Trouble for Online News Sites

One of the challenges traditional news media face is that advertising has begun to move online. As its turns out, the news media does not do much better on the internet than in the old world of media ads. Marketers like search, and perhaps sports and entertainment. These marketers have not flooded to news sites. That means the news industry is likely to be crippled even more than in the past because it has failed to actively target its online readers.

A new study by the Pew Research Center’s Project for Excellence in Journalism shows that excellence in journalism in the news business is terribly threatened. News organizations have been unable to keep up with much of the rest of the content industry online in terms of growth, because their sites fail to provide good targeting for advertisers who spend the most money — brand marketers. As Pew puts it:

Yet how much of that growth will go to underwrite news remains in doubt and throws into question the financial future of journalism as audience continue to migrate online. What will happen pivots in part on whether the news industry can move into the more lucrative areas of digital advertising, particularly using consumer data to target ads, persuading major legacy advertisers to also advertise online and moving into new revenue areas.

Gannett (NYSE: GCI), the largest newspaper company in the U.S., recently said it will seek to buy out 665 employees. That does not seem like many people, but it is one more hit in a long line of layoffs. The Washington Post (NYSE: WPO) said it will offer another round of buyouts. If two of the most well-financed newspapers in the U.S. cannot afford to keep staff at current levels, what will happen to the rest of the industry?

Many newspapers and broadcasters that are part of public companies posted weak online figures in 2011. Internet revenue was supposed to cover the drop in traditional revenue. It has not. Even The New York Times (NYSE: NYT) has managed only very modest growth in its internet operations, and it is owns the largest news sites in America, based on number of visitors.

Perhaps the most troubling sign for any online site is the presence of “house ads.” These are ads for a news site’s own services, whether they are subscriptions or T-shirts with the content firm’s logo. Pew reports that 21% of online ads on major news sites fall into this category. Finance industry advertising is not far behind. Mortgage and credit card companies usually pay low rates for their marketing messages.

The news media considers its content more valuable than entertainment or social media content. That makes sense. News is essential to the public’s understanding of the world, but it is expensive to collect. The trouble is, advertisers do not care about the future of news media, no matter how important it might be.

Methodology: The study examined advertisements on the homepage and key inside landing pages (from the top five stories on the homepage) for a cross-section of 22 different news operations. Researchers analyzed 5,381 ads. They examined the industry placing the ad, the style of ad and the relevant importance of discount programs.

Douglas A. McIntyre