Why it’s tough to make money in online news

The Huffington Post, the ground-breaking aggregation site founded by Arianna Huffington, is being purchased for $315 million by AOL.
REUTERS/Lucas Jackson
The Huffington Post, the ground-breaking aggregation site founded by Arianna Huffington, is being purchased for $315 million by AOL.

It’s tough to make money in online news. That’s the conclusion of a massive report issued last week by the journalism school at Columbia University.

That comes as no surprise to print and broadcast executives, who have seen their once-mighty monopolies erode in recent years faster than a Mississippi River levee at full flood.

But the report makes for fascinating reading for anyone interested in the massive communications upheaval we’re undergoing — and whether we can preserve the newsgathering needed for an informed society.

In clear and compelling language, backed by research and extensive interviews, the authors tell the story of how traditional media were blindsided by a change that few saw coming.

And they strive to answer the fundamental question of online news: Why do so many digital users generate so little advertising revenue?

Consider these examples:
• A TV station in a top-five market gets 7 million page views a month on its website, yet the site generates only 1 percent of the station’s advertising revenue.

• Believing that videos would boost its Web audience, the Miami Herald devoted significant resources to producing its own video reports. Yet Herald-produced videos bring in ad revenue of only $4,000 in an average month.

• As its traditional base of large advertisers shrank, the Houston Chronicle began targeting neighborhood, mom-and-pop businesses that it once ignored. Using an innovative business model, the Chronicle sells an array of digital ads and services, including helping its clients build their own websites and improve their search engine rankings. But even if the new approach succeeds, the paper’s publisher figures it will do no more than match the current revenue from just one of the paper’s largest advertisers. “This has become a nickel-and-dime business,” Publisher Jack Sweeney said. “And you need a lot of nickels and dimes.”

The authors cite some success stories, to be sure. But many of them involve media companies in small cities, where advertisers have fewer options and also may be motivated as much by civic pride as by cold financial facts.

Meanwhile, traditional media are under attack by so-called “aggregators:” sites that scoop up news stories from everywhere, slap new headlines on them and run the stories on their own sites. The Huffington Post is one well-known example, but there are thousands more.

Said Aaron Kushner, an investor who’s trying to buy the Boston Globe, “The definition of a competitor now is someone who gives away your story for free.”

The report offers some suggestions for the traditional media: develop targeted local content that can’t be found elsewhere; strive to build a loyal audience rather than chasing large numbers of casual visitors; and look for ways to break the stranglehold of the CPM (cost per thousand) pricing system, which relies completely on the number of eyeballs that see an ad but doesn’t do a good job measuring loyalty or engagement.

The authors conclude with a hopeful exhortation to news organizations: become smarter, more nimble, more innovative — and you may become more profitable.

It’s a fine sentiment. But it’s easier said than done. Still, this report is an absorbing and insightful read for anyone who cares about the news.

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Comments (3)

  1. Submitted by Raymond Crippen on 05/16/2011 - 09:25 am.

    I believe there is a widespread, unperceived or unacknowledged user resistance to internet advertising. Very many people fear and resist the clear possibility that the internet will become a counterpart of American television where the numbers and length of commercials equal or exceed the lengths of programs. Very many people, when confronted by an internet commercial, immediately move on. Some advertisers seem to recognize this. So what is an answer? This is what the world of internet users presently is working out. This surely is keeping popularity of print media alive for, always, with print media one may read or ignore advertisements. Nothing is forced on anyone as it is with television – as it is to a lesser degree with the internet.

  2. Submitted by William Hansen on 05/16/2011 - 09:54 am.

    Is it time to rethink the whole model? How about expanding the Corporation for Public Broadcasting, insulating it from immediate political interference, and paying out to news outlets based on how much they can raise from individual consumers.

    I worry that the firewall between advertising and editorial has crumbled and that is very dangerous to democracy. Just watch any TV news to see the evidence.

    Just a thought…

  3. Submitted by Tom Elko on 05/16/2011 - 12:05 pm.

    I must have read an entirely different report than the one described here. The one I read identified the line of thinking provided in this column as being part of the problem.

    The authors clearly laid out recommendations for publishers in the conclusions:

    – Stop treating digital as just another opportunity to publish existing content
    – Redefine the relationship between audience and
    advertising
    – Rethink their relationships with advertisers
    – Develop alternatives to the impression-based pricing system
    – “Be vigilant about outright theft of their content, but they should also realize that most aggregators operate within the bounds of copyright law and are generating value for readers.”
    – Bigger companies should analyze the potential in creating
    separate digital staffs, particularly on the business side
    – Journalists must be prepared for continued pressure on editorial costs
    – Place small bets on many ventures, the probability increases that one will win
    – Any news site that adopts a pay scheme now should have very limited expectations for its success

    Here’s a link to the report itself in case anyone else is interested in reading it (giant .pdf): http://cjrarchive.org/img/posts/report/The_Story_So_Far.pdf

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