Borrell Associates, Inc

Last week we furnished some data, upon request, to Internet guru Terry Heaton (www.thepomoblog.com) regarding local online video advertising. The item was picked up by a number of publications and caused a lot of stir. So I wanted to spend a minute discussing that research.

We are toward the end of our annual collection of revenue/expense date for local Web sites. This year’s survey encompasses more than 4,000 local Web sites telling us how much they’re making online, and where it’s coming from. As we look into that data, we’re seeing — again — that newspaper sites have more streaming-video advertising than TV sites. Weird phenomenon, given the fact that TV stations SHOULD be the kings of video. Newspapers had about $165m in streaming-video advertising last year, versus $105m for TV stations.

Here’s another oddity for you: Yellow Pages publishers had nearly as much online video revenue (about $90m) as TV stations. And there’s a very good chance that YP publishers could zoom ahead of all other local media competitors — newspaper sites included — this year. Hard to believe? Go to www.youtube.com/yellowpages and you’ll find 13,000 paid advertiser videos and counting … from your friends at AT&T.

The bold move by Advance Publications to shut down The Ann Arbor News reminds me of Kresge’s department stores in the 1960s. Kresge’s looked at the disruption from discount stores and developed the belief that their existing store managers could never manage a business where the mark-up was 50% less and inventory flew off the shelves nearly twice as fast. So they established an entirely separate company, with different management . . . that eventually killed Kresge’s.

Well, not really. While Kresge’s stores no longer exist, the separate store chain that it created lives on. It’s K-mart — and therein rests the parallel with Advance Publications, The Ann Arbor News and the company’s fledgling disruptor, Mlive.com. When Advance created its Internet unit a decade ago, it kept the unit completely separate from the newspapers.

By the way, those media companies still embracing “convergence” should probably read up about Kresge’s main competitor, Woolworth’s. As Kresge’s trackled the marketplace disruption with different management and a separate company (as Advance does, with Advance Internet), Woolworth’s firmly believed its existing managers could handle the market opportunity just fine. It created Woolco and assigned its Woolworth’s local managers the responsibility to operate it.

The last Woolco store closed in 1982. (See one of their last commercials on YouTube at http://tinyurl.com/c3gr6m).

K-mart, which bought Sears four years ago, lives on.

Advance gets the Wayne Gretsky “Where the Puck will be” award. The move to shut down the newspaper and go entirely online is not for every newspaper, but certainly makes sense in quite a few struggling markets.

We’re hunkering down to complete our annual revenue survey, and I thought I’d pop my head up and offer one gee-whiz figure we’ve run across. While local media’s “legacy” crowd (newspapers, TV, radio and yellow pages) seems to be getting pummeled by the economy, the real news is that their Internet operations have softened the blow considerably. Before anyone hits “respond” and issues a “yeah-but” comment, let me remind you that local media companies have a very long history of seizing any new media opportunity that comes along. Newspaper publishers created local radio stations back in the 1920s, and local publishers and radio station owners rushed to create TV stations back in the late 1940s and 1950s. You even saw a lot of publishers and broadcasters get into cable in the 1960s and 1970s. So how are their doing with the Internet?

We examined 15 large local media companies with interests in radio, newspapers and TV. All had significant Internet revenues of between 3.6% and 10% of their total gross revenues – generally between $20 million and $100 million per company. We found that these companies lost 11% of their “legacy” media advertising dollars in 2008, and in aggregate saw their Internet advertising revenues grow 6.8%. Here’s the really interesting thing: If you add their total Internet advertising dollars to the equation, their total net loss was just 3% last year. Put another way, without the Internet, these companies would have lost nearly $1 billion. Instead, they lost $275 million.

These legacy media companies have a long way to go to understand the nuances of this new medium — something they won’t be able to tackle without separate, focused staffing — but the evidence thus far is impressive. A net loss of 3% in a disastrous year ain’t too shabby.