Google gives publishers what they want

Google’s new newspaper advertising service shows an adaptation to new markets and willingness to listen to business partners that goes beyond anything I’ve seen from them before.
Everything about the service shows that they’re paying attention to the folks who’ll be distributing their ads: not making the service a full auction, but giving the papers a chance to accept bids for ad space; giving media the ability to review and decline proposed ads for any reason; and the creating ability to forge connections with an entirely new set of advertisers who may never have advertised in print.
Print advertising is a complex business. In broadcast, if a particular saleable minute doesn’t optimize its revenue, that opportunity is lost. Although publishers often have space that will run unsold, they can also add pages to accommodate more advertising. As the daily deadlines approach, it can be a judgment call whether to accept a particular ad.
What’s less clear is the long-term effect. Even with these safeguards, Google’s new service may put further pressure on newspaper margins by increasing the pool of competition. The basic economics of the newspaper business are like most media, with high fixed costs and low variable costs. When there’s competition, this almost inevitably leads to vicious price-cutting, often below the cost of production. They don’t call it a newspaper war for nothing. Traditionally, the discounts flowed to readers. In the current circulation, they will have to flow to advertisers.
For this service to work for publishers, they will have to hold the line on prices, formats, and client relationships.
Originally published on my blog at JupiterResearch.