The ongoing death throes of TBD, a Washington-based local news site that launched in April, attract my attention because a talented friend of mine joined the venture last spring. I remember wishing him well in a coffee shop 11 months ago while thinking “I've got a bad feeling about this.”
Here's why, and it's not a complex answer. TBD, like practically every other for-profit media business in America, relies on advertising to pay its bills. The pitch for Web-only news ventures like TBD is that they'll turn a profit on low revenues because they come without the legacy costs of their newspaper-backed Web competitors.
What gets overlooked in these proposals is just how low those revenues typically turn out to be. Despite a rebound from their crash in 2009, Web ad rates remain so dismal that it's difficult to make money producing journalistic content online even when your company's main expense is newsroom payroll.
Despite that math, ad-funded Web start-ups still look like worthwhile risks to some investors. The news-media industry is in flux and local news (in the abstract aggregate) represents an enormous market awaiting an efficient solution. The first outfit to find the magic combination of technology, social engagement, journalism savvy and smart business practices stands to create a profitable template for follow-on franchises.
There's nothing wrong with that logic. The problem is what's happening to advertising.
Advertisers don't sponsor your news product – they rent the attention of whatever audience you've assembled, and this exchange isn't nearly as valuable for either party as it used to be. Much has changed since the era portrayed in Mad Men, but for the purposes of this topic, the most important change is this one: in the mid-20th century, consumers had limited media choices, and so their attention was concentrated and could be sold at premium prices. In the early 21st century, consumers enjoy exponentially more media choices, which is why the advertising value of each choice is now miniscule compared to the 20th century revenues on which the industry was founded.
To clarify, I'm not suggesting that advertising is going away. Consumers still need to buy things, producers still need to sell things, and connecting the two generated $300 billion last year in the United States alone. Advertising is changing, but there's no reason to believe that much of the news our great-grandchildren consume won't come with some form of attached advertising.
What I'm challenging is the prevailing wisdom that because advertising shaped and subsidized journalism in the 20th century, the reinvention of journalism in the 21st century is simply a matter of re-balancing online ad rates with newsroom overhead. Those rates are lower because audiences have fractured and we're never going to reverse that trend, so it follows that if your only revenue plan for producing original journalistic content is selling Web ads beside it, you'd better learn to make that content cheaper and more sensational than your already cheap, sensational competitors.
This math is what made the paid-content movement so powerful in 2009. If you can't raise your ad rates and you can't throttle back the supply of things that people pay attention to, your only choices are to produce more content at lower rates or to find an alternate revenue stream. Since print media companies already understood subscriptions and rack sales, re-creating those models online was an obvious pitch two years ago – even though it was already clear at the time that few newspaper companies produced the kinds of content that could reliably profit from paywalls.
The paywall revolution didn't materialize in 2010, and while some of those delayed roll-outs are expected to launch this year, the people predicting success for these ventures tend to be the people selling the software. Even those salesmen are no longer predicting immediate paywall (the new term is "metered model") profitability, redefining success as brand protection and a slow process of indoctrinating online customers to a pay-as-you-consume culture. The idea that paid content will change the game for media companies just doesn't carry its own weight today.
So if that's where we are, and I suspect there's a quietly growing consensus that acknowledges these limitations, then why isn't there more of an effort to develop alternatives?
The most obvious reason is that the intellectual infrastructure of the news industry is an advertising infrastructure. Most news executives rose to their positions either through expertise in the ad business or their experience in the newsroom, where editors teach young journalists that subscribers pay for printing and trucks, but advertisers pay everyone's salaries. Proposing to this group that 21st century journalism could produce significant value independent of advertising is a bit like pitching heliocentrism to the Roman Inquisition in 1610. You're not just proposing a new revenue stream, you're moving the center of the known universe. Kind of a tough sell.
We live in a mass-media society during an information age, and everyone “knows” that the economic value of quality data is lasting but the economic value of quality news is fleeting. We hold this truth to be self-evident: No matter how well-reported, news is only valuable during the flitting moments when people are paying attention to it. For all our First Amendment rhetoric, journalism isn't a product we sell to consumers, it's a loss-leader we use to package consumers into audiences for advertisers.
I think it's time we challenged this assumption. What if the information that news companies collect and publish actually accrued in value? Even a marginal value for the data produced in the reporting of news stories could be a transformative development for 21st century media, provided that the value grows as the data set expands.
For the short term future, it's likely that most of the “smart money” in the news/advertising business will continue to back ventures that offer 21st century tweaks on 20th century business models. But as the paywall movement fades into a footnote, ad-dependent start-ups like TBD fold into obscurity and cheap cons such as Demand Media collapse like pyramid schemes, an opportunity emerges. Who will imagine the ways to convert reported information into valuable data products? Who will fund the development of the tools that make such products possible and profitable?
The future is not knowable, but let's be clear about the lessons of history. The assumption that the future will look like the past is based on an illusion that time routinely treats with disdain. That's not much of a consolation to the good people laid off at TBD this week, but it might be a new starting point for their profession.