Deal with It: the News Business is a Web failure (2002)

Originally published on January 01, 2002, by the American Press Institute.

Almost a decade ago the newspaper industry began to realize that publishing online via partnerships with proprietary services such as Prodigy, CompuServe, Interchange and America Online, wasn’t the electronic future of newspapers. It’s now discovering that publishing on the World Wide Web also isn’t that future.

Back then, the newspaper industry was too slow to embark on the Web; failed to understand its characteristics; instead adopted a herd mentality led by illusions; and then lost the battle for the Web.

Nowadays, no newspaper Web site regularly ranks among the top ten from which Americans get information online (NYTimes.com’s one-month fingerhold there briefly generated trade press). More Americans get their news from Yahoo, AOL, and MSN than all U.S. newspaper Web sites combined. Consumer use of newspaper Web sites is woefully infrequent. For instance, even during the remarkably newsworthy month of September 2001, the average user of NYTimes.com visited that site only 3.1 times, and most other newspapers sites generated even less frequent use. Most of the precious few of the nation’s newspaper Web sites that claim to be profiting aren’t doing so from news. Barring a miracle, the newspaper industry’s inconsequential situation on the Web is unlikely to change.

The industry proposes excuses, such as the current advertising recession. Or that the banner advertising business is still too nascent. Or there still are not enough consumers online. Or that the successful Web publishing business model will any day now be discovered. But none of those excuses can withstand examination.

The current ad recession isn’t the problem. Advertiser spending online has held about steady throughout this recession, the only form of advertising not declining. Moreover, newspaper Web sites weren’t profitable 18 months ago when advertising and the U.S. economy were at record heights.

Nor is the banner advertising business nascent. It’s seven years old. In a new medium that counts each calendar year’s progress as four Web years, the banner advertising business is neither a toddler nor adolescent but a legal adult approaching middle age. One on welfare.

Average ad clickthrough rates have plummeted a magnitude from 5% in 1996 to less than 0.3% now. Some publishers have responded by offering even larger ad sizes, the equivalent of shouting at consumers who want to ignore the ads.

Others are abandoning banners for pop-ups, pop-unders or interstitial ads that consumers are forced to close before viewing the content. Consumers welcome these as much as they welcome their cars’ windshields being plastered with advertising flyers.

Other publishers claim that banner advertising was never really about generating clickthroughs. They instead claim banner advertising is about branding — conveniently disregarding how consumers visit sites too infrequently for effective advertiser branding campaigns.

That old nag that not enough consumers are yet online to make news Web sites profitable is still trotted out. We’ve been hearing that excuse since 1994. Yet, how many consumers are needed to make a media market? The same percentage of consumers nowadays have online access as had television in the 1960s. Nielsen//Netratings reports that 175 million U.S. citizens now have Internet access, 60% of the population.

The newspaper industry’s search for a Web publishing business model that turns into gold would make a medieval alchemist drool. Despite eight years of experimentation, a Web business model based upon publishing general interest news remains leaden. Led by frustration at the dearth of online advertising profits, some publishers are instead attempting to charge the consumer for site access, overlooking evidence that this won’t work. As Steve Yelvington of Morris Digital Works last year remarked, “What makes you think consumers will pay for something they don’t regularly use when it’s free?”

Moreover, like Circe’s charms turning Ulysses’ men into animals, the enchantment of IPOs during the irrational exuberance of the Internet equity boom bewitched far too many large newspaper corporations. From 1996 into 2000, they flitted among whichever transient business plan then gleamed in venture capitalists’ eyes: city guides, portal sites, community sites, auction sites, etc. Smaller newspaper companies, perhaps believing size is wisdom, followed their larger brethrens, with a herd mentality. Chasing digital El Dorados, the American newspaper industry spent more than $1 billion constructing Web sites with irresolute plans during those years.

Missing from the industry was an objective assessment of the very characteristics of the Web for periodical publishing purposes. The superficial similarities between publishing newsprint and Web ‘pages’, and also between selling ‘space’ on newsprint and Web pages, seduced the industry into overlooking the fundamentally different characteristics of these two media.

The initial difference between Web and newsprint publishing is in circulation. A Web site delivers nothing. Its contents await retrieval by consumers. A newspaper Web site operates according to a newsstand circulation model, except there’s only one newsstand – the newspaper’s Web site – and articles can be retrieved only one page at a time. As Jay Small, now of Belo Interactive, told last year’s NewMediaWorld session of the America East newspaper conference, “Putting up a news Web site is like rolling the presses in the middle of the night and leaving articles on the (loading) dock for readers to pick up one at a time.”

Newsprint circulation executives know that the average consumer seldom remembers or takes time to retrieve content. Less than 16% of the average U.S. newspaper’s circulation is generated from retrievals from newsstands or vending boxes, which is why circulation departments must deliver newsprint editions directly to consumers’ homes and offices. Those executives wouldn’t be surprised to learn that Nielsen//Netratings reports no American newspaper Web site received more than five or more monthly visits from its average user – even during that newsworthy month of September 2001. (Less than five visits during a 30-day month is a content retrieval on less than 16% of days.) It’s a pity that circulation executives and their wisdom about consumers were never invited to the New Media party.

The second and insidious difference between newsprint and Web is their advertising capabilities. Web sites, even those tricked out with Flash and Shockwave, are incapable of rendering newsprint-quality display advertising and must resort to banner ads. Moreover, though an advertiser pays a newsprint publisher a rate based upon the circulation run off the press, regardless of how many readers actually see the page containing the ad, an advertiser pays a Web publisher only for the number of banner ads actually seen by consumers. (Although many Web publishers are now switching from those ‘exposures’ based rates to the slightly smarter monthly sponsorship ad model.) Considering that a newspaper site’s average user visits less than five times and sees fewer than 30 Web pages per month, it shouldn’t be surprising why such sites aren’t generating newsprint-like ad revenues.

But the advertising differences get worse. When a newsprint edition’s circulation increases, its publisher can generally charge advertisers a higher rate for ad ‘space’. But increased circulation (traffic) actually lowers the effective rate for Web ad ‘space’ rate. The reason is simply supply & demand economics:

A newsprint edition publisher sells a finite commodity, the amount of ad space in a daily edition. That daily amount of space is based not upon the number of consumers who want to see that edition but upon advertisers’ demand for pages in that edition. If a newsprint edition’s circulation doubles, its publisher doesn’t necessarily have to print double the number of pages in that edition. He’d need to print double the number of pages only if advertising demand, not circulation, doubled. He controls the amount of ad pages space available in each edition. And, because he keeps that amount scarce, when circulation does increase, he can increase how much he charges for that finite amount of ad pages available per edition.

But a Web edition publisher sells an infinite commodity, the amount of ad space in a Web edition. If each of his Web pages features a banner ad and the site’s traffic suddenly doubles from 5 million to 10 million pageviews per month, the publishers has to sell double the number of banner ads. The amount of ad space available in a Web edition is directly proportionate to the edition’s circulation (traffic), not to advertisers’ demand for that edition. A Web publisher has no direct control over how many ad-sponsored Web pages he must expose per cycle, and those pages aren’t scarce but can be infinite. If he can’t find buyers for the extra banner ad space inventory that increased traffic brings, then he must instead run house ads or rerun paying ads for free to fill that unsold inventory of space — all of which effectively decreases how much he effectively charges for that space. Increased online circulation thus dampens banner ad CPM rates, as too many newspapers have discovered.

And, despite its publicity, the Web is an inconvenient media for reading content. Personal computer monitors display the wrong orientation and resolution for reading. PCs are largely immobile, lacking the marvelous portability of newsprint, which is essential because people are mobile creatures. (Cell phones equipped for the Internet’s Wireless Access Protocol purport to offer that mobility, but on thumbnail screens with the online speeds of 15 years ago.) The Web delivers only a page at a time, a far cry from the intact edition delivered by newsprint. And Web pages lack the ripened graphical sophistication of a newspaper page. Each of these problems directly effects consumers’ infrequent and shallow use of Web newspaper sites.

Newspapers need to migrate their existing Web efforts into newer online media that will wirelessly and automatically deliver into portable devices interactive, intact and individualized editions with sophisticated graphic layouts featuring finite amounts of display-quality advertising space. A newer media that does so without sending huge Adobe Acrobat files. Sound like a tall order? Or too far into the future?

No, these newer New Media are being developed now, and their handheld reception devices will begin appearing in consumers’ hands later this year. Just as the 1990-1991 recession didn’t prevent the genesis of Web technologies, neither is this recession slowing birth of this next wave. But just as the newspaper industry failed to grasp the umbilicus of that then, the industry is failing to grasp this now. And another new medium could slip from the industry’s hands.

In the February edition of NewsFuture, I’ll write about this next wave of New Media, the non-newspaper companies developing this new electronic media, how this media will appear within the next 36 months, how the business models will work and be better for newspapers.

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