whole newspaper industry solution -- a true, cost-efficient, single-platform based content and ad management/sales network that would allow dailies to compete efficiently against the burgeoning portals. Echoes of the failed New Century Network of course hung in the air, and we should have known how star-crossed our initiative would be when Tony Ridder over-ruled the original salmon-and-red logo design for green and blue, the beginning of KR's ill-conceived foray into "branding." But we didn't, of course. We knew a network was needed, and we thought, well, why not.

Very long story shorter, the aims of the new network skinnied and skinnied. It emerged as an ad rep network, with vaguer long-term hopes. It met with some success, but never had much in the way of ad technology as ad technologies have come to rule the day. Riegsecker, a KR alum (Ohio.com), saw a future and saw that it was based a lot on technology, as a way to serve advertiser targeting needs and interests. It took Centro awhile to build the technology -- allowing a better matching of advertiser geo targeting need and local site inventory -- and that's helped him win the game. Such technology for instance increases the delivery rate for ads; underdelivery of 10% or more is not uncommon in the news trade and eats away at revenues. Technology is one of the key reasons, I believe, why it's Centro taking over Real Cities, rather than the other way around.

Now, for the bonus, 2009 question, how long before the Yahoo ad platform technology and the Centro ad technology can do a handshake, benefiting newspaper websites -- many of which are affiliated both with Yahoo and Centro. Recall that Lem Lloyd, who deserves the credit for growing Real Cities into a successful ad network, is now running the newspaper consortium business for Yahoo. Now that points to potential synergy, a synergy that could further fuel online-only ad growth, and not a minute too soon.

Comments

[Tim]

The natural evolution would be for Centro to sell to Y! outright. Have to think Hilary S. would be amenable...