Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

What happens if the old media dies too soon? The urgent need for solid online news media business models

Posted by Tom Foremski - November 14, 2005


Over the past few months I've been asking what happens if the old media dies before the new media learns to walk.

By which I mean, what happens if we lose much of the old media before the new media business models are formed?

It is Silicon Valley's top companies, such as Google, Yahoo and Ebay, that are devastating the old media business models. But the new media business models have not yet "grown up" to support the quality journalism that we need as a society.

The New York Times, for example, pays about $1.25m a year to have a Baghdad bureau, not to mention the rest of its huge editorial infrastructure. In contrast, online publishing relies heavily on revenues from Google text ads--but Google ads won't pay enough to fund a global network of journalists.

Google's blowout quarter

Google's blowout quarter last month means one thing: the old media is losing advertising dollars faster than we thought.

Those sales are not coming from market share gains against rivals such as Yahoo, since Yahoo also reported a very good quarter due to increased advertising.

And this is just the start of a trend that's likely to accelerate as print advertising sales contracts expire and budgets become free to shift to online advertising.

Swinging to extremes

We know what will happen in a situation like this: We will see a flood of online advertising as the pendulum swings to an extreme, before moving back towards the middle.

Which means that the old media will have its knees chopped from under it. Or perhaps the entire revenue-generating torso will be hacked off.

Media is crucial to big problems

What happens if the old media dies before the new media learns to walk is a crucial question because the media, in all its forms, is the forum in which societies think things through. Media is how the world thinks about important problems and finds solutions.

And this includes Fox news, the blogosphere, and the rest of the entire mediasphere. It might seem a messy way to solve big problems, but that's what the media helps us do. And that requires a professional media corps, not a part-time blogger army. The blogosphere provides checks and balances on the "big" media.

And BTW, it is not blogging that is killing the old media, it is the economics of online advertising versus print. You can pin a rock solid ROI on an online advertising campaign that you could not do with print advertising.

You can track users: who clicked where, and when they did it. You can track the conversion rate in real-time. You cannot do that in print advertising, TV or radio.

Google is a competitor

It is companies such as Google, Yahoo, Craigslist, Ebay, and many other online advertising companies that are killing the old media, not deliberately, but in pursuit of their own business models.

Google is a technology-enabled media company, yet many media web sites carry Google ads on their front page. And Google has a business model that newspapers, and most other content producers, cannot compete against.

Google's costs of operations are so far below that of a newspaper that there is no hope of competing with Google for those ads. So why give up prime online real estate to a competitor? It doesn't make sense and all it says is "I don't know what to do with this space."

It's true that Google does provide welcome revenues to online news sites and other third party content sites. But even those modest amounts might not last. Consider this:

-Revenues from Google.com sites grew 20 per cent in the most recent quarter while revenues from Google's advertising partners grew just 7 per cent.

-Google has introduced "smart pricing" a technology that serves up adverts to partner sites based on how well the third-party content can generate conversions. Poorly converting sites, including the New York Times, might find that they can attract large readership but their Google ads conversion rate is poor compared with Google's search site, and therefore Google will "smart price" the advertisement and charge less for the ad on poorly performing third party web sites, which leads to less revenues to the publisher.

And please remember: ads perform much much better on Google's search and service pages than they do on third-party web sites.

[With smart pricing, conceivably Google could tweak the ad servers to channel more ads through its search sites to make their quarterly numbers...? GOOG does not release quarterly sales forecasts, but, the analyst community does, and GOOG has to pay attention to meet those numbers to avoid volatility.]

-Google has an incentive to channel more high paying ads through its own sites rather than those of its partners and that trend will continue.

It's because it can make more money that way. It is sharing 80 per cent and even 100 per cent of the ad revenues with some selected partners. [It is a large share but why not? It gives Google distribution and reach and it can always grab back the advertising monies when it is ready.]

Big solutions needed

So, if we lose much of the old before much of the new media can take on the roles we need, what then? How will we, as a society, think things through?

We have some pretty big problems ahead to solve. We have the avian flu pandemic looming; we have a growing energy crisis; we have ever larger and more complex problems to solve.

Can the Blogosphere take the place of the old media? Only to a small extent, and that is because quality journalism is difficult to do, it has to be done daily, hourly, minute by minute as big news stories break. And 99.999 per cent of the blogosphere has a day job that is not in media.

Partners needed for historic mission

I am one of the very few journalist bloggers that does not have a day job. In May 2004 I became the first journalist to leave a major newspaper, the Financial Times, to specifically become a full-time journalist blogger, and with a mission to find out and develop the business models for online news and related content.

Over the next few weeks Silicon Valley Watcher will announce partnerships with tech companies, with PR companies, and maybe even with an advertising agency, to help figure out the online business models that can support a robust and healthy online media run by media professionals who make their living completely from online journalism.

Throw away the banner ads

What does it mean to help develop an online business model? It will mean developing a new form of online journalism, in a format that works.

We know what doesn't work: banner ads, skyscraper ads, flashing marketing messages. Those are cultural artifacts, attempts to imprint the old world onto the new. In this online medium, online journalism does not have to look the same but it does need to have the same principles of truth, fairness, and independence.

I have a challenge for our partners: Imagine the space taken up by that banner advert, or a skyscraper ad in a sidebar, and figure out what else could go into that space?

What kind of value, rather than marketing messages, can you create in that space for the community of readers of SVW? What kinds of editorial products might be needed? What is the format of that mix, what does it look like?

Maybe a large tech company could buy that space for a list of headlines related to a story topic, a type of contextual additional content that would help expand a news story to include many more additional points of view.

That creates value to a reader, from a clearly identifiable sponsor/source.

Or, a PR company could provide a list of headlines linking to stories about its clients, related to the content on the page. Client companies of the PR firm could demonstrate their thought leadership on key topics in the news, while the news is happening, rather than the next day or week...

The PR companies could spread the cost of maintaining that banner-sized "window" across their portfolio of clients. It might also help them maybe grab a chunk of the advertising budgets...

Conversely, advertising agencies could do the same, grab for the PR budgets...

A rare chance to shape the look/format of the new media

These are just some of the things that could be done, and the kind of things that focus on value to the community rather than spin.

It's a chance to help define the way online media looks for the next decade or more. What the format will be, what kinds of editorial/business model combinations work best.

And if we figure things out together, then everyone in the online media world wins, because everyone will be able to follow the same format.

It's a chance to grab a place in the history books, to help define the shape, the look-and-feel of a new media. So let me know if you can join us in this noble venture :-)

tom at SiliconValleyWatcher.com.

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Please see:

The most troubling question in media today...


Reverse the Google pay per click model

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