Is This Point an Inflection Point?

Is This Point an Inflection Point?

11 May, 2018

Although the consumption of news has become free, the task of creating it has not. Journalism is, and will continue to be, a paid profession. This has led to a dichotomy between the free consumption and the paid production of news. This dichotomy has historically been resolved by serving news intermingled with ads paid for by corporations.

That solution, which began in the era of print news, has become unsustainable for readers, publishers, and advertisers:

For readers:

For publishers:

  • The value of a free reader on mobile is 90% lower than on desktop

  • The price of ads continues to fall each year

  • The cost and difficulty of selling ads continues to grow

  • Google and Facebook account for over 80% of growth in digital ad revenue

  • The fastest-growing ad format, video, is not viable for short-lived news

For advertisers:

  • Advertisers no longer need publishers in order to reach customers

  • Facebook and Google are more cost-effective and targeted than publishers

  • The click-rate on ads is more than 95% lower compared to 1995 (0.05% vs 2%)

  • Advertisers are allocating budget to ‘performance’ rather than ‘brand’ campaigns — investing in ad networks rather than publishers directly

There are also new trends emerging in 2018 that are accelerating the decline of free ad-funded news. These include:

  1. The emergence of Amazon as a new powerhouse in advertising, with even more powerful data, the ability to drive both brand consideration and fulfillment, and an advertising environment perfectly suited to conversion and purchase.

  2. The growth of ad-blocking based on the security risks that can be exploited through ad-tech (such as the Spectre bug), and the resulting steps by Google to enable ad-blocking by default in Chrome, the world’s most popular browser.

  3. The retreat from news by Facebook (which has previously driven 40–80% of web traffic for publishers), as it now finds itself dealing with ongoing crises around news verification and censorship, not only from its users but also from regulators and politicians around the world.

  4. The introduction of General Data Protection Regulation (GDPR) in Europe which severely restricts the ability of publishers to collect and monetise user data through targeted advertising.

This decline of feasibility for ad-based news means most of the world’s top publishers are now focusing on readers for revenue. The New York Times has explicitly stated that its future strategy is based on being primarily reader-funded, and it (like many other major publishers) already generates more revenue from readers than from advertisers.

The news industry is facing challenges from all angles. The impact of social media platforms, the rise of fake news, and the challenges of objectivity within an increasingly partisan world. But sitting behind all of these challenges is an under-appreciated reality — the news industry is at a turning point in how it makes money.

It is now clear that it will soon be economically irrational to continue with an online advertising-only model. This means some publications won’t survive. Some will innovate and thrive. But what is most exciting is that in the next few years we will be seeing the birth of the media brands that fully understand the new models, and will no doubt come to dominate the next decades of news.

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