The NYT’s has an interesting and long article about the future of the newspapers and, in particular, how to reward journalists. For the most part, it is a good read but its diagnosis of the problems facing the news media leaves alot to be desired.
First, on the problem of declining advertising revenues, the article accepts the following as the key explanation:
online ads sell at rates that are a fraction of those for print, for simple reasons of competition. “In a print world you had pretty much a limited amount of inventory — pages in a magazine,” says Domenic Venuto, managing director of the online marketing firm Razorfish. “In the online world, inventory has become infinite.”
The idea here is that in the market for advertising, supply has become infinite so the price has dropped to zero. This is wrong. The supply of advertising space is the amount of space per content actually read by consumers. Consumer attention is limited and so even if there is an infinite number of ads out there (which there isn’t), the number that is actually read is still well and truly finite. So this supply-side effect is not the reason why prices have declined. Put simply, this is no Craigslist type situation.
Second, on what a web view means:
Online, advertisers have immense power. Because it’s easy to track who is clicking what, they can aim with efficiency and typically pay according to the number of times their ads are actually viewed. Instead of sending word of its shoe sale to a million print newspaper subscribers, who may or may not be looking for shoes, a store can buy the page views of 50,000 people who are reading articles about fashion. Or the advertiser can place ads on heavily trafficked portal sites like Yahoo and AOL, both of which are currently expanding their production of original journalism. Or it can pay Google to insert its ads into search results. Or it can go to one of the large digital advertising networks that have arisen in recent years and buy unsold “remnant” page views at deep discounts. There is a lot less waste and a lot more choice, and the upshot is that advertising, which once produced robust margins for publishers, now sells for spare change online. Generally speaking, while some ad placements — like those on a site’s home page — go for a significant premium, pages of individual articles, if sold at the going rates, bring in between a penny and nickel each time a reader looks at one.
So it is true that advertisers have more options. However, what is also true is that if it took a million impressions to reach a target set of consumers before whereas it only takes 10% of that number to reach the same target set now, does not mean advertising revenues fall by 90%. Instead, they are exactly the same. Indeed, the price per impression should rise ten fold.
Neither of these two things account for the decline in ad revenues. I think that competition has increased and that, at the moment, the efficient of matching is lower than it used to be because of the internet. But the effects are subtle and hopefully I can write more about them in a future post.