News Sites Can't Rely on Advertising

Categories: Media
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I'm not about to pretend that I know how to solve the economic dilemma that the news business finds itself in. I've been studying the matter, and writing about it off and on, for 16 years, and, like everyone, I really don't know. Maybe it will be nonprofits. Maybe paywalls. Maybe micropayments will somehow be made to work in the distant future. Maybe some combination of all of those, along with advertising.

The only thing I can say for sure is that, unless something fundamental changes in the market, advertising alone isn't going to do it.

Ad-financed journalism is getting worse all the time as news executives cut costs (meaning people) while at the same time employing increasingly desperate tactics to chase the pennies that ads bring in.

News sites draw higher rates than average for their online ads. But they get fewer impressions, and "high" is a relative term. Online ads generally sell for peanuts. Worse, news sites often have a hard time selling what inventory they have. Spending on digital ads is forecast to eclipse all other forms of advertising in a few years, but there are so many places to advertise online, that means little to nothing for any given site.

The Pew Research Center's Project for Excellence in Journalism has released a study revealing that the 20 popular news sites it surveyed fill up on average more than a fifth of their advertising space with house ads -- that is, ads promoting the publications' own properties. Time.com is 50 percent house ads (disclosure: I write regularly for Fortune.com, which like Time.com is owned by Time Warner). These ads bring in no revenue.

Given how low ad rates are, about the only thing that works for news sites is scale. But that scale has to be massive to achieve success. That's why the Huffington Post does comparatively well (it's one of the few sites that has hired in a big way, for instance). Besides doing some real journalism -- sometimes of high quality (really!) -- HuffPo churns out huge piles of crap, whether it's shallow celebrity gossip or barely rewritten stories that were reported by someone else. It's a volume business, like Wal-Mart.

You would think that Facebook, thanks to its unique ability to learn about users and target them with ads suited to their tastes and desires, would draw high ad rates. But even before you know what the numbers are, all you have to do is look at the kinds of ads they run. Some of the cheesiest, most lowbrow advertisements I see are on Facebook. The only reason the site succeeds is volume. The company's claim that its membership adds up to nearly 1 billion of Earth's 7 billion inhabitants is surely inflated. But it has hundreds of millions of users, and that's the only reason it succeeds. Facebook took in $3.71 billion in revenue last year, or about 37 cents per user, per month.

And Facebook is a lot bigger and a lot more popular than most news sites. The Pew study also noted that only a handful of the 20 sites it examined actually target their ads at users' based on data collected from their online behavior. Facebook does this to a degree that some people actually find alarming, and still commands only pennies per user.

With print revenues continuing to fall, news sites are left to fight for digital scraps. Sites like HuffPo and Yahoo News are well-known panderers, publishing news more for search engines than for humans. But witness this scene from the New York Times' recent account of the struggles at the Washington Post. A post editor, the Times' Jeremy Peters wrote,

brought large flat-screen monitors into the newsroom that projected in real time what the most popular stories were online. He installed a new internal publishing system that required reporters to identify Google-friendly key words and flag them before their stories could be edited.

There are 35 different daily reports that track traffic to different parts of the Web site. Editors receive a midday performance alert, telling them whether the site is on track to meet its traffic goals for the day. If it appears that they might miss their goal, editors will order up fresher content.
That sounds more like what you would expect at a content mill like Demand Media than the newsroom of one of America's venerable dailies.

Dan Mitchell has written for Fortune, the New York Times, Slate, Wired, National Public Radio, the Chicago Tribune, and many others.

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