How Will Online Journalism Ever Make Money?

What is the state of online advertising? Not good, according to this Pew report:

The prospect of an economic model for journalism online made only limited progress in 2009, even as the industry's eagerness to find new Internet-based revenue sources intensified. Signs that advertising, at least in any familiar form, would ever grow to levels sufficient to finance journalism online seemed further in doubt.

It's no mystery why online advertisements are having trouble filling the revenue cavity left by diminishing print ads. The average American reader spends 2,000% -- yes, 2,000% -- more time with a physical newspaper than a newspaper Website. A 60-second impression means zip to advertisers, so they pay zip per impression. What's more, a lot of online readers aren't regulars to news Websites the same way print advertisers can count on a week-to-week subscriber base, because search engines direct 35-40% of news traffic. For advertisers, the online market is distracted and disparate: not a good combination.

Journalism publishers keep waiting to for somebody to "figure out the business model" online, but in the meantime the current business model is eating our lunch. Besides search advertising, which is a multibillion dollar industry that practically accounts for all of Google's revenue, ad success stories are hard to find online. Display ads are ubiquitous, but cheap. Classified ads got swallowed by Craigslist. Rich media ads are still young and undeveloped. Here's a pretty graph to distract you from/explain all the ugliness:

Online ad spending by format, 2009 in millions of dollars:

What's the alternative to watching your product bleed online? Well, if the ads servicing your page won't pay, you better hope the readers clicking to your page will. Rupert Murdoch's Wall Street Journal already charges $79 for yearly Web access, and was the "the only newspaper to turn a profit in 2009," according to Pew. But charging for premium access turns out to be just the tip of the iceberg. There are other exciting ideas for not letting the Admageddon get journalism down. More on those ideas in my next post.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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