The document discusses challenges facing the online news industry's ability to finance quality journalism. It notes that while online advertising is growing rapidly, fundamental differences between traditional and online media mean online news sites see fewer readers less often. Increased online traffic does not lead to higher ad rates. Additionally, most online news revenues come from selling print classified "upsells" and the online sector depends on traditional media for content production. For the industry to be self-sustaining online, news organizations must greatly increase online revenues or risk failing as readers switch from print to online.
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1. Will the Online News IndustryWill the Online News Industry
Be Able to Finance QualityBe Able to Finance Quality
Journalism?Journalism?
Vin CrosbieVin Crosbie
Digital Deliverance LLCDigital Deliverance LLC
www.digitaldeliverance.comwww.digitaldeliverance.com
2. Are We Winning?Are We Winning?
Or Are We Missing the Target?Or Are We Missing the Target?
3.
4. • New York TimesNew York Times
• Cox Radio InteractiveCox Radio Interactive
• MediaNews GroupMediaNews Group
• Tribune InteractiveTribune Interactive
• Lee EnterprisesLee Enterprises
• Cox NewspapersCox Newspapers
• Google Inc.Google Inc.
• Autotrader.comAutotrader.com
• Hearst NewspapersHearst Newspapers
• Capital BroadcastingCapital Broadcasting
• Morgan StanleyMorgan Stanley
• Interactive Advertising Bureau
• Television Advertising Bureau
• Independent Newspaper/Ireland
• Deutsche Bank
• Ottaway Newspapers
• Landmark Communications
• Gray Television & Newspapers
• Times Shamrock
• Trinity Mirror Regionals
• NBC Universal Television
• Suburban Newspapers
5. Local ad spending data from any U.S. market.
Local online ad revenue data from 2,300
newspaper, TV, radio and ‘pure-play’ sites.
More than 250 individual local market audits.
Panel of 400 local advertising experts.
Plus, regular consultation
with national and local advertisers,
and media and Internet companies.
6. Sources: Universal McCann, Ad Audit Services
0%
5%
10%
15%
20%
25%
30%
35%
40%
1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
Newspapers Broadcast TV Radio Cable Internet
Advertising Share: 1949-2005
Radio
Broadcast TV
Newspapers
Cable
Internet
11. All Seems Good!All Seems Good!
We’d like it to Grow This WayWe’d like it to Grow This Way
ForeverForever
But Look Beneath the SurfaceBut Look Beneath the Surface
12. Although They Might Appear the Same,
There are Fundamental Differences Between
the Traditional and the Online
14. Consumers’ Access to News TodayConsumers’ Access to News Today
A CornucopiaA Cornucopia
15. Fundamental DifferencesFundamental Differences
• The Supply & Demand Equation: Consumers’ increased access
reduces the economic value of general news. Your news organization
used to be its market’s only source of all types of news in traditional
media, but it isn’t that online. It’s reduced in overall value, and thus gets
less use in this new medium.
16. PrintPrint
54 Million54 Million dailydaily
Average readerAverage reader
uses 23Xuses 23X
monthly,monthly,
sees 460+sees 460+
pages monthly,pages monthly,
spendsspends
10 hrs10 hrs
44 minutes.44 minutes.
per monthper month
17. WebWeb52 Million52 Million
monthlymonthly
Average readerAverage reader
uses 6X to 8Xuses 6X to 8X
monthly,monthly,
sees <29 Websees <29 Web
pages monthly,pages monthly,
and spendsand spends
28 minutes.28 minutes.
per monthper month
18. Fundamental DifferencesFundamental Differences
• The Supply & Demand Equation: Consumers’ increased access
reduces the economic value of general news. Your news organization
used to be its market’s only source of all types of news in traditional
media, but it isn’t that online. It’s reduced in overall value, and thus gets
less use in this new medium.
• Ten years into Web Publishing: News Sites are Seen by Fewer
People, much Less Often and much Less Thoroughly, than in their
traditional media counterparts.
21. If Daily Usage DoublesIf Daily Usage Doubles
Print Edition
50 Pages
(20 of adverts)
100 Pages
(40 of adverts)
Double
the ad
CPM rate!
22. If Daily Usage DoublesIf Daily Usage Doubles
Print Edition Web Edition
50 Pages
(20 of adverts)
50 Pages
(20 of adverts)
Double the ad rate
5M page/views
5M ads to sell
10M page/views
10M ads to sell
Double the ad rate?
Must Find Buyers for Twice the Number of Ads!
23. Fundamental DifferencesFundamental Differences
• The Supply & Demand Equation: Consumers’ increased access
reduces the economic value of general news. Your news organization
used to be its market’s only source of all types of news in traditional
media, but it isn’t that online. It’s reduced in overall value, and thus gets
less use in this new medium.
• Ten years into Web Publishing: News Sites are Seen by Fewer
People, much Less Often and much Less Thoroughly, than in their
traditional media counterparts.
• Unlike with Traditional Media, Increased Traffic online does not lead
to increases in ad rates. Increased Online Traffic leads to CPM stasis.
26. Fundamental DifferencesFundamental Differences
• The Supply & Demand Equation: Consumers’ increased access
reduces the economic value of general news. Your news organization
used to be its market’s only source of all types of news in traditional
media, but it isn’t that online. It’s reduced in overall value, and thus gets
less use in this new medium.
• Ten years into Web Publishing: News Sites are Seen by Fewer
People, much Less Often and much Less Thoroughly, than in their
traditional media counterparts.
• Unlike with Traditional Media, Increased Traffic online does not lead
to increases in ad rates. Increased Online Traffic leads to CPM stasis.
• In Traditional Media, the Advertiser pays for the entire printed
circulation or entire estimated/potential broadcast audience, not how
many people actually see the page or hear the minute featuring his ad.
But Online, the Advertiser pays only for the number of people who
were actually exposed to the ad – Resulting in revenues much less
than in Traditional Media.
27. $5.89
$9.39
$14.81
$17.09 $17.87
$25.17
$35.94
$0
$10
$20
$30
$40
2-10k 10-20k 20-50k 50-75k 75-100k 100-200k >200k
Daily Print Circulation
$PerUnitofPrintCirculation
Newspaper Website Annual Revenues
Per Unit of Print Circulation (2004)
But Print Revenues are Much Higher
$500 to $900 per print edition user
As readers switch from print to online, we must
greatly increase our online revenues or go out of business!
2-10K 10-20K 20-50K 50-75K 75-100K 100-200K >200K
28. $5.89
$9.39
$14.81
$17.09 $17.87
$25.17
$35.94
$0
$10
$20
$30
$40
2-10k 10-20k 20-50k 50-75k 75-100k 100-200k >200k
Daily Print Circulation
$PerUnitofPrintCirculation
New Media = New Technologies
New Technologies = More Efficient
Markets
A More Efficient Market for the
Advertisers
2-10K 10-20K 20-50K 50-75K 75-100K 100-200K >200K
Lower Costs for Advertisers,
Lower Revenues for Middlemen (Media Companies)
29. Online: Dependent on TraditionalOnline: Dependent on Traditional
Online gets its News as a result of
the Traditional Medium’s
Production
Gets Most of its Revenues as a
result of ‘Upsells’ from the
Traditional Media’s ad sales
(73 Percent of U.S. Newspapers’
Website Revenue is from ‘upsells’ by
from print classified ad sales.)
For every print edition reader
lost, the newspaper’s website
must gain 20 to 100 new users
to recoup the company’s lost
revenue because of that loss.
30. Online gets its News as a result of
the Traditional Medium’s
Production
Gets Most of its Revenues as a
result of ‘Upsells’ from the
Traditional Media’s ad sales
(73 Percent of U.S. Newspapers’
Website Revenue is from ‘upsells’ by
from print classified ad sales.)
For every print edition reader
lost, the newspaper’s website
must gain 20 to 100 new users
to recoup the company’s lost
revenue because of that loss.
Online: Dependent on TraditionalOnline: Dependent on Traditional
31. Speed of Change is Essential
Source: Newspaper Association of America.
35. How can Online beHow can Online be
Independent?Independent?
36. Jobs
Autos
Others
Property
80 Percent of Newspaper Website80 Percent of Newspaper Website
Revenues are FromRevenues are From
the 3 Traditional Classified Categoriesthe 3 Traditional Classified Categories
43%
15%
12%
37. JobsAutosProperty
Other
Yet Those 3 TraditionalYet Those 3 Traditional
Classified Categories are onlyClassified Categories are only
10 Percent of Local Online Ad Spending10 Percent of Local Online Ad Spending
90%
38.
39.
40. How can Online beHow can Online be
Independent?Independent?
Go After the Other 90% of Local
Online Ad Spending before
Google and Yahoo! beat You to It.
Begin to offer Individualized
News Services that Better Match
Each Individual Consumer’s
Needs & Interests. (You can still
give them Serendipity and the
Bulletin Stories). People will be
willing to pay for such service:
Packaging the News
41. Vin CrosbieVin Crosbie
Digital Deliverance LLCDigital Deliverance LLC
www.digitaldeliverance.comwww.digitaldeliverance.com
Notes de l'éditeur
Please permit me to show just one PowerPoint slide about whom we at Borrell serve.
These include major newspapers, broadcasters, banks, and Internet companies.
The data and findings that I will show to you are based upon my company’s core research: This research includes local advertisement spending data from any and all American media markets. We have local online advertising revenue data from the websites of 2,300 newspapers, television and radio stations, and Internet ‘pure-play’ companies.
Do you know this American Internet business terminology ‘pure play’? It indicates media companies that operate only online, that do not have newspapers, magazines, broadcast stations, or directories. Companies such as Google, Yahoo!, and America Online..
We have also performed more than 250 local market audits. Plus, we regularly consult with national and local advertisers, media companies, and ‘pure-play’ companies, plus a panel 400 local market advertising experts Notice that I have emphasized the word ‘local.’ That word will become important in this presentation.
But almost all American newspaper websites are free. Only 35 of the more than 1,500 daily newspapers’ websites charge for access. Most have tried, but discovered that readers will not pay. So, newspaper websites must get advertising revenue to profit.
Fortunately, online advertising revenues are rocketing. Online advertising is the most fast growing form of advertising. Here is an illustration that shows the trends in advertising market shares for newspapers, radio, broadcast television, cable television, and the Internet, during the years 1949 to 2005,
Newspapers are the top, steadily declining, line. Broadcast television, which has been our most formidable competitor, is the line that arches up and then slowly down. Our oldest broadcast competitor, radio, is the mostly flat yellow line. Cable television, which was our newest competitor, is the faint blue line slowly rising up. And the newest, Internet advertising, is the only rising trend line. It’s sharply rising.
But here is the interesting thing: Internet advertising is overtaking advertisements on cable and radio (it already has surpassed radio in the U.K.), and will make it overtake U.S. advertising on broadcast television and newspapers sometime during the next ten years.
Advertisement spending on the Internet in the United States surpassed 17 billion dollars last year. That is 17 thousand million dollars.
It will surpass advertising spending on ‘yellow page’ directories this year. It will surpass radio advertisement spending during the next 12 to 18 months.
It has already surpassed advertisement spending on outdoor billboards and magazines.
How much of the 17 billion dollars in online advertising did newspapers capture?
American newspapers earned nearly 4 billion dollars in online advertising. That included more than 1.9 billion from national online advertising revenue, 1.7 billion from local online advertising, and 222 million in ‘direct’ referral online advertising.
By comparison: American television stations earned more than two billion dollars. Various online directors earned more than one billion. Magazines and other print media earned nearly 400 million dollars. And radio stations earned more than one hundred million.
Yet, ‘pure play’ Internet companies, such as Google and Yahoo, earned more than half of all online advertisement spending during 2005: Almost nine billion dollars, almost 53 percent of all online advertisement spending in the United States.
Newspapers however earned most of the local online spending by advertisers: a 41 percent share. Nevertheless, the ‘pure play’ Internet companies captured nearly a 32 percent share of local spending. Google, Yahoo, and companies of that type are now in the local advertising business.
My friends, online is an explosive advertising market! Here is a table that lists the online revenues of some American media companies.
The far right column shows the compound annual growth of these companies’ Internet advertising revenues from years 2001 through 2004. Over four years. The companies I have market in yellow are newspaper companies.
The Gannett Company: 43 percent compound annual growth in online revenues. Knight Ridder company: 39 percent. Media General: 63 percent. Lee Enterprises: 45 percent growth. Even giants such as The New York Times, Washington Post, and Tribune companies: 25 to 28 percent compound annual growth over these four years.
Plus, these newspaper companies enjoy excellent profit margins from their websites. The average profit margin at an American newspaper website during 2004 was 68 percent, before taxes, depreciation, and amortization.
Most of the revenue growth by U.S. newspapers last year was from online.
That is because local online advertising is causing most of our industry’s growth in online advertising. Local online advertising! Local.
Outside of online, all advertising — advertising in print, broadcast, and other traditional media — is very evenly balanced between national and local. In America, 49 percent is national and 51 percent is local. For online, it’s closer to 80-20, a phenomenon that was seen in the early years of broadcast TV when the vast majority of television advertising was national.
The reason why local is catalyzing online advertising is because that advertising are now moving toward equilibrium online.
More and more advertising is going online, shifting online. Moving from 23 percent of balance to — we believe — approximately the same as all other advertising: equilibrium. An equal balance between national and local.
Local advertisers in America are doing what they always do when a new advertising opportunity comes along: They wait until it hits ‘critical mass,’ or reaches a majority of all households, then they begin experimenting with small portions of their advertising budget. In America, the Internet reached 50% of all households at the end of 2003, and in 2004 we began to see a very strong increase in local advertising on the Internet. While it is growing rapidly – about 35% to 40% per year – it has a lot of room to grow.
Today, online advertising represents less than 4% of a local advertisers’ budget. We think it will eventually hit 20%, perhaps more, over the next five years.
Space within a printed edition is scarce.
For example, a printed edition of The Times of London might contain 50 pages, of which an aggregate of 20 pages are advertising. The Times’ advertising staff sells that scarce space each day.
However, space within a Web site edition is elastic, surplus, even infinite.
A Web edition of The Times of London might contain a banner ad per page, but an infinite number of pages. However, because the Times’ editorial staff might decide to publish only 80 Web pages per day, everyone might assume that the Web edition contains exactly that number of pages.
However, they would be fundamentally wrong to make that assumption.
[Slide of print edition of New York Daily News]
Please note the difference: Print advertising sales operates according to the economics of scarcity. There is scarce ad space to sell per edition. Increased circulation increases ad rates.
[Multiple photos of a Web page]
But the Web advertising operates according to economics of surplus, the opposite dynamic than with print. There is surplus or infinite ad space to sell per edition. Increased usage does not increase ad rates, but is just as likely to decreases ad rates.
[Cartoon of print newspaper edition]
Here is why that is wrong:
What if the circulation of the 50-page printed Times were to double? Must the publisher then publish a 100-page edition and sell 40 pages of advertising rather than 20-pages?
[Cartoon of print newspaper edition doubling in size]
Of course not! He’d continue to publishing a 50-page edition but can double the rate he charges for those 20-pages of advertising. He doesn’t have to find buyers for any extra ad pages.
[Doubled edition crossed out]
After all, he’s selling scarce space. Higher demand makes the scarce space worth more.
[Same slide but also showing a Web page added]
Now, compared that with a Web edition.
Let’s say The Times of London’s Web site displays five million page-views per month and that each Web page contains a banner ad. If this site’s usage doubles, does the site’s publisher have to display ten million page-views and ten million banner ads?
Yes, of course. That’s quite different than with print. The Web site publisher now has to find buyers for an extra five million banner ads. He can’t simply double the rate he sells for his original five million pages. Increase site usage doesn’t make his ‘space’ scarce or more valuable. He instead has to find buyers for twice as many ads.
And if he doesn’t find those extra buyers, his effective ad rate will decline because half of his ad ‘space’ inventory is now unsold ‘space’ inventory.
[Slide of print edition of New York Daily News]
Please note the difference: Print advertising sales operates according to the economics of scarcity. There is scarce ad space to sell per edition. Increased circulation increases ad rates.
[Multiple photos of a Web page]
But the Web advertising operates according to economics of surplus, the opposite dynamic than with print. There is surplus or infinite ad space to sell per edition. Increased usage does not increase ad rates, but is just as likely to decreases ad rates.
What I tell you is no longer theoretical; it is actual. There is no time to waste.
This is a chart of weekly newspaper circulation in America from the year 1960 to 2003. Circulation has declined steadily for more than 20 years. Although this chart shows a drop from only 63 million weekday copies in 1985 to about 56 million in 2000, remember that the U.S. population almost doubled during that time.
Moreover this has gotten much worse. Last year, during a good economy in America and a year full of news, most newspapers suffered significant — accelerating — declines. The Los Angeles Times lost 6.5 percent of its weekday circulation last year. The Chicago Tribune, 6.6 percent. The San Francisco Chronicle, 16 percent. The Boston Globe, 8 percent. Printed newspaper circulation in the United States is now in free fall, like a skydiver.
Many publishers will tell you: Don’t worry. They will tell you that they have lost tens of thousands of readers for their printed edition, but that they have gained hundreds of thousands of readers for their online editions. That sounds good. However, I will tell you why it is a false solution today.
That is because local online advertising is causing most of our industry’s growth in online advertising. Local online advertising! Local.
Outside of online, all advertising — advertising in print, broadcast, and other traditional media — is very evenly balanced between national and local. In America, 49 percent is national and 51 percent is local. For online, it’s closer to 80-20, a phenomenon that was seen in the early years of broadcast TV when the vast majority of television advertising was national.
The reason why local is catalyzing online advertising is because that advertising are now moving toward equilibrium online.
More and more advertising is going online, shifting online. Moving from 23 percent of balance to — we believe — approximately the same as all other advertising: equilibrium. An equal balance between national and local.
Local advertisers in America are doing what they always do when a new advertising opportunity comes along: They wait until it hits ‘critical mass,’ or reaches a majority of all households, then they begin experimenting with small portions of their advertising budget. In America, the Internet reached 50% of all households at the end of 2003, and in 2004 we began to see a very strong increase in local advertising on the Internet. While it is growing rapidly – about 35% to 40% per year – it has a lot of room to grow.
Today, online advertising represents less than 4% of a local advertisers’ budget. We think it will eventually hit 20%, perhaps more, over the next five years.
But almost all American newspaper websites are free. Only 35 of the more than 1,500 daily newspapers’ websites charge for access. Most have tried, but discovered that readers will not pay. So, newspaper websites must get advertising revenue to profit.
Fortunately, online advertising revenues are rocketing. Online advertising is the most fast growing form of advertising. Here is an illustration that shows the trends in advertising market shares for newspapers, radio, broadcast television, cable television, and the Internet, during the years 1949 to 2005,
Newspapers are the top, steadily declining, line. Broadcast television, which has been our most formidable competitor, is the line that arches up and then slowly down. Our oldest broadcast competitor, radio, is the mostly flat yellow line. Cable television, which was our newest competitor, is the faint blue line slowly rising up. And the newest, Internet advertising, is the only rising trend line. It’s sharply rising.
But here is the interesting thing: Internet advertising is overtaking advertisements on cable and radio (it already has surpassed radio in the U.K.), and will make it overtake U.S. advertising on broadcast television and newspapers sometime during the next ten years.
How much of the 17 billion dollars in online advertising did newspapers capture?
American newspapers earned nearly 4 billion dollars in online advertising. That included more than 1.9 billion from national online advertising revenue, 1.7 billion from local online advertising, and 222 million in ‘direct’ referral online advertising.
By comparison: American television stations earned more than two billion dollars. Various online directors earned more than one billion. Magazines and other print media earned nearly 400 million dollars. And radio stations earned more than one hundred million.
Yet, ‘pure play’ Internet companies, such as Google and Yahoo, earned more than half of all online advertisement spending during 2005: Almost nine billion dollars, almost 53 percent of all online advertisement spending in the United States.
Newspapers however earned most of the local online spending by advertisers: a 41 percent share. Nevertheless, the ‘pure play’ Internet companies captured nearly a 32 percent share of local spending. Google, Yahoo, and companies of that type are now in the local advertising business.
