Newspaper fallacies

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.

3 thoughts on “Newspaper fallacies”

  1. I would like to read more on this when you do get a chance since I think its something the industry as a whole doesn’t always fully get it (and i’m not saying i necessarily do!).
    The other day a big 4 consultant told me the explosion of social media meant an explosion of (impressions) inventory, he said its crap inventory which noone wants to buy, but, that this increased supply was driving down prices across the industry. I wondered ‘how can that be’ – how can the oversupply of inventory nobody wants lower the prices of the inventory that people do value…
    But of course, _average_ CPMs have fallen by definition, but is that the point? For me the 80/20 rule holds. I.e. their is premium inventory (20%)  and the stuff you daisy chain out through remnant networks (80%).
    I always thought, at the last online publisher I was involved with, they should break their metrics into the yield from the top 20% of inventory (how we differentiate and value add to our direct customers – brand) and the yield form the bottom 80% (how we manage and optimise a range of remnant and direct response networks etc -direct response). They really do tend to be different customers buying different products and potentially different types of ‘attention/engagement’.
    I think, or guess, that good innovative media companies are growing the yield on their top 20% of inventory (as they introduce greater brand interaction etc) but that remnant inventory continues to fall on an average yield basis
    My guess for the apparent ‘shrinkage’ as spend moves from print to online is that we’re seeing mix effects and efficiency (although with efficiency and transparency you should also be able to more confidently spend up to your marginal cost right? gaining some spend) . Direct response advertisers moved first and yeah online was much more efficient.
    Next the challenges is to shift brand advertisers across where its harder to prove effectiveness/efficiency gains – but prices should be higher (the mix effect)
    Any way a bit of a ramble i’ll admit.
    interesting stuff here


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    The low value of online ads compared to traditional media is likely due to their poor reach. Despite the hype around the targeted marketing opportunities online advertising provides, the largest advertisers typically sell to broad, heterogeneous customer groups and remain reliant on attracting and retaining light and occasional customers, and thus need to reach these customers through their advertising. For now, high rating TV programs and other traditional media like billboards, newspapers and magazines can deliver this reach far more efficiently than online campaigns, as reflected in their relatively higher cost per reach. In fact, as declining average audience numbers provide fewer high reach advertising opportunities, the value of the remaining spots – think the Super Bowl – continue to increase in value. Online ads will not bring in similar revenues as traditional mass media until they can deliver advertisers’ messages to mass audiences.
    The Ehrenberg-Bass Institute at UniSA have done excellent work identifying and explaining the empirical generalisations about buyer behaviour that support the importance of high reach mass marketing (and limit the efficacy of targeted marketing in many situations).


  3. Apologies for the formatting tags preceding the comment above – didn’t realise that this would copy over when I composed the comment in Word…


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