Business

Breaking news: Online ads can support good journalism

By Andrea Mustain     
June 17, 2014

From: Magazine

In recent years, as newspapers and magazines have slashed their reporting staffs and, in some cases, shut their doors, many observers have prophesied the death of "good journalism." 

Such warnings are often premised on the notion that old-fashioned reporting enhances democracy by acting as an independent, public-interest watchdog of politicians and government officials. Reporters' salaries were traditionally paid for by profitable display advertising, yet US print ad revenues in 2012 were 45% of what they were in 2006, according to the Pew Research Center, a gap that online ad sales have not been able to fill. According to this narrative, then, in rendering socially responsible reporting economically unfeasible, the internet has threatened democracy itself. 

Research by Chicago Booth Professor Matthew Gentzkow suggests this popular narrative depends on three myths that do not bear rigorous analysis. The first is that online advertising revenues are inherently lower than print ad revenues, so traditional media must adopt a less profitable business model that cannot support reporters' wages. The second is that the web has made the advertising market more competitive, driving down rates. The third is that the internet is responsible for the demise of the newspaper industry.

Gentzkow argues that there is nothing inherent about low online rates, and says internet advertising is, therefore, not necessarily incapable of funding investigative journalism.

chart"This perception that online ads are cheaper to buy is all about people quoting things in units that are not comparable to each other—doing apples-to-oranges comparisons," Gentzkow says. 

Newspaper ads are priced according to circulation numbers, while online ad rates depend on unique monthly visitor figures. This is a false comparison, Gentzkow argues, "because the time people spend is very, very different." A daily newspaper reader spends far more time reading the paper than the online reader spends on a news website.

By comparing the amount of time people actually see an ad, Gentzkow finds that the price of attention for similar consumers is actually higher online. In 2008, he calculates, newspapers earned $2.78 per hour of attention in print, and $3.79 per hour of attention online. By 2012, the price of attention in print had fallen to $1.57, while the price for attention online had increased to $4.24. These data not only shatter the myth that online ad revenues are inherently lower, the also undermine the myth that the web has driven down ad rates. 

Gentzkow's research also puts paid to the third myth, that the web is killing traditional newspapers. The internet age has certainly coincided with the decline of print media: the amount of time people spent reading newspapers declined steadily between 1995 and 2012. However, newspaper readership shrank at almost the same rate between 1980 and 1995, long before the web took over our lives. "People have not stopped reading newspapers because of the internet," Gentzkow notes. 

There is, however, one area in which the internet significantly exacerbated newspapers' financial woes, Gentzkow says: Craigslist and its ilk. Classified revenue (per hour) dropped by about two-thirds between 2005 and 2012. Online movie listings and some retail ads have also taken a bite out of what newspapers can charge print advertisers. 

Contrary to the prevailing view, the research suggests that "good journalism" may have a bright future. "The reason newspapers are not making money online is not that attention is not valuable, but that people are not spending a lot of time reading news online," Gentzkow says. "If you want to make more money online, you have to get people to spend more time reading your news." 

If news websites can figure out how to do that, the internet may yet produce the next Woodward and Bernstein.

Work cited

Matthew Gentzkow, "Trading Dollars for Dollars: The Price of Attention Online and Offline," Working paper, December 2013.