What We Know About the Business of Digital Journalism

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Columbia Journalism School | Tow Center for Digital Journalismfailed to crack the market with a venture called Sidewalk, which was designedto produce city guides and sell local ads. Hendricks notes that Yahoo’s rates forlocal ads tend to be higher than for national ads—but Yahoo needed people whoknew the communities and businesses. “So we became their local sales force sellingtheir inventory.”Because Yahoo has such broad reach, the relationship opens a big market for localnews organizations. “The typical paper has 15 percent penetration in the localmarket,” Hendricks says, speaking of online operations. “When we partner withYahoo, it takes us up to 80 percent.” And because many Yahoo ads are “behaviorallytargeted”—meaning they are more closely geared to readers’ interests, basedon Web usage habits, geography or demographics—the rates are much higher.But those ads need a lot of viewers to ensure that the subsections of the audienceare big enough to interest advertisers. “It’s almost impossible to sell behaviorallytargeted ads with 15 percent penetration,” Hendricks says. “With Yahoo’s scaleyou can.” McClatchy averages an $18 cost per thousand views for targeted ads,Hendricks says. That’s about twice the average for its usual display ads, though ithas to share the proceeds with Yahoo.There are longstanding examples of moves to sell inventory beyond a company’ssites, including careerbuilder.com, an employment-classified site that Mc-Clatchy jointly operates with Gannett and Tribune companies. 15 But there canbe difficulties. It isn’t easy to persuade traditional ad departments to sell inventorythat is not their own. “The gravitational pull of print is very strong. As soon asyou get away from distribution and content adjacency, the harder it gets,” Hendrickssays. And ad sales on other sites represent only a small revenue streamso far. Hendricks says McClatchy sold about $15 million of Yahoo ads in 2010and expects to increase that to as much as $19 million in 2011. To put that intoperspective, as dismal as 2010 was for McClatchy, the company still sold a billiondollars of advertising that year. 16 * * *New Users, New Revenue: Alternative Ways to Make Money 111
The Story So Far: What We Know About the Business of Digital JournalismOne of the issues in selling others’ ad space is that a publisher must adjust to avariety of pricing schemes. For example, the Houston Chronicle tells advertisersthat it can help them reach, say, local men between the ages of 25 to 64 onFacebook. But Facebook users would need to see an ad 2,500 times before theadvertiser could be assured it would generate a single click, according to theChronicle. That’s a key reason that the price of ads on Facebook is low: $1,500for 1.875 million impressions on Houston’s rate card, or a CPM of just 80 cents,less than a tenth of what most news sites get. Others have calculated Facebook’seffective CPMs as even lower, below 20 cents. 17 By comparison, for targeted adson Yahoo Sports or Finance, the Chronicle expects to charge up to $4,400 per200,000 impressions, for a CPM of $22.Actual ad costs often vary from what appears on a rate card as a result of bargainingbetween buyer and seller. Nevertheless, it’s noteworthy that the Chroniclecharges nearly 28 times as much for ads on Yahoo as on Facebook. The price differenceis a result of several factors, including the more prominent display spaceon Yahoo and the problems that social-media sites like Facebook have gettingusers to see or click on ads. In November 2010, the Wall Street Journal reportedthat 24 percent of all online display ads in the U.S. now appear on Facebook, butthat they are responsible for less than 10 percent of total display-ad revenue. 18Why do Facebook ads get such low rates? And what does that mean for the restof the market? It could be that the standard ways of valuing advertising—that is,by whether it will impel a consumer to buy a product, visit a store or feel betterabout a brand—simply don’t work very well in a world where people usingsocial media aren’t looking to be sold something.In a prescient 2008 AdAge column, Matthew Creamer summed up an issuethat runs throughout this discussion: “The Internet is too often viewed as inventory,as a place where brands pay for the privilege of being adjacent to content.... The presumed power of that adjacency has provided the groundwork for themedia industry for decades.” 19 Companies today have faster and cheaper accessto consumers. “The marketer, once at the mercy of a locked-up media landscape,can now be a player in it,” he adds.112
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