The business of online news
Though advertising dollars are shifting from print to digital media, the numbers still do not translate into profit. It’s true that the growth of online news is greater than in traditional media (including TV and radio), but that’s mostly because new ground is being explored—and by large numbers of people. Moreover, the numbers indicate that this growth is already starting to slow. The entrepreneurs in online media continue to argue that advertising just hasn’t caught up yet, but they’re failing to acknowledge a sea change both in profit margins and in online advertising across the board: Call it the Google factor.
First, look at those profit margins on media companies. They are back down in the three-to-five percent range of the 1950s, as opposed to the twenty-five percent they reached at the height of the ’90s tech bubble. This means investors aren’t so easily seduced by the news industry. “I had no idea how long it would take to play the money connections,” Perry confessed.
Then there’s the shift in how online advertising works. Print media, reluctant to let go of its once-successful mass-scale advertising model, missed the opportunity to shift to small-scale ways of doing business. “Newspapers still threw their lot in with big advertisers who had been the only ones who could afford their mass products,” wrote ubiquitous media columnist Jeff Jarvis on his current blog, BuzzMachine. “They didn’t see the mass of potential spending in a new population of small, local advertisers who never could afford to advertise in newspapers but who could afford to buy targeted, efficient, inexpensive ads online.”
Who did see—and seize upon—that potential? Google. It won over all of the little guys with its model for affordable, targeted, pay-per-click advertising. According to TechCrunch, the latest figures from the Interactive Advertising Bureau show that Google accounts for forty percent of all online advertising in this country—a number that allows them to offer unbeatably low prices and thereby entirely skew the playing field.
How do you compete with that? That’s the big question in making local online news sustainable, if not profitable. MinnPost, Minnesota Monitor, and the Daily Planet have all settled on a similar public-radio model to stay in business: a combination of foundation grants, online advertisements, and donations. “It was clear that success depended in part on obtaining revenue from readers,” Kramer said, “The clear experience of the internet is that readers aren’t paying for news.” MinnPost, he said, has successfully taken its first steps in a four-year journey toward self-sufficiency. With more than seven hundred and fifty donors, 3,188 Daily Alerts subscribers, and a pool of almost five hundred registered commentators, so far the business has surpassed the modest benchmarks Kramer set.
Still, it’s probably too early to tell how this model will fare; we have yet to see, for instance, how a single-platform website like MinnPost holds up against the actual public-radio, multi-platform model it’s inspired by. That model typically gives more bang for the buck: A donation to Minnesota Public Radio supports not only quality twenty-four-hour news radio, but two other demographically tailored music stations, web stories in a variety of formats (audio, video, text, images, and many combinations thereof), discussion groups, a citizen journalism initiative—and even a print magazine (Minnesota Monthly) to boot. That’s a pretty tough act to follow.
Meanwhile, the folks running some of those other local news sites are hoping that there are enough other potential donations out there to fund the expanding market. Somehow MinnPost’s survival seems intrinsically linked to how much accountability we’re willing to take on as readers (and invest, in the form of donations) and how much faith we’re willing to place in the kind of top-down, one-way journalism that has been letting us down for years. If the public-radio model is to work for online news, news consumers and media mavens alike will have to begin to view journalism as a consumer asset rather than as a consumer good.
A whole new world—same as the old one
While many see the web as a Wild West frontier where there’s money to be had with little investment, in truth—just as in the traditional media—a handful of giant corporations control most of what’s on the web, including the news. And the fast-growth newbies (like YouTube) keep getting bought out by the biggest players, only exacerbating the situation.
For example, the web’s No. 1 news site—drawing eleven million monthly users—is Yahoo News, which offers no original content and aggregates material from other news organizations, including Reuters and the New York Times. And in early February, Microsoft made a record-setting $44.6 billion bid to acquire Yahoo, a deal that would consolidate its MSN network with Yahoo. We might be on the verge of witnessing the largest merger yet among the internet’s fat cats, a deal that will skew the playing field once again. As of press time, Yahoo had rejected the bid, but the fight is far from over.
With Google and Yahoo (and/or a Yahoo/MSN hybrid) controlling online news, local news media will have to find a way to weather the storm on the web. That could mean joining forces against the web behemoths, aggregating their own content, and consolidating their models for creating and providing online news—in short, building dikes against a rising sea of troubles. In the world of online news media, it’s shaping up to be the same old capitalist battle pitting the underdogs against the fat cats. If local online news providers are going to survive, they’d better find out who their friends are in a hurry—and make some more while they’re at it—lest they join legions of their print brethren in the litter box.