'Local' Is Key to Expanding Deals Industry

Local media companies currently generate less than 5% of the revenue from the rapidly-growing group deals industry, but media partnerships represent the fastest growing sector of that business. The local players’ ace in the hole, according to experts gathered Monday and Tuesday at BIA/Kelsey’s Deals 3D conference in San Francisco: community connections and “feet on the street.”

         Local media companies “have the brand credibility, the inventory, the advertiser relationships and the sales force,” says Martin Tobias, CEO of Tippr, which provides white-label deal management and delivery for 90 media companies including NBC, Belo, Hearst, Fox and others.

         Tobias estimates that less than 20 percent of media companies are currently offering deals, but expects that nearly all will in three to five years.

         Agreeing with him is Terry Kukle, VP of business development for Metroland Media Group, which operates 108 community newspapers in Canada, and runs deals through sister deals site WagJag.com. The type of deals offered by media companies will vary widely in the coming years and the loss-leader deals will start to fade in use over time, Kukle says.

         Media companies’ community connections and local sales forces, “[help them] to understand and know [their communities] and what the consumers are looking for from a deal perspective,” said.

         The existing sales infrastructure is key to a local-based business, such as deals. “It’s expensive to build a local sales force and you need to have consumer reach and you need owned and operated properties to succeed,” said David Krantz, president and CEO of AT&T Interactive, during a keynote speech at the conference. AT&T has jumped into the local deals business leveraging the local sales force from its business listings.

            The deal-a-day business itself is only 18 months old, but already analysts and deal technology partners say that “hundreds” of local media firms, owned by companies like Gannett, Hearst and NBC, have leapt into the marketplace. In many cases, the newspapers and TV stations offer group deals directly to their readers, viewers and audiences via partnerships with white-label deal providers, while a scant handful have chosen to acquire or build a deals business.

         Media companies are tapping into local deals for many reasons. The market itself has huge growth potential, said BIA Kelsey at its Deals 3D Conference in San Francisco on July 19. BIA Kelsey predicts the deals business will reach between $3 billion to $6 billion by 2015, but that’s only the beginning. The deals business can potentially reach into the $5 trillion to $8 trillion local global consumer spending marketplace, BIA Kelsey has said. That’s appealing especially as TV broadcasters and newspaper companies have been slammed by the rough economy and the exodus of the classified business to the Web.

         Where’s the Money?

         Though the long-term revenue potential for media companies is unknown, the money is growing quickly, said Peter Krasilovsky, VP at BIA Kelsey. “We are seeing some TV stations getting six-figure results from deals and other online promotions,” said Peter Krasilovsky, VP at BIA Kelsey. Deals can help to reinforce the relationship media companies have with their local ad base, he said.

         The financials work best for local partners if they pair up with a white-label provider rather than a consumer-facing deal provider. When working with a white-label provider, the media company continues to own the relationship with the consumer, while the merchants typically pay out a lower commission than the average 30% to 50% split for a Groupon or Living Social type deal provider.

         Making it Work

         However, there are challenges that media companies need to be aware of with deals, Krasilovsky said. The timing of the deal needs to make sense, the merchant needs to have the bandwidth to handle a large amount of redemption in the best-case scenario, and the deals need to be targeted appropriately. Media companies can turn off customers if they only send out deals to businesses hundreds of miles away, as an example.

         Also, never underestimate the importance of deal quality, said Pat Lazure, co-founder of DealGarden.com, a daily deal provider focused on small- and mid-size markets, who previously launched deals for World Interactive Group, a publishing company. “Consistent, not occasional, deal quality is the #1 key to a successful deal site. Offer a good deal and customers will go to the bottom of a river to find you. Never forget that the deals you negotiate with your merchants are rewards for your members,” Lazure said.

         Owning the Deal Provider

         There are other options too beyond private-label or Groupon-type partnerships and that includes owning or building a deal site. Metroland runs its deals through sister site WagJag.com, owned by the same parent company, Torstar. That lets Metroland’s sales force offer value-add deals, as well as ad packages that include the deal-a-day, and also special rates on ad inventory, Kukle said. “When everyone is going after our revenue dollars, we now have the disruptive technology,” he added.