I know that the LA Times has claimed that they can cover their entire editorial payroll with online advertising.
It won’t last. Revenue from online ads may grow – yes – but long term ads won’t support the production of content. Why? Because of search ads.
Google has almost single-handedly destroyed the business model behind printed content.
Google has always had the luxury of free content. They have to pay for the system, and the software, and some of the hardware, yes, but the content has always been free to them. And realistically, the content is the most expensive part of the package.
You can see the problem, can’t you?
Google has co-opted the content-creation business model, but it’s using it to support a business that has much lower expenses, which means they can afford to undercut the content creators on price. So they do. Massively.
And the worst part? Their ads work better than the old ones.
Google is the most ubiquitous ad network on the internet. AdSense units show up everywhere, from Engadget to SeattlePI.com to this blog. What that basically means is that when Google lets advertisers bid on a bit of ad space, they’re essentially setting the market price for that ad. And as long as ad inventory on the internet remains unlimited (i.e. as long as the web keeps growing…which it will), there’s practically nothing that can raise that price.
Essentially, the going rate for ads on the internet will always be the lowest possible rate, and the lowest possible rate will be high enough to support aggregators and search engines, but not high enough to support content creation.
I think that eventually, we’re going to end up with a content model that requires people to pay again. And that’s actually fine with me – user revenue will make up the difference in between ad revenue and operating cost. The margins will never be as good, but the business will be there.
Assumptions and exceptions
Of course, this makes a few huge assumptions, such as “all ad space is created equally.” It’s not, of course. Ad space on my blog is worth less than ad space on Engadget (for certain ads), and ad space in the New York Times is generally worth more than ad space next to a Google search results (unless it’s the right search result).
Even more granular, ad space at the bottom of a search results page is worth less than ad space at the top.
So I think that a newsbrand with a particularly strong brand and a particularly identifiable demographic might be able to make it work. But you’ll have to rely on differentiating your ad space, not simply having it.
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