Bargains for Everyone

September 10, 2004 • Media Economics • by

Neue Zürcher Zeitung, September 10, 2004

Internet auctions as sources of income for regional newspapers
In the US, a new business model for regional newspapers has been tried out successfully. It is based on Internet auctions and aims to prevent the loss of ad revenues. Now Switzerland too has seen its first trials.

The Internet, with its countless news services, is not only changing the media landscape in the area of editorial content; it is also competing with the print media in the field of advertising. A new model of cooperation promises a solution. Online auctions should help to prevent the ad market from drifting off to the World Wide Web. The system of online auctions is simple, but effective: local advertisers and potential advertising clients provide the newspaper with their products and services for auction. The products, guaranteed by the ad clients, are presented to readers in a special edition of the newspaper. The various «treasures» are then auctioned off on the Internet. If a product is sold, the newspaper receives the amount of money of the successful bid. In return, the ad client receives a sort of credit for additional advertising space in the newspaper to the value of the retail price of the product auctioned. If, however, the product is not sold, the ad client keeps the product, and incurs no additional costs.

Tested successfully in the US

This concept was first developed by CityXpress, a Vancouver-based company founded in 1997. And it seems to be working. It is said that over 46 million dollars in profits have been generated in more than 200 auctions in the US and Canada. This success has even convinced Knight Ridder, with 31 dailies the second largest newspaper publisher in the US after Gannet. CityXpress has formed an alliance with Knight Ridder to become the exclusive provider of online auctions for the media giant’s newspapers. Now the trend is gradually spilling over into Europe. After a first trial run in England (the Bristol Evening Post), an auction took place this June in Switzerland too, courtesy of the Berner Zeitung.

The principle of online auctions is based on a business model applied primarily on the local level. Different channels of communication are interlinked, thus creating a mutual advantage. The process mainly makes use of the hegemony of local or regional newspapers, which, in most cases, have little or no competition and thus serve as the major marketing channel in their area. The decisive role played by image is far from minimal too. Regional newspapers tend to be well-established within their readership. A reader usually builds up a close relationship with his newspaper over the years – a prerequisite without which it would not be possible to implement the new model of newspaper and online auctions.

The auction model brings several advantages. From the newspaper’s perspective, new ad clients may be gained, and already existing relationships may be revived. According to a study conducted by CityXpress last year, up to 45 percent of all advertising clients are first-time customers. Some of them can even be turned into long-term advertising partners, which makes additional revenue possible. In addition, most of the bidders participating in the auctions are non-subscribers, which could help the newspaper to gain new subscriptions.

Strengthening of the market leader

The ad clients themselves gain additional publicity with the presentation of their products in the newspaper as well as online. Interested bidders often want to examine the products on site, and thereby may increase a seller’s clientele. The readers for their part also benefit by being able to go bargain hunting with an array of products at hand. The newspapers, however, run the risk of being transformed into kinds of general merchandise store, instead of being providers of journalistic products. The auction model also creates another problem. It makes use of the regional newspapers’ monopolies on the local level, and ties up (potential) ad clients even more, making the situation for would-be competitors still more difficult.

(Translation: Jasmin Bodmer)

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