Impact: By tailoring content and advertising, publishers can charge higher rates to advertisers and win greater loyalty from users. But privacy concerns may lead to regulations that will limit the information publishers can glean about their users. And most readers spend far less time on digital sites than they did on legacy platforms, so news organizations have less opportunity to attract advertising dollars. In the words of Steve Harbula, an editor at Examiner.com: “Readers have a large appetite but a short attention span.”
IV. Cutting Costs And Seeking Revenue
• Digital upsets media’s typical pattern of high fixed costs and low variable costs. It costs a lot—and often requires companies to take on a great deal of debt—to produce the first copy of a newspaper or magazine. But the second copy, and the thousands or millions that follow, are relatively cheap. In the digital realm, many of those initial costs are eliminated, and in some instances—such as starting a blog—they decline to zero.
Impact: This is a particular challenge for companies that have sunk mounds of cash or taken on debt to make acquisitions that have high fixed costs; those publishers now find such investments to be drags on profitability. Their digital competitors aren’t saddled with the same disadvantages.
• Digital enables news organizations to trim the cost of doing journalism, particularly if they can get citizens to provide content by bringing them into news production or encouraging them to participate on comment boards.
Impact: Since news and content supplied by paid professionals begets free content by readers/users, the average cost to produce a page view is driven lower. But the quality, accuracy, and authority of this content are highly variable and susceptible to manipulation.
• On digital platforms, it is often hard to make sure that advertising supply matches demand. Online editors frequently have a difficult time generating enough page views when advertisers demand them—or filling up that advertising space when reader traffic soars and ad demand is light. So news sites often need to run cheap ads, called “remnants,” that may get a tenth of the revenue their usual ads draw. Michael Barrett, the CEO of Admeld, a company that tries to increase advertising rates on sites with traffic prone to peaks and valleys, says that some of his clients view the situation “like seats on an airplane. They don’t want to fly the plane with any empty seats.”
Impact: Because the cost of creating each additional page is close to zero, media companies can have a wide range of prices, charging the highest rates for the most desirable times, placement, and audience. But all those unpredictable page views exert constant downward pressure on ad prices.
• Advertising is transformed in a digital format, and not always for the better. Some journalists may not realize this, but many of their readers and viewers see advertising as useful and entertaining. Indeed, access to advertising is another incentive for people to buy magazines and newspapers or listen to and watch broadcasts. But the appeal of online advertising is often diminished by its format. A small, rectangular banner ad conveys little useful information—certainly less than an insert in a newspaper or a glossy ad in a fashion magazine. To get useful information from an online ad, a reader often must click and head to a new site, something people rarely do. And the more intrusive forms of online advertising—such as “roadblock” messages that take over the entire screen for a few seconds—upset the user experience. Some digital companies are bringing content value to ads, but they tend not to be news media. Google became a powerhouse by tying advertising directly to users’ search queries. And Groupon, which attracts readers who are looking for online discount coupons, has become successful with witty come-ons and obvious value. Groupon has expanded rapidly into hundreds of markets and has turned down a $6 billion offer from Google.
Impact: Digital provides the ability to target advertisers’ messages and better metrics to determine impact. But users find that many digital ads on news sites convey little information and value.
• Digital platforms provide another way for advertising departments to attract new clients and retain old ones. For salespeople who don’t feel they have enough arrows in their quiver, online and mobile can be a way to get a reluctant advertiser into the fold.