Borrell Associates, Inc

A subtle but tragic thing has happened to local online media over the last decade.

It began 10 years ago, as we emerged from the dot-com bubble burst.  The local online advertising landscape degenerated into a contentious battle between local media companies and the boogeyman – these internet pure-plays such as AOL’s digital Cities,  Microsoft’s Sidewalk,  CitySearch, Monster.com and others.  Local media companies rushed to create fast-moving digital divisions that went head-to-head with pure-plays to meet the challenge.  Remember Knight Ridder Digital, Tribune Interactive, Belo Interactive, Cox Interactive?  They were staffed with dozens of employees, yet within four years, every one of them succumbed to the gravitational pull and pressures of their internal politics and core product demands.   Some still exist, but only as malnourished servants.

The result?  Legacy media companies went from holding a majority share of all local online advertising in 2005 to less than half – 6-point drop.  Newspapers alone suffered a whopping 23-point drop in the five years since those operations were folded.

What happened?  The classic mistake:  The managers of a competitive product exerted their political influence and got control of their company’s digital initiatives. Before long, “convergence” ruled.

“I am certain that 2011 will be a year where the digital divide becomes impassable for a lot of local media companies…. These are companies who, despite 15 years of education, remain convinced that their existing broadcast or print staffs will carry their banner gloriously over the cliff to the other side.”

But don’t listen to me.  I want you to hear the hands-down expert on this topic.  That would be Clay Christensen, our keynote speaker and author of the best-selling “Innovator’s Dilemma.”   Clay, a Harvard professor who also sits on the board of a local media company, has agreed to keynote our conference in New York in March. Clay will offer guidance us on whether – and more importantly how – local media companies might survive the digital future.

Here’s the question everyone seems to have already answered without knowing it:   Is the Internet a sustaining technology to their radio, yellow pages, TV companies and newspapers, or is it a disruptive technology?  The key to how companies think about that is the key to success or failure, and the key to why some companies in the local Internet space are succeeding so well, 10 years later. Look at New York Times Co., McClatchy, and Yellow Pages Group.  Each has one-fourth of its ad revenue from digital sales.  How many companies can say that?  And some believe that figure will be 50% in three to five years.

I am certain that 2011 will be a year where the digital divide becomes impassable for a lot of local media companies.  They will be caught flat-footed, gazing at the unreachable green landscape on the other side of the gorge.  These are companies who, despite 15 years of education, remain convinced that their existing broadcast or print staffs will carry their banner gloriously over the cliff to the other side. 

Last week I found a clue to what’s happening in our year-end numbers:  Pure-play Internet companies are now equally sharing local online advertising with legacy media companies, and it seems to have stopped at that half-and-half point (see chart).  We initially thought the pure-play companies would turn into Pac-Man, gobbling up the share of local online advertising that legacy media companies were getting.  That no longer appears to be the scenario.

I think it’s a natural coming together of the Silicon Valley tech companies and the local feet-on-the-street media companies who have promotion, content and sales forces.  This natural marriage, I think, is a key to survival.  But I believe the organizational structure is a more important key.  Convergence is, generally, a bad idea.  We’ll explore that at the conference, and we have a fantastic lineup to open up the debate and settle the issues.