Bloomberg News

Google Will Test Selling Ads for 50 U.S. Newspapers

November 06, 2006

Google Inc. (GOOG:US), owner of the most-used Internet search engine, will test selling advertising for 50 newspapers starting this week, part of the company's latest effort to extend its reach beyond the Web.

Google will take bids for advertising space in newspapers owned by New York Times Co. (NYT:US), Washington Post Co. (WPO:US), Gannett Co. Tribune Co. and McClatchy Co. (MNI:US), Mike Mayzel, a spokesman for Mountain View, California-based Google, said in an e-mail.

Advertisers' offers for available space will be relayed to publishers, who will accept or reject them. The trial is an effort by Google Chief Executive Officer Eric Schmidt to tap off-line ad markets such as print and radio and comes as newspapers face declining sales and readership.

``For Google, the goal is to tap all forms of advertising and create a platform that allows advertisers to look at all their media,'' said Steve Weinstein, an analyst at Pacific Crest Securities in Portland Oregon. He rates Google shares ``outperform'' and doesn't own them.

Google will start offering newspaper space to about 100 of its advertisers this week in a test that will last for three months. Companies that may bid on ad space include DVD rental company Netflix Inc., health insurer EHealth Inc. and car rental company Avis Budget Group Inc.

Shares of Google, up 15 percent this year, rose $5.15 to $476.95 at 4 p.m. New York time in Nasdaq Stock Market composite trading.

Past Stumbles

Newspaper ads sold through the process will start appearing within the next two weeks in papers including the New York Times, Boston Globe, Seattle Times, Philadelphia Inquirer, Sacramento Bee and Washington Post, Mayzel said. For now, Google won't take a portion of any revenue from space sold through the test. It plans to take a commission in the future.

Tom Phillips, the executive who oversees Google's print ad efforts, said the program is designed to create more opportunities to sell ads and attract new advertisers.

``I can say confidently that it will drive up revenue of newspapers,'' said Phillips, a former magazine publisher and former chief executive officer of Deja.com, an Internet bulletin board company sold to Google and EBay Inc. in 2001.

He said Google's aim is to make prices for print advertising more fluid, letting publishers charge rates that better reflect demand. The program is similar to airlines that charge more for seats closer to departure times, or cut prices for planes that are empty, he said.

Global Intent

While this test is just in the U.S., Phillips said Google intends to sell space in publications around the world.

Newspapers, hurt by the defection of readers to the Web, are working with Google in an attempt to mitigate the effects of lost readership, a trend that is accelerating.

Circulation at 770 U.S. daily newspapers declined 2.8 percent in the six months ended Sept. 30, the Newspaper Association of America said last month, citing data from the Audit Bureau of Circulations. In the year-ago period, circulation fell by 2.6 percent.

Google's software may boost newspaper revenue at first, said Louis Ureneck, head of Boston University's journalism department, in an interview. Over time, newspaper advertising rates may decline as prices for ads sold by salespeople converge with prices on Google, he said.

``Modest Expectations''

Pacific Crest's Weinstein said he has ``modest expectations'' for Google's print ad sales. He said the program may be one of the less interesting opportunities because it's hard to measure advertisers' return on investment compared with Web ads. The effectiveness of online ads can be measured by tracking clicks and purchases.

Google has stumbled with past trials to sell print advertising. The company in February expanded a print-ad test to 28 magazines including Car and Driver. Executives then said in May that print ad sales hadn't taken off as fast as they would have liked. The company may add magazines to the print ad system, Phillips said.

``We take a `show-me' stance,'' Ben Schachter, an analyst at UBS AG, wrote today in a note to investors. He rates the shares ``neutral.'' ``Until we see execution and proof-of- concept, it is hard to assign a financial impact in our model.''

Google said it isn't reselling newspaper advertising space. Instead, publishers are making their space available for purchase using Google's software. Google won't include its logo on the ads, which clients will generally be able to purchase two days ahead of publication.

Groups of Ads

The company is also testing a way to sell groups of small display or text ads around a common theme, such as in a food section of a newspaper, Phillips said. For that test, Google will bid for ad space and resell it, although the company intends to hand that process over to publishers in the future, he said.

Google is investigating ways to let clients see how effective their print ads are by analyzing search queries at Google after an ad has run and monitoring Web site transactions. ``We're taking baby steps,'' Phillips said.

Print ads may let Google, which makes almost all of its revenue from online advertising, tap markets that are potentially larger. U.S. online advertising, excluding spending on Internet-search ads, grew 19 percent to $4.69 billion in the first half of this year, according to TNS Media Intelligence, a market researcher in New York. Local newspaper advertising fell 3.9 percent to $11.6 billion while national newspaper advertising rose 5.9 percent to $1.77 billion, TNS said.

``We're very bullish on the Google Print advertising product,'' Schmidt said in an interview last month.

Google in January bought DMarc Broadcasting Inc. as part of a plan to sell ads for radio. The company has said it expects to start selling radio ads by the end of the year.

To contact the reporter on this story: Jonathan Thaw in San Francisco at jthaw@bloomberg.net.

To contact the editor responsible for this story: Emma Moody at emoody@bloomberg.net.


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    (New York Times Co/The)
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