Posted by Tom Foremski - October 22, 2013
Billionaires love buying media businesses and they've been doing it for decades but recent purchases are being viewed as philanthropic rather than vanity projects.
The recent media venture by eBay founder Pierre Omidyar, and Jeff Bezos' Washington Post have spurred the decimated ranks of US news organizations as potentially being able to save journalism. [Tech Wealth and Ideas Are Heading Into News - NYTimes.com]
Foremski's Take: These billionaire ventures can't save journalism — here's why.
The problems in building sustainable news businesses aren't caused by a lack of apps or technology, or by paper versus electron. They are caused by a business model reliant on advertising, which continues to degrade despite the best efforts of leading news sites.
The New York Times is considered at the forefront in terms of its digital news, its paywall, its innovative publishing experiments, etc. Yet its digital ads revenue continues to fall, quarter on quarter. How is this possible with a rising audience?
It's because it is fighting an industry business model issue.
Negative trends for news…
- The Pew Research Center reported a 22 per cent rise in local advertising, however, two trends are taking revenues away from local news organizations:
One is the more sophisticated geo-targeting by major national ad networks, which appeals to national brands like WalMart. In addition, Google, Facebook and other large players are improving their ability to sell ad space to truly local advertisers.
- The move to mobile platforms is another negative factor. Mobile ads earn one-fifth that of desktop ads. Plus, Pew reports that: "Fully 72% of mobile display ad revenue now goes to six companies—none of which are news producing organizations."
- Online advertising rates continue to decline. It's because there's tons of new inventory on the web. News organizations have to chase more traffic just to stay still.
- It's not about paper versus electron — news is getting less popular. Pew reports that audience numbers will worsen because younger generations aren't that interested. Pew Research surveys of audience habits suggest perilous future for news
- Tech billionaires investing in news doesn't mean that they will come up with a magic app, or a technology that will turnaround the dismal economics of the media industry. It's not a technology issue but a business model issue.
Other billionaires have invested in trying to help journalism. The late Warren Hellman, who also made his money from eBay, financed the Bay Area News Project. But how does this help when it competes with local news organizations that don't have billionaire backers?
Billionaires: Here's how to save journalism…
Saving journalism means one thing: developing a sustainable business model that can allow any media organization to thrive and compete. For example, San Francisco used to have more than a dozen daily newspapers, competing based on the quality and urgency of their news reports because there was a business model that rewarded the best. Increased readership meant increased revenues — unlike today.
The billionaires should all get together to fund the development of a sustainable media business model that any local news organization can adhere to and build on.
It can only be done on an industry-wide basis, it's the only way to develop the scale that can compete with large media platforms such as Google and Facebook.
It will require a cartel-like approach to provide the control and the metrics to revive advertising revenues. For example, to show how media content drives far more commerce than search advertising and is thus more valuable to advertisers. Yet it is the last-click that gets the credit or the payment. (See: Skimlinks Says Affiliate Payouts Short-Change Publishers.)
It'll probably require the Department of Justice to provide special protection from anti-trust laws but unless there is an industry-wide effort to shore up revenues from the deflationary crush of the tech media giants, the news industry will continue to struggle and fail.
The scorpion and the frog…
Google has done much damage to the news industry by deflating the dollar value of advertising. This reduces the dollar value of all media content while protecting the value of its proprietary index.
The index — the metadata — trumps individual content and Google has every incentive to keep things that way.
It's what's killing the media industry. But it is also killing the revenues Google can make from the media industry.
For example: Google's $12.7 billion AdSense network, which shares ad revenue with publishers such as New York Times, is plunging this year. [Please see: Analysis: What Future For Google's Troubled AdSense?]
Google is like the scorpion in the Aesop fable, that wants to cross a river. He asks a frog to carry him on his back but he refuses, saying he'll sting him. The scorpion says that's ridiculous because they would both would drown.
The frog agrees but half-way across the river the scorpion stings the frog. As both are drowning the frog croaks, "Why?" The scorpion relies, "I'm a scorpion." It's in its nature to sting — it's not a rational or premeditated act.
It's in Google's nature to devalue media content to preserve the value of its index. It is self-defeating because if there's nothing "new" created on the web — why would anyone return daily?
Yet Google doesn't understand that creating news is not free and quality news is very expensive.
The scorpion and the turtle…
There's a 13th century Persian version of the scorpion fable in which it convinces a turtle to carry it across a river. Mid-way the turtle feels the scorpion trying to sting it through its shell. It dives to the bottom of the river and drowns the scorpion.
The problem with billionaire-backed ventures is that they compete with media businesses that are trying to make a living without a billionaire, they are trying to build a sustainable business.
Billionaire funded ventures are not on a level playing field and thus can do more harm than good. The point is how to build a sustainable news business that doesn't require the pity of a billionaire.
Billionaires kissing frogs won't produce any princes. But the turtle might have something to teach the media industry and its broad back can support many riders.
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Billionaires kissing frogs won't produce any princes. But the turtle might have something to teach the media industry and it's broad back can support many riders.Tweet this story Follow @tomforemski