How to Increase Ad Revenue with Paywalls, Higher Rates, Content Tracking
This was the year news publishers realized that online advertising probably won't bring in enough money to replace what they've lost in print ads. So they decided to try other business models, including making consumers shoulder more of the cost of their news.
And yet, as business analyst Ken Doctor told attendees at an advertising conference at Poynter recently, all those paths -- charging for online content, hiking the price of the printed paper, tracking content and licensing it to Web portals -- lead right back to advertising.
Bob Garfield, host of "On the Media" and author of "The Chaos Scenario," described publishers' current predicament pretty bluntly: "Thanks to the Internet, newspapers have seen their total readership soar. And with every set of eyeballs, you're losing more money" because no one clicks on ads and there's a virtually infinite inventory.
Against that backdrop, Steven Brill has taken paid content from memo to beta in less than a year. Some companies have increased their newspaper prices, which has brightened their balance sheets (at least for the short term). The Associated Press is apparently trying to strike a deal with Web portals for special (and perhaps faster) access to its content; meanwhile, the news cooperative is moving forward with its news registry, which will enable it to track and monetize its content across different platforms.
All these approaches create alternative revenue streams. But a side benefit, Doctor told me, is that they create trackable, niche audiences, "which, if they're smart, they'll connect the pieces and monetize" through targeted advertising.
Take the move to raise single-copy prices and subscription rates. The standard revenue mix for a pre-digital newspaper company was 80 percent advertising and 20 percent circulation. With recent price increases, publishers have been able to shift that to 75/25.
And it could go higher. For the first time, circulation revenue has surpassed advertising revenue for The New York Times and the International Herald Tribune, according to The New York Times Co.'s most recent quarterly earnings report. Rick Edmonds, my Biz Blog colleague, told me that the company almost certainly hopes that advertising reclaims some of that so the split ends up somewhere around 60/40.
Circulation has dropped, with higher subscription prices, but in the process, Doctor pointed out, the remaining group of readers is becoming more distinct -- older, more affluent, and more valuable to advertisers.
Pay models such as Journalism Online will enable publishers to charge their heaviest users for content while most people, who visit much less frequently, will pay nothing. Publishers will be able to charge based on a number of factors, including frequency of use and topic. Newsday's online content is now free for print subscribers and Cablevision customers (the cable company owns the newspaper); everyone else must pay to see Newsday online.
Those pay structures create narrower, more specialized audiences and offer more opportunities for higher-yield, behaviorally-targeted advertising, which changes depending on users' online habits. Imagine how well Cablevision and Newsday could match ads to consumers' desires if they could combine data on what they watch on television with what they read and search for online.
Those users are more valuable to publishers and to advertisers. Doctor told me about a conversation with MinnPost's Joel Kramer in which Kramer told him that he cares less about how many unique visitors he gets than which visitors come two or three times a month. "Tell me more about those people," Doctor recounted Kramer telling him. "That's real audience. I can find out more about them; I can sell them."
If that sounds familiar, it's because you've heard it from Rupert Murdoch and others who have criticized the value of traffic from Google and are talking about preventing Google News from indexing some of their content.
"This is traffic that's not being monetized to any great degree," A.H. Belo Corp. Executive Vice President James Moroney told Bloomberg News. "It's akin to a person who drops into town, buys one copy of your newspaper and leaves town again and yet you spend a whole bunch of time building your business around that type of customer."
Which brings us to Doctor's final example: Publishers negotiating for better deals with search portals. The Associated Press is out front here, but News Corp. and others may not be far behind. AP is moving forward with its news registry technology, which will attach tags to AP and members' content to help search engines and other online systems understand the content better and provide information on how the information is consumed.
In time, when these tags are applied to all AP member content, "newspaper companies will be able to harness the value of smarter content. ... If all your content is automatically smarter and richer, and even if it's intended for external use, your internal use for ad targeting is certainly something you can do," Doctor said.
Yet even with the opportunity to create higher-yield ads, newspaper companies are behind when it comes to online advertising. Just 10 percent of online advertising dollars go to them, compared to the 20 percent of overall ad spending they got in the pre-digital world. And their strength online is display ads, which are becoming less popular compared to paid search, the dominant form of online advertising. Ads for mobile and video are a small percentage, but growing quickly.
Doctor doesn't think most newspaper companies are prepared to take advantage of these new advertising opportunities. "Newspaper companies' mindsets are still not largely data centric," he said. "They don't understand the intrinsic value of knowing more about readers ... and how that drives making money on the Web."