The great internet land grab is on, as newspaper groups race to snap up classified websites that are cannibalising their print advertising revenues.
Trinity Mirror emerged as the victor yesterday in the prolonged tussle over the Hotgroup recruitment site. The owner of the Daily Mirror said it would pay £50.5m cash for Hotgroup, edging out rival bidders who are thought to include the regional publisher Johnston Press. The five Hotgroup directors who together own 9.5% of the firm will share £4.8m. They will also receive incentives worth £1.4m.
Trinity Mirror said the Hotgroup acquisition reflected its focus on "developing the significant online potential within [the classified] sectors". Together with Daily Mail & General Trust (DMGT), the Guardian Media Group and Newsquest, Trinity is also part-owner of the Fish4 group, which advertises cars, homes and jobs online.
Five years after the dotcom boom and bust, newspaper groups are once again scrambling to turn the internet from a threat into a competitive advantage.
Rupert Murdoch has admitted to being "complacent" about how the internet would change media consumption, and recently declared there was "no greater priority" for News Corp than "to meaningfully and profitably expand its internet presence".
He is not alone. Barely a week has gone by this summer without news of another dotcom purchase by a print publisher.
Hotgroup is Trinity Mirror's third internet buy in as many months. It bought smartnewhomes.com for £16.6m in July, then agreed to pay £13m for Financial Jobs Online in August. DMGT is also on the prowl, snapping up two small recruitment websites last week for £4.1m, and 18 months ago it paid £36m for Jobsite.
Meanwhile, rival newspaper groups are circling the Exchange & Mart and Auto Exchange classified titles that United Business Media put up for sale in July. Analysts predict DMGT, Trinity Mirror or Johnston Press could pay up to £120m for the assets, which include popular classified sites.
The rapid growth in online classified advertising is fuelling the cyber land grab. "There's this scramble to buy dotcoms because they're seeing their revenue escaping to these sites," said Numis media analyst, Lorna Tilbian. "People always overestimate the short-term impact of new technology and underestimate the long-term impact."
More and more consumers are logging on to hunt for jobs, cars and homes, attracted by the choice, the search tools and the ability to instantly register an interest when they find what they are looking for. Nearly a quarter of media consumption time is now devoted to the net.
Advertisers are following consumers online, benefiting from higher response rates, better campaign tracking and more automation. The advertising guru Sir Martin Sorrell said last week that companies were increasingly opting for online and interactive marketing, rather than print or television.
Although it accounted for just 5% of the £11.2bn British advertising market last year, the internet is the fastest-growing medium. It soared 70% in 2004, 14 times the growth rate recorded by newspapers. Analysts expect the internet to double its share of the ad market within five years.
"The revenue is shifting from traditional media to new media," Meg Geldens, an Investec analyst, said. "The challenge for some of the traditional media is to try and figure out a way to leverage what they've got on to the internet."
After losing vast sums on the net in the heady days of 2000, print groups are now returning to the medium wiser to the pitfalls and appropriate dotcom valuations. And the online ad market has matured. Experienced management teams are running profitable firms with established brands and significant market share.
"In the first bubble you were buying a promise. These are profitable businesses and have been for years," the head of DMGT's new ventures arm, Andrew Hart, said. "As a multibillion-pound company, these are investments, therefore we expect returns almost immediately."
Regional publishers are leading the cyber land grab, anxious to ensure they do not cede their precious print classified advertising revenues to rivals that are purely on the internet. Regional newspapers make 80% of their revenue from advertising, of which two-thirds is classifieds. "They have a stranglehold on the local market and the biggest exposure to classifieds, so they have the most to lose," Ms Tilbian said. But Johnston Press, which owns 276 regional titles, including the Yorkshire Post, claims it has yet to lose advertising revenue to the internet. "We're not seeing that contraction that people suggest is there," the chief operating officer, Danny Cammiade, said. He attributes this to Johnston's strong relationship with local advertisers and its strategy of selling print and online advertising packages.
DMGT's Mr Hart agrees: "The regionals have a much closer personal relationship with the advertisers in their area."
But he believes DMGT, which owns 100 regional titles, is better off buying successful websites with managers who have proved they can make money online, rather than going it alone. "You can't run online the same way you run print ... where you can get significant market advantage, you buy," he said.
Johnston Press has steered clear of acquisitions to date, concentrating instead on increasing its in-house web operations. Online profits rose 50% in the first half of 2005 to £3.2m, and the company plans to add an auction capability to its websites this year. Mr Cammiade said Johnston was looking for acquisition opportunities.
"There are lots of names bandied around and obviously we take an interest," he said. "We're seeing how we can develop our online strategy organically."
But there is still life left in print classifieds. "As long as there remains a print audience, there's a point to having advertising there," Investec's Ms Geldens said.
