Editorial: Online can bolster falling revenue - but be careful

On the face of it, The Sun's move to launch a free classified website seems like a huge risk.

However, it might as easily be argued that the risk in not doing so could be far greater. In common with every other national newspaper, The Sun faces its revenues being eroded unless it learns how to engage with the online world. The old model is broken - the problem is no-one has quite worked out how to fix it.

What makes it all so frightening is that the threats to ad revenue come not from long-standing, conventional rivals such as TV, but from burgeoning populist movements that challenge classic advertising models. Because they do not conform to the usual rules, they cannot easily be seen off.

Media owners have long been jittery about the relentless march of the Craigslist website. The online service's offer of free classified ads has turned US classified advertising on its head.

Significantly, the site does not advertise or promote itself, relying almost exclusively on word-of-mouth. The results are dramatic: newspapers in some US cities have seen their classified advertising revenue drop by 70 per cent. The implications for their counterparts in the UK are obvious enough.

They have certainly not been lost on Rupert Murdoch who, earlier this year, paid an eye-watering $580 million for the company behind the MySpace online community ("New model media owners", page 24). It may seem like crazy money, but there is method in his apparent madness. Unless Murdoch can exploit the boom in online advertising, the financial damage to News Corp could be profound.

Nevertheless, history urges caution. For a start, no-one is sure where this fundamental shift in advertising is leading. Remember the dotcom boom of the late 90s? Like those here-today, gone-tomorrow operations, will today's online communities also have flaws no-one has yet spotted?

And, in attempting to establish a presence in such communities, will media companies risk killing the anti-establishment ethos to which they owe their success?

Of course, no media group can afford to bury its head in the sand. The days of newspapers distilling content into a standard package to be consumed unquestioningly are numbered. But what replaces it remains an open question.

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