What We Know About the Business of Digital Journalism

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The Story So Far: What We Know About the Business of Digital Journalism• Digital platforms fundamentally change the customer experience, inways that are both advantageous and harmful for news organizations’economics. Publishers can now capture highly valuable bits of user information,ranging from areas of interest to credit-card numbers. But new mediararely provide the immersive experience found in traditional platforms.Many users keep numerous sites open on tabs in their Internet browsers anddon’t focus on any one for very long; they often come to a news site througha search and quickly leave for another. Links to other sites provide value toreaders but also send them elsewhere, sometimes never to return.Impact: By tailoring content and advertising, publishers can charge higherrates to advertisers and win greater loyalty from users. But privacy concernsmay lead to regulations that will limit the information publishers can gleanabout their users. And most readers spend far less time on digital sites thanthey did on legacy platforms, so news organizations have less opportunity toattract 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 variablecosts. It costs a lot—and often requires companies to take on a greatdeal of debt—to produce the first copy of a newspaper or magazine. But thesecond copy, and the thousands or millions that follow, are relatively cheap.In the digital realm, many of those initial costs are eliminated, and in someinstances—such as starting a blog—they decline to zero.Impact: This is a particular challenge for companies that have sunk moundsof cash or taken on debt to make acquisitions that have high fixed costs;those publishers now find such investments to be drags on profitability. Theirdigital 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 intonews production or encouraging them to participate on comment boards.16
Columbia Journalism School | Tow Center for Digital JournalismImpact: Since news and content supplied by paid professionals begets freecontent by readers/users, the average cost to produce a page view is drivenlower. But the quality, accuracy and authority of this content are highly variableand susceptible to manipulation.• On digital platforms, it is often hard to make sure that advertising supplymatches demand. Online editors frequently have a difficult time generatingenough page views when advertisers demand them—or filling up thatadvertising space when reader traffic soars and ad demand is light. So newssites often need to run cheap ads, called “remnants,” that may get a tenth ofthe revenue their usual ads draw. Michael Barrett, the CEO of Admeld, acompany that tries to increase advertising rates on sites with traffic prone topeaks and valleys, says that some of his clients view the situation “like seatson 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 ratesfor the most desirable times, placement and audience. But all those unpredictablepage views exert constant downward pressure on ad prices.• Advertising is transformed in a digital format, and not always for thebetter. Some journalists may not realize this, but many of their readers andviewers see advertising as useful and entertaining. Indeed, access to advertisingis another incentive for people to buy magazines and newspapers orlisten to and watch broadcasts. But the appeal of online advertising is oftendiminished by its format. A small, rectangular banner ad conveys little usefulinformation—certainly less than an insert in a newspaper or a glossy adin a fashion magazine. To get useful information from an online ad, a readeroften must click and head to a new site, something people rarely do. And themore intrusive forms of online advertising—such as “roadblock” messagesthat take over the entire screen for a few seconds—upset the user experience.Some digital companies are bringing content value to ads, but they tendnot to be news media. Google became a powerhouse by tying advertisingdirectly to users’ search queries. And Groupon, which attracts readers whoNews from Everywhere: The Economics of Digital Journalism 17
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