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Economics

Online
By the Project For Excellence In Journalism and the Pew Internet & American Life Project
Economics

The prospect of an economic model for journalism online made only limited progress in 2009, even as the industry’s eagerness to find new Internet-based revenue sources intensified.

Signs that advertising, at least in any familiar form, would ever grow to levels sufficient to finance journalism online seemed further in doubt.

News organizations talked about the need for pay walls to charge for content, but there was little evidence that anyone had found a successful model.

And, public sentiment, according to survey data from the Pew Internet Project and PEJ released for the first time in a separate section of this report, seems strongly resistant to any such model.

Certainly the ad revenue numbers for 2009 were not encouraging.

Overall, U.S. online advertising during the year had its first decline since 2002, according to the online research firm eMarketer, which began tracking in 1996. The firm, whose updated August projections were the most recent, called for revenues to fall 4.6% in 2009 to $22.4 billion, down from $23.4 billion in 2008. And the numbers for the categories that finance news were worse than that.1

Actual revenues for the first six months of the year suggest these projections are on track. From January through July overall online ad revenues declined 5.3% to $10.9 billion down from $11.5 billion in the same period of 2008, according to Price Waterhouse Cooper.2

eMarketer sees a turnaround for online advertising in 2010, with revenues beginning to inch back up again to 23.6, a level slightly higher than 2008.3

Other market research projections, though produced earlier, were more optimistic.4

Economic Results of 2009

All of this comes amid a difficult economic performance in 2009 for the one model that the industry is trying to rely on, advertising.

Within online advertising, there are several different ways to categorize spending. There are different types of ads, such as search versus display. There is where the ads are going, such as mobile versus computer based. And there are local ads versus nationally focused ad buys. Some areas clearly fared better than others during the year.

Online Ad Formats

In what is a further challenge for news, search advertising, which goes largely to aggregators and search engines, added to its dominance online. Meanwhile classified, rich media, and display ads — all areas that news sites rely on more — declined further. And video advertising began to stake a claim.

Online Ad Spending by Format, 2009
In Millions of Dollars
  • Search revenue was projected to grow to 3% in 2009 to $10.8 billion, up from $10.5 billion in 2008. By year end, nearly half (48%) of the total online ad market was expected to be in search, almost all of it going to aggregators.
  • Display ads, the category from which news sites get most of their revenue, represent the next biggest piece of the online ad pie, 21%. But display was projected to fall by 2% during the year to $4.8 million, down from $4.9 billion in 2008.
  • The greatest loss was in classified ads. Classified declined by almost a third (31%) to $2.2 billion in 2009, down from $3.2 billion in 2008. After making up 17% of total online ad spending in 2003 they now account for just 9%, a sign, among other things, of the influence of free classified sites such as Craig’s list.
  • Rich media, those ads that involve moving “flash” images or video], also fell to $1.5 billion down from $1.6 billion in 2008.
  • The only category other than search that grew in 2009 was video advertising, an area where news would like to expand. It reached $1.02 billion in 2009, up 40.2% from $734 million in 2008.  Although this is a large increase, video advertising is still a small part of the advertising pie, just 6% in all.5

Display Ad Revenue by Website Category

While search ads account for the biggest portion of all ad revenue, display ads are by far the biggest revenue source for news sites.

But display ads are not serving the industry that well. Not only did display advertising decline in 2009, but according to at least one research group, news sites represent just a small portion of even the current spending.

TNS Media Intelligence developed 25 categories of websites and estimates the display ad revenue going to each (not including search or video).6

  • The highest portion of display ad revenue (28%) goes to search engines and Internet service providers. Newspaper websites get 5%, and other news & current events sites less than 3%. Add television websites, which includes both news and entertainment material, and the number rises to 14% of the pie.
  • Of the various types of news websites, television station websites earned $632 million through the first 10 months of 2009. Newspaper sites earned $445 million and other current event sites like Global Post or Yahoo News earned $239 million.
  • News sites did trump social networking sites, which brought in $189 million from display ads in 2009.7

Top 25 Website Categories by Display Ad Revenue

Rank Site Cateogry Jan-Oct 2009 (000) % Change vs. Jan-Oct 2008 % Share Jan-Oct 2009
1 MULTI-SERVICE SITES (i.e. Google, Yahoo, AOL, Comcast and others) $2,606,403 48.7% 28.35%
2 BUSINESS, FINANCE, INVESTING $1,327,149 -21.9% 14.43%
3 TV STATIONS $631,726 89.4% 6.87%
4 NEWSPAPERS $444,995 18.3% 4.84%
5 SPORTS 417,843 12.6% 4.54%
6 GENERAL INTEREST/GENERAL ENTERTAINMENT $354,988 -46% 3.86%
7 INTERNET SERVICE PROVIDERS $267,054 41.9% 2.90%
8 NEWS & CURRENT EVENTS $238,966 -8.5% 2.60%
9 TRAVEL $218,381 54.2% 2.37%
10 AUCTIONS $214,221 -23.3% 2.33%
11 CAREERS & EMPLOYMENT $193,853 -46.8% 2.11%
12 SOCIAL NETWORKING $188,821 -36.1% 2.05%
13 HEALTH & FITNESS $179,982 65.9% 1.96%
14 MOVIES, VIDEOS, TV & CABLE $158,928 76.6% 1.73%
15 GAMES $138,726 37.4% 1.51%
16 AUTOMOTIVE $125,822 2.1% 1.37%
17 KIDS PLACES $119,046 235.6% 1.29%
18 PORTALS & SEARCH ENGINES (like digg.com and Askjeves.com) $104,495 4.8% 1.14%
19 COMPUTER & TECHNOLOGY, CONSUMER $84,856 15.3% 0.92%
20 REAL ESTATE $80,944 -24.8% 0.88%
21 PARENTING $77,373 106.4% 0.84%
22 NAMES, NUMBERS & MAPPING $73,718 14.2% 0.80%
23 SPECIAL INTERESTS/HOBBIES $72,306 73% 0.79%
24 EDUCATION & REFERENCE $71,882 49.7% 0.78%
25 COMMON CULTURES/COMMUNITIES $68,276 154.7% 0.74%

*source TNS Media Intelligence

Mobile Advertising

Mobile advertising is calculated separately from computer-based advertising.
It has enjoyed rapid growth in the last five years, with many in the industry counting on mobile ads to become at least part of the answer to the current financial quandary. To that end, Google recently purchased, for $750 million in stock, AdMob, a company that built a mobile ad platform to make buying mobile ads easier.  8

But, while analysts predict growth through 2013, mobile ads revenue is still tiny compared with other revenue streams.

  • eMarketer reported that for the first three quarters of 2009, mobile ad revenues will be $416 million, up from $320 million in 2008. In 2010 eMarketer predicts mobile ad spending will reach $593 million.

Like computer-based online ads, mobile ads can be broken down into different forms: primarily text, search and display ads. Here, the two major forecasting firms vary in some of their exact figures, but they agree on the general proportions and direction of mobile ad spending.

  • The majority of mobile advertising is through text messages (SMS and MMS), put at 63% to73% depending on the estimate used.9
  • eMarketer forecast in September 2009 a 19.2% growth rate in text messaging mobile ad revenue for the year, although it do not publicly release exact dollar figures.   Earlier in 2009 Veronis estimated the growth rate would be slightly lower, 11.3% with a dollar figure of $1.2 billion, half of the growth rate it reported for 2008 (23.6%).

The third largest portion of mobile advertising is search and display, and this segment has one of the fastest growth rates.

  • eMarketer projects both display and search mobile ad revenue to almost double in 2009, with search still outpacing display in total dollars. Its projections put display revenue growth at 47.7%, to $20.8 million according to their data. It expects search to grow 44.4% to $38.4 million.
  • Veronis Suhler Stevenson sees similar growth in mobile search and display ad revenue which combined are predicted to grow 48.4% in 2009 (although the total dollar amount is higher for this and many other measures).

The increased use of cellphones for news suggests this will be an important platform for the future.  According to a joint survey by PEJ and the Pew Internet & American Life Project completed on January 19, 2010, 80% of adults own cell phones and 33% of them – or 26% of all adults – said that they used their phone to access news and information about current events.

Much of this, though, is through Web applications/pages, rather than text and email alerts.. Just 12% of cellphone owners said they ever receive text or email alerts about news through their phones. And the advertising dollar in the mobile arena is even smaller than the desktop dollar. There is a long way to go before mobile advertising could give much of a boost to overall revenues.

Local Advertising

Some online ad buys are targeted at national audiences and some at local.

In recent years, two phenomena have occurred in this breakdown. National websites such as Yahoo and AOL began reaching into local markets, bringing potential new business to regional and local media websites. At the other end, local businesses began making more nation-wide buys on aggregators like Google. The result has been a pull and tug with national ad dollars still in the lead, but with the gap closing, according to Borrell Associates.

Local ad buys were one area in 2009 expected to see an increase, to $14.2 billion, up from $12.7 billion in 2008. Display is expected to grow more than search, and it makes up a slightly larger portion of the pie.

  • Local display or banner ads are projected to increase 1.8% to $5.9 billion. Search ads are projected to grow 2.6% to $5.4 billion, according to Borrell Associates.10
  • The Gannet newspaper company is the news organization that makes the most revenue from local ad dollars, with just under $300 million in local online ad revenue.11
  • Newspaper overall get $31 billion from local ad buys.

National ad buys, on the other hand, according to Borrell Associates, were projected to decline 6.3%. They still bring in much more total spending than local, with $23.6 billion expected in 2009.12

Future Economic Models

As evidence mounted that advertising alone will not be enough to support the news industry online, we heard in 2009 louder rumblings of alternative revenue streams to sustain news operations.

There was much talk this year of introducing some form of user payment, of demanding compensation from aggregators and of finding new ways to appeal to advertisers.
Much of this remained theoretical. But some experiments did begin – and bear watching. Among the kinds of new revenue streams discussed:

Payments from users

News organizations have mostly discussed two ways of securing direct payment from consumers: full subscriptions and pay-per article fees, often referred to as micro-payments or aggregated microaccounting

Full subscriptions Even though most early attempts at full subscriptions have failed to lure users away from the vast array of free content available on the Internet (link to past write-ups), many news organizations in 2009 returned to the idea. One of the most vocal proponents was Rupert Murdoch, whose News Corp. has had some of the greatest success in pay-wall subscriptions. New Corp.’s Wall Street Journal charges $79 for yearly access to its websites and was the only newspaper to turn a profit in 2009.   In August 2009, Murdoch announced that News Corp. would be extending this model to all of its websites but it has yet to take any action on the matter.

Most other success along these lines has come from specialty newsletters or online databases like LawTrack from Congressional Quarterly and ClimateWire, published by Environmental and Energy Publishing.  Consumer Reports is often mentioned as a success poster child. All of these provide deep reporting into a specific topic area that appeals to a narrow, industry-focused clientele that can often include the subscription price in work budgets. The subscription prices range widely, depending on the market, but those with a large industry following can be in the thousands of dollars a year.

Mircropayments Here, in theory, users pay for content piece by piece, so the price varies according to how much one consumes from a site. Experiments here have come from individual news organizations as well as aggregate sites that pool together content from many different news organizations.

The New York Times announced on January 20, 2010 that it would be adopting this method sometime in 2011.  The paper’s publisher, Arthur O. Sulzberger Jr., said, “Our audiences are very loyal and we believe that our readers will pay for our award-winning digital content and services,” but he offered few details, other than that consumers could access a certain number of articles for free before hitting the pay wall.13

Microaccounting: Aggregator-style experiments come from Kachingle, Journalism Online and CircLabs. Each relies generally on building a network of collaborating services.

Kachingle’s model is not a pay-wall system, Kachingle refers to its system as “crowdfunding.” User’s can choose to make a monthly contribution of $5 or not pay anything at all.  Then Kachingle will take the money from the fee and divvy it up among the sites that the user chosen to access. To receive a pro-rate share of the $5, a site must join the Kachingle network and display its icon.  Kachingle went live in late 2009.

Journalism Online (JO) allows users to sign up for annual, monthly, day passes, or per-article payment from participating content providers. JO announced in February, 2009, that it would begin testing with two newspaper sites owned by MediaNews Group Inc.

CircLabs,  at the Reynolds Journalism Institute at the University of Missouri, partners with news sites to invite users to sign up for a personalized news feed delivered via a downloadable browser application it calls the Circulate Bar. CircLabs will then partner with transaction third parties to build a network of content providers serving premium links into the bar.  CircLabs starts a private beta in late March.

In all three cases the consumer would not “pay per click” but would be charged periodically, or in the case of Kachingle be asked to contribute voluntarily, and the payments divided among a variety of providers through a microaccounting process.

Some of the immediate criticism of this approach is that it puts the greatest fee on the news organization’s most loyal audience, pressuring people to consume less because  the more a user consumes, the more she pays. (This does not apply go Kachingle which asks a flat voluntary contribution.)  In addition, some involved in these networks finds a big challenge to be identifying unique content that consumers will value sufficiently to pay for on any basis.

One hybrid option is a plan often referred to as “Freemium” plans that offer some content for free and “premium” material for a fee.

In late 2009, the consulting firm Accenture surveyed executives from 102 media firms, including those outside the news business, and asked about the business models that they thought would be embraced throughout media firms in the next three years. Many said that they expected that hybrid models combining several revenue streams and combinations of free and pay services would emerge in the coming years.14 Specifically:

  • 39% of the executives said the predominant model would be advertising-funded
  • 21% said it would be a hybrid model of multiple revenue streams
  • 18% said it would be “freemium” systems that would offer some free content to users and hope to encourage people to pay for “premium” content that went deeper and more analytically into subjects, perhaps with customized material for particular users.
  • 14% said it would be subscription-based offerings
  • 8% said the predominant model would be “pay for play” or “on demand” services that were bought a la carte.

Headed into 2010 there was no clear consensus on what the economic model would look like in the future.  What is fairly clear is that no one model will replace advertising as the major revenue source for news.

Advertising Innovations

Beyond payments from users, some experiments in new online advertising are already underway.

Targeted advertising: One of the biggest drawbacks with display ads in the eyes of advertisers is that they are not as targeted at consumers as search ads are. In search, if you type “vacation” into Google, along with the search results will be ads associated with vacation, like travel agencies, cruises and the like, also associated with your geographic region or the places where you have expressed an interest in visiting.  Users then may actually find the ad helpful and advertisers like that at least some of the people seeing there ads are already primed for whatever they are selling.

In an attempt to bring more targeting to display ads, California businessman and former newspaper executive Alan Mutter is planning something he calls ViewPass LINK.

Although this service has not been launched, the approach is worth noting: Rather than have users pay directly for content (subscriptions, micropayments, etc.), they would submit various demographic data to the system before viewing the content.  The expectation then is that ads can be sold at a much higher rate because they can be targeted to users more specifically.

This is essentially the model used by Facebook, which is thought to have turned a profit in 2009 and was valued as a company at $6.5 billion.15 Facebook can go to advertisers with an enormous amount of data about its users —  their age, gender, where they live, their relationship status, who their friends are, what groups they have joined, the kinds of purchases they post about or discuss with their friends, and lots of other behavioral facts — that can be mined to sell ads at a much higher rate.

There is tremendous ferment among privacy and consumer watchdogs about how aggressively companies, including news organizations, should be able to exploit the troves of data they gather about users. Facebook, among others, has experienced backlashes from users at times when they felt the firm was insinuating commercial interests too deeply into their personal online activities.

Other Online Revenue Experiments

Combination models: Some organizations are developing experiments around combinations of the different revenue ideas. One such site is Information Valet, started by Bill Densmore during a fellowship at the Missouri School of Journalism’s Donald W. Reynolds Journalism Institute.  Its a combination of microaccounting and interest-based  advertising.  The Information Valet ideas are being tested in a commercial venture, CircLabs Inc., which is part owned by the university.

The “Circulate Bar” would allow a user to optionally provide a demographic profile as data on their information interests. Circulate will then match to free and premium content and deliver reading and viewing recommendations via an always-on web toolbar.   Newspapers, radio and other affiliates would offer the service to their users, and presumably make money by added traffic to their services, higher prices for advertising targeted to unique users and, in some cases, network sale of premium content. CircLabs says it will begin private beta trials in the end of March.16

Closing off aggregators: Another area of heated public discussion in 2009 involved news organizations closing off their content to aggregators like Google, or at least trying to get aggregators to pay them some kind of fee for carrying references to their articles.

Again, one of the most vocal proponents was News Corp.’s Rupert Murdoch.  In April 2009 he posed the question, “Should we be allowing Google to steal our copyrights?” And in the fall he began talks with Microsoft to have News Corp. content exclusively on Bing, Microsoft’s search engine. As with the calls for subscription models, though, there has been little evidence of actual implementation.  The threat that Murdoch made of pulling all of News Corp.’s content from Google has not been carried out.  A compromise position, for Wall Street Journal content, has been that users can get to one Journal article for free through Google referral, and after that the pay-wall on WSJ.com would force users to pay for any additional content.

Another organization that took steps toward stopping aggregators and others from carrying their content was the Associated Press. In the summer of 2009 it launched a new system that would attempt to track its content across the Internet as it is reposted, copied, etc.  Other third-party companies such as Attributor provide services that content producers can sign up for that will attempt to do the same thing, track their content across the Internet so producers can take down content if it appears in an unauthorized place. As of early 2010, though, there were no data to indicate any early level of impact or success.

In 2009, Google responded saying that news outlets can always opt out of the Google search engine. “Publishers put their content on the Web because they want it to be found,” said an unnamed Google spokesperson. “Few choose not to include their material in Google News and Web search. But if they tell us not to include it, we don’t . . . all they need to do is tell us.”

In the fall Google, offered an olive branch of sorts. It announced that it was developing a platform to allow newspapers to charge for online content, , an enhancement of the GooglePay service, in which all users must register with and pay Google.  It hasn’t provided details.

Fees through the Internet service provider

Another discussed revenue stream has been the kind of subscriber access-fee that exists for cable. Cable news networks receive about half of their revenues from fees per subscriber charged to the cable service providers. These providers then pass that fee along to the consumer on their monthly cable bills. A similar model could potentially be implemented on the Internet, where fees are built into the internet access charge that users already pay. The idea remains hypothetical at this point, though, and there would be large hurdles to implementing it.  One hurdle is that content providers would have to band together to lobby the broadband internet providers (Comcast, Verizon, etc.) to get a cut of the revenue the ISP’s get from broadband fees. Another is a myriad of legal issues that would need to be addressed involving the control of information.  In 2008, Clickshare Service Corp. received a patent17 on a system for managing information transactions on the web and the company, which has been serving newspaper and other clients for more than a decade, believes it can implement a service in which consumers have an account at one service (such as a news, cable or Internet service provider site, and can be periodically billed for access to information from a plethora of other affiliated content sites.


Footnotes

1. eMarketer, “U.S. Online Ad Spending Turns a Corner,” December 11, 2009.

2. Internet Advertising Bureau and PricewaterhouseCoopers“Internet Ad Revenues at $10.9 Billion for First Half of ’09,” October 5, 2009.

3. eMarketer, “U.S. Online Ad Spending Turns a Corner,” December 11, 2009.

4. The market research firm Veronis Suhler Stevenson had projected revenues in 2009 growing to $36.5 billion up from $33.8 billion on 2008.  The firm also projected this growth to continue, and accelerate, into 2010.

5. eMarketer, “U.S. Online Ad Spending Turns a Corner,” December 11, 2009.

6. Please note that the categories created by TNS are not the same categories used in the analysis of Nielsen data.

7. TNS Media Intelligence

8. Robert D. Hof. “Why is Google Buying AdMob?”  BusinessWeek, November 9, 2009.

9. eMarketer reports that 60% of the mobile ad market is in text-messaging. Veronis Suhler Stevenson reports 70%.

10. Borrel Associates, “2010: Outlook: Local Interactive Adversting,” October, 2009.

11. Borrel Associates, “2010: Outlook: Local Interactive Adversting,” October, 2009.

12. Borrel Associates, “2010: Outlook: Local Interactive Adversting,” October, 2009.

13. Borrel Associates, “2010: Outlook: Local Interactive Adversting,” October, 2009.

14. Business Wire, “The New York Times Announces Plans for Metered Model for NYTimes.com in 2011,” January 20, 2010.

15. Accenture, “This time, it’s personal: Engaging and interacting with consumers is the content industry’s new battleground.”

16. Derek Thompson, “Facebook Turns a Profit, Users Hits 300 Million,” The Atlanntic.com, September 17, 2009.

17. Bill Densmore founded Clickshare Service Corp. and remains a major stockholder, his name is on the patent cited.

He is one of four individual founders of CircLabs Inc.; the others are Martin Langeveld, Jeff Vander Clute and Joe Bergeron. The University of Missouri has a 35% stake and The Associated Press has an option to acquire a 20% stake and has invested $50,000.

18. Clickshare patent granted/public: Jan. 29, 2008