Media look for growth in digital

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Hearst may be looking to expand its print-centric business model
Hearst may be looking to expand its print-centric business model

Media companies, many of which have watched their print circulations plummet in recent years, are stepping onto the turf of digital marketers to rescue their revenue streams.

Hearst Corporation is poised to definitively plant its flag in the digital marketing space. The media company is close to acquiring agency iCrossing for approximately $375 million, according to reports.

Some industry experts see the rumored deal as a potential straightforward play by the publisher to add online search dollars to its bottom line.

"Since search is a very large component of online media spending, iCrossing would give Hearst a well-scaled platform for helping advertisers do search," says Michael Petsky, partner at investment bank Petsky Prunier, which works on agency acquisitions.

Yet a deal between a traditional media company like Hearst, which entered the newspaper business in 1886, and iCrossing, which helps clients such as Toyota and Coca-Cola harness digital channels to sell products, would also advance the trend of media companies becoming diverse digital businesses, according to experts.

As the growth bottoms out of the print and broadcast businesses, "media companies are looking to harness the growth of the digital revolution," says Ken Doctor, author of Newsonomics and a news industry analyst for research firm Outsell.

"[Media companies] are saying, 'Where's the growth for the next 10 or 20 years?'" and finding the answer in exploiting digital channels to acquire and retain customers more efficiently, Doctor continues. He pointed to a recent Outsell report indicating that in 2009, marketers spent triple what they did in 2006 on their own websites.

"While the top companies have their own people for this, a lot of the rest want help with web work, and that explains he activity" in digital marketing services, he says.

Meanwhile, Meredith, known for its broadcast and consumer magazine properties for most of its existence, has built a marketing services division through acquisitions in recent years. The company acquired a strategic stake in mobile marketing firm The Hyperfactory last July and named Martin Reidy, former president and CEO of Publicis Modem & Dialog, president of Meredith Integrated Marketing last year.

Similarly, a deal for iCrossing, which began exploring potential partnerships since last December, could be part of a larger Hearst strategy to build a marketing services division that could help companies buy, sell and track media, according to industry experts.

Media companies are interested "for the first time in selling placement that has nothing to do with their own brands. That's big." says Doctor, adding that moves to add marketing divisions will put media companies in competition with marketing firms.

"There is some tension" in that traditional ad agencies that are buying space in a media company's magazines, for example, will compete against that same company for clients, said Tom Bedecarré, CEO of independent digital marketing agency AKQA.

However, such competition may be unavoidable, Petsky suggests.

"The landscape is changing so quickly and media companies need to be able to offset what is going to be the loss of revenues in the years ahead," he says, adding that moving onto the turf of marketing firms is "fair game."

Even if the reported Hearst-iCrossing deal never makes it to the altar, Petsky says it "is a precursor of things to come," with the potential of "plenty of transactions" between media properties and online firms in the future.

Such deals are also likely to extend far beyond the media industry, adds Bedecarre.

"It's not just the usual suspects of agency holding companies — WPP, Omnicom and Publicis," he says, adding that IT services companies and e-commerce firms are other potential suitors.

ICrossing declined to comment beyond saying it would be inappropriate to disclose the details of its discussions with other companies.

A Hearst representative could not be reached for comment.

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