My good friend Kevin echoes an old meme that has never made sense to me. To paraphrase, it goes like this: the reason why online publishers' increasing audience doesn't translate into more revenue is that there is too much content out there. In Kevin's words, "as in any market, if supply outstrips demand then you have downward price pressures."
I'm not so sure. While it's true that a glut in inventory should lead to price pressures, the inventory that matters is not content but page-views (or more specifically ad views). While that too may have been increasing, the link between there being more content and people reading more is at best tenuous. And the notion that publishers would be better off if people chose to read less feels wrong.
A more plausible culprit is competition. In the good old days of print, if you wanted to reach any given consumer there were only a handful of publishers you could deal with: his/her favourite newspapers, magazines and TV outlets. It didn't matter that for a given campaign you had to deal with hundreds of publishers; the key point is that for each consumer you were dealing with a small oligopoly. If you didn't want to pay the NY Times to reach its audience you might have missed its audience.
But the web changed all that. Now people visit hundreds of publications in any given month, not because they are no longer loyal to some of them – they still are, albeit less than before – but because they are also bombarded with an endless torrent of serendipitous links via email, social networks, and even the publications they are loyal to. Portals only exacerbate this. And ad networks ensure that if you are after a particular demographic or local market you can target it across thousands of sites without having to deal with any of them individually.
The net effect of all this is that as publishers compete for the same advertisers (directly or vie networks), ad prices get pushed down towards marginal costs. That on its own should be enough to kill many publishers' profits. But it gets worse: the marginal costs that count here (because they are lower) are those of the new online-only operations that don't have print media's high costs. Importantly, these prices are unsustainable for old media. A recent Enders report concluded that, even with the help of pay-walls, newspapers' online revenues could not sustain their operating costs, even if you take away all the costs associated with print and if all audiences moved online.
Granted, this argument doesn't apply across the board:
- It only makes sense for CPM and CPC ads, not tenancy. But for as long as these account for a sizeable share of all advertising their prices should affect tenancy as well, as they two are not fundamentally different from advertisers' point of view.
- It doesn't apply to all advertising. If you are specifically targeting, e.g., brides, of course Weddding Magazine will offer you a far more differentiated than any behavioural ad network could.
Still, for content of broad interest – like general news – I think this story makes sense. To the extent that it is true, if current trends continue many more papers will go bankrupt and many more journalists will lose their jobs. Eventually equilibrium will be restored, and then the people left producing content under new business models may be able to make a living. But these will be far fewer than today, and even for them the economics will be those of marginal cost pricing – i.e. minimal profits.