Twitter  The Toronto Star plans to hire eight digital journalists who will be paid less than other journalists at the paper nie.mn/1m832z6  
Nieman Journalism Lab
Pushing to the future of journalism — A project of the Nieman Foundation at Harvard
facebook-window-cc

Dan Kennedy: How news executives can fend off the Wolff at their door

Is Michael Wolff right about Facebook, and is online advertising doomed to fail? If so, here are a few ways news organizations could prepare.
Email

Facebook’s disappointing IPO may be indicative of a larger problem: the declining value of online advertising, an inexorable force that will eventually destroy not just Facebook, but the web itself.

Sound nuts? Well, that’s the thesis put forth by media critic Michael Wolff in a piece he wrote for Technology Review headlined “The Facebook Fallacy.” Wolff has made his reputation as a provocateur, and his analyses often straddle a fine line between brilliant and crazy. Some might also consider him to be part of the problem facing news organizations, as his Newser.com site practices an unusually in-your-face form of aggregation.

But if Wolff has overstated the case, he nevertheless may be on to something. Indeed, his Tech Review screed carries the endorsement of Doc Searls, a respected thinker about online media and advertising.

I’ll get to what I think this means for journalism in a moment. First, though, a few words about Wolff’s argument.

Essentially, Wolff is expanding on something that we already know: the value of web advertising is low and getting lower, even as it keeps expanding. He writes:

The daily and stubborn reality for everybody building businesses on the strength of web advertising is that the value of digital ads decreases every quarter, a consequence of their simultaneous ineffectiveness and efficiency. The nature of people’s behavior on the web and of how they interact with advertising, as well as the character of those ads themselves and their inability to command real attention, has meant a marked decline in advertising’s impact.

Wolff’s insight — again, not particularly original except for his eagerness to pick it up and run with it — is that Facebook is just another website. According to Wolff, Facebook’s current revenues are unlikely to grow all that much. And the situation is only getting worse as mobile becomes a bigger part of the mix, since Facebook has said it doesn’t know how to make money there.

The only company making money from online advertising, Wolff argues, is Google, because it’s the middleman of last resort. Essentially Google is the company that finds itself in the enviable position of selling Levi’s and pickaxes to the hapless gold miners.

People in the news business have been sweating out the reality Wolff describes for some time. How will we pay for the journalism we need? The answer to that is far from clear — and, of course, it’s also far from clear that the public is even willing to pay for what we’re selling, either directly or indirectly.

But here are four partial answers that get us beyond the conundrum of relying on Internet advertising whose quantity keeps expanding but whose value keeps shrinking.

Newspapers should keep printing.

Print is doomed — if not in the short-term, then certainly in the medium- and long-term. But that doesn’t mean it’s going away entirely. It’s just too valuable, as online advertising is worth scarcely a fraction of its print counterpart.

The most recent example of a newspaper company trying to adjust to that reality is the New Orleans Times-Picayune, which is cutting back its print edition to three days a week. The idea is to squeeze seven days’ worth of print advertising into three, saving money on printing and distribution costs while holding onto the most lucrative part of its revenue stream.

As Nieman Lab columnist Ken Doctor notes, if the Times-Picayune move is successful, then the paper will keep some 80 percent of its print advertising revenues while saving a lot of money. By contrast, dumping print entirely would be disastrous.

Move to the flat-fee ad model.

With regard to online advertising, Wolff describes a never-ending spiral to the bottom, as prices for CPM advertising (that is, the cost of a thousand impressions) keeps dropping.

News sites are getting killed by this model, which is based on the notion that advertisers should pay only for the number of times someone sees their ads, with a premium if someone clicks through. (Reality check: No one clicks on ads. No one. Not. Ever.)

Some successful sites have moved away from this model, simply charging a flat fee — what might be called the sponsorship model. One of those is The Batavian, a for-profit community site in western New York. Publisher Howard Owens runs all of his 100-plus ads on the home page, rotating them from bottom to top throughout the week.

As Lisa Williams, founder of Watertown’s late, lamented community blog H2otown, and now the head of a venture called Placeblogger, told me: “I think a lot of people will buy a sponsorship on a local blog for the same reason that they put their name on the back of Little League shirts.”

Expand nonprofit journalism.

Local foundations, community institutions, and wealthy philanthropists, not to mention readers, are contributing to nonprofit local news sites such as the New Haven Independent, Voice of San Diego, MinnPost, and the Texas Tribune just as they do to public television and radio stations.

Unfortunately, the nonprofit news movement has failed to take off, in part because the IRS has held up applications for new nonprofits as the agency ponders whether journalism is an activity that deserves such status. That’s one reason the Chicago News Cooperative died earlier this year.

Although there’s an argument to be made that IRS officials simply could (and should) change their minds, it’s possible that we need legislation explicitly recognizing journalism as an activity covered by the regulations governing nonprofits. Maryland Sen. Ben Cardin proposed such a bill several years ago, but it hasn’t gone anywhere.

Experiment with flexible paywalls.

There’s much that has been said and written about paywalls, so I won’t belabor the point. But smart, flexible systems such as those put in place by The New York Times and The Boston Globe, which allow for free sharing via blogs and social media, are worth exploring, even if they never amount to more than a minor revenue stream.

Michael Wolff’s analysis of Facebook’s problems, and of any website depending on advertising, should be must reading for news executives. Perhaps they won’t learn anything they don’t already know. But it might give some of them the impetus to stop pursuing strategies that are bound to fail, and instead to seek new ways of paying for the news.

Dan Kennedy is an assistant professor of journalism at Northeastern University and a panelist on Beat the Press, a weekly media program on WGBH-TV Boston. His blog, Media Nation, is online at www.dankennedy.net. His book on The New Haven Independent and other community news sites, The Wired City, will be published by the University of Massachusetts Press in 2013.

Photo by Scott Beale/Laughing Squid used under a Creative Commons license.

                                   
What to read next
wonky-cc
Mark Coddington    April 11, 2014
Plus: Heartbleed exposes the Internet’s vulnerability, the alleged decline of the mobile web, and the rest of the week’s must-reads in journalism and tech.
  • http://twitter.com/GreenerGrassMkt GreenerGrassMKT

    I have to disagree with your assertion that CPC ads never get clicked. With the correct headline, image, copy, and landing page, you can STILL run a very successful CPC driven ad campaign. It isn’t as easy as it used to be, but if done correctly it is still very effective.

  • Lpeers

    Do you have an example or two of a successful campaign through Facebook?

  • bernhoft

     I do.

    I run multiple ad campaigns every day on Facebook and Google. CPC ads on Facebook for content perform fantastically well. In fact, ads for content on and off the Facebook platform perform better, generally, than any other kind of advertisement I manage.

    I have run ads for Internet TV Networks, blogs, Newspapers, niche sites and even eCommerce sites and time after time, Facebook delivers engaged and interested viewers. Let along “Likes”, “Organic Shares” and brand visibility.

    My CTRs are normally between .5% and 3.5% for Facebook ads relating to content. The estimated average CTR for a Facebook ad is roughly .05%. The exception to this is paywall content which doesn’t fair very well with Facebooks ads at all (average CTR in my experience is .005%). But that’s another story.

    The trick to successful CPC ads on Facebook for content is knowing your audience beyond the details of it’s size. Variable settings such as psychographics and demographics make Facebook ads spectacular for reaching your audience.

    Ultimately, Facebook ads are the beginning of a effective new way to distribute content and grow your audience.

  • http://twitter.com/GreenerGrassMkt GreenerGrassMKT

    Exactly, you have to know your audience to be effective in any ad medium. I seem to remember quite a few people complaining about how ineffective adwords was. Then, people took the time to figure out what worked and what didn’t. It’s not that facebook ads don’t work, it’s that people assume because facebook is easy, that advertising on facebook is easy.

  • http://twitter.com/CaryCitizen CaryCitizen

    Good reading! We use a “tenancy” model on CaryCitizen.com – advertisers pay by the week, not by the thousand. Our CTR is nearly .50% – substantially better than the national average. Ads that are embedded in stories have a CTR near 2.00%. People do click on banner ads.

  • http://twitter.com/supaswag Ingo Bousa

    “the declining value of online advertising, an inexorable force that will eventually destroy not just Facebook, but the web itself.”
    Advertising.. destroying the web, huh? *chucklechucklechuckle*

  • http://twitter.com/westseattleblog West Seattle Blog

    No, we DON’T “already know: the value of web advertising is low …” Faulty assumption/conclusion, sorry. The error is in assuming that web advertising is only meant for clicks. DISPLAY ADVERTISING IS JUST AS VALUABLE ONLINE, IF NOT MORE VALUABLE ONLINE, THAN IN PRINT. Go back and read that again. Slowly. Online **display advertising** is seen over, and over, and over, and over, and over again, as opposed to print display, where a reader may flip past it once, if that, or maybe not at all, while walking the “I just keep forgetting to cancel my subscription and they keep debiting me” printed product over to the recycling bin. The value of, and need for, promotion/marketing/advertising/whateveryawannacallit continues to rage on. Mistakes are being made, however, in (a) assuming if it’s not clicked, it has no value; (b) screwing up the user experience with takeover ads, autoplay video/audio ads, and all manner of ad methodologies whose names I don’t know and don’t want to know because my site will NEVER use them; (c) having and perpetuating low self-esteem in terms of the value of your (advertising) product.  Oh, and then there’s the other mistake – thinking you’re not selling enough advertising because you can no longer pay for a staff the size of the one you used to have. Did you cut all your middle management yet? No? You’re not right-sized yet. (I was an overpaid middle manager and luckily was able to quit, because if not, if my ex-company had any sense, within a year or so it would have cut my job.) Folks, don’t lose heart. Do the news. Sell the ads. Keep an eye on the horizon. Go with your gut. – Tracy in W. Seattle

  • http://twitter.com/CanadianAdverts CanadianAdverts

    interesting insights but no. Facebook is just one model of online advertising. Web advertising is not too shabby. Millions of people click craigslist ads, google’s and yahoo’s every single day.

  • http://www.ilsw.com Bill Garber

    Wolff is right.  And you are right, Dan.

    Your proposal for setting up the gangplank to the future of journalism makes solid sense.