What We Know About the Business of Digital Journalism

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Columbia Journalism School | Tow Center for Digital JournalismInevitably, as Creamer notes, the discussion becomes one of how marketing isshifting to “earned” media rather than paid. One analyst defines the distinctionthis way: “‘Earned media’ is an old PR term that essentially meant getting yourbrand into free media rather than having to pay for it through advertising,” writesSean Corcoran of Forrester Research. “The term has evolved into the … wordof-mouththat is being created through social media.” 20If marketers believe they can reduce their advertising costs by engaging consumersdirectly, that almost certainly cuts revenue for news organizations. Althoughsome firms are trying to capitalize on the trend by assisting advertiserswith their social-media strategies, that is a labor-intensive business that is outsidethe expertise of many media companies.And there are journalistic problems that go beyond the economic loss representedby the decline of old-fashioned advertising relationships. A Florida company,Izea, explicitly sets up arrangements so people who blog or tweet favorablyabout a company can get compensated in cash, travel or in other ways. Thecompany insists that its writers adhere to Federal Trade Commission guidelines,enacted in 2009, requiring disclosure of “ ‘material connections’ (sometimes paymentsor free products) between advertisers and endorsers.” 21But a 2010 study by Izea found that many people engaged in this “social mediasponsorship” weren’t aware of the FTC guidelines or had been offered compensationwithout a requirement to disclose it. The survey respondents also priced a“sponsored tweet” from a personal Twitter account at an average of $124 and a“sponsored blog post” at $179—around the same amount a small news organizationwill pay for a story and far more than an average blog post would ever getfrom display ads. 22 * * *None of these ventures comes close in potential payoff to the online couponcraze, pioneered most successfully by Groupon. The company was launched inChicago in November 2008, offering its customers daily discount deals on ser-New Users, New Revenue: Alternative Ways to Make Money 113
The Story So Far: What We Know About the Business of Digital Journalismvices ranging from nail salons to restaurant meals. For the deals to kick in, aminimum number of users must sign up; the system encourages users to spreadthe word and to take advantage of social media.In a little over two years, the company expanded to more than 500 markets in44 countries and turned down a $6 billion takeover offer from Google. Forbescalled it “the fastest-growing company in Web history.” 23The company’s model is a repudiation of much of what has driven online revenuefor media companies. “Banner ads seem such a relic of the 19th century,”Groupon founder Andrew Mason told Wired.com. “If God created man and theInternet on the same day, we would see more stuff like Groupon.” 24The company has drawn complaints, particularly from retailers like some Chicagorestaurant owners who said many Groupon customers either came only forthe discount and didn’t return, or gamed the system by copying coupons andusing them repeatedly. 25 Groupon has also spawned a host of competitors. 26 Andmedia companies have wavered between joining with Groupon or competingwith it.The Minneapolis Star Tribune launched a coupon service, called STeals.Cox Media has started DealSwarm. McClatchy is trying to have it both ways:It announced a deal with Groupon in July 2010. 27 Less than a year later, Mc-Clatchy said it would launch its own deal service, while continuing to workwith Groupon. As AdAge noted, “McClatchy gets 15% of revenue from Groupondeals ... on its own, McClatchy could collect as much as 50% from dealsit sells and distributes.” 28But it may be too late for news organizations to get substantial revenue fromthis business. Groupon is reported to be considering an initial public offeringthat could raise as much as $15 billion. 29 With so much capital, Groupon couldcompete on price and breadth in ways that would overwhelm ordinary competitors.And Groupon has its own challenges. It is possible that so many competitors’coupons will flood the market that consumers and businesses will begin to tunethem out, which would diminish the value of the idea.114
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