April 24, 2014

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Newspapers' Problem: Trouble Targeting Ads

Richard Posner has written a characteristically thoughtful blog entry about the uncertain future of newspapers. He renders widespread journalistic concern about the unwieldy character of newspapers into the crisp economic language of “bundling”:

Bundling is efficient if the cost to the consumer of the bundled products that he doesn’t want is less than the cost saving from bundling. A particular newspaper reader might want just the sports section and the classified ads, but if for example delivery costs are high, the price of separate sports and classified-ad “newspapers” might exceed that of a newspaper that contained both those and other sections as well, even though this reader was not interested in the other sections.

With the Internet’s dramatic reductions in distribution costs, the gains from bundling are decreased, and readers are less likely to prefer bundled products. I agree with Posner that this is an important insight about the behavior of readers, but would argue that reader behavior is only a secondary problem for newspapers. The product that newspaper publishers sell—the dominant source of their revenues—is not newspapers, but audiences.

Toward the end of his post, Posner acknowledges that papers have trouble selling ads because it has gotten easier to reach niche audiences. That seems to me to be the real story: Even if newspapers had undiminished audiences today, they’d still be struggling because, on a per capita basis, they are a much clumsier way of reaching readers. There are some populations, such as the elderly and people who are too poor to get online, who may be reachable through newspapers and unreachable through online ads. But the fact that today’s elderly are disproportionately offline is an artifact of the Internet’s novelty (they didn’t grow up with it), not a persistent feature of the marektplace. Posner acknoweldges that the preference of today’s young for online sources “will not change as they get older,” but goes on to suggest incongruously that printed papers might plausibly survive as “a retirement service, like Elderhostel.” I’m currently 26, and if I make it to 80, I very strongly doubt I’ll be subscribing to printed papers. More to the point, my increasing age over time doesn’t imply a growing preference for print; if anything, age is anticorrelated with change in one’s daily habits.

As for the claim that poor or disadvantaged communities are more easily reached offline than on, it still faces the objection that television is a much more efficient way of reaching large audiences than newsprint. There’s also the question of how much revenue can realistically be generated by building an audience of people defined by their relatively low level of purchasing power. If newsprint does survive at all, I might expect to see it as a nonprofit service directed at the least advantaged. Then again, if C. K. Prahalad is correct that businesses have neglected a “fortune at the bottom of the pyramid” that can be gathered by aggregating the small purchases of large numbers of poor people, we may yet see papers survive in the developing world. The greater relative importance of cell phones there, as opposed to larger screens, could augur favorably for the survival of newsprint. But phones in the developing world are advancing quickly, and may yet emerge as a better-than-newsprint way of reading the news.

Comments

  1. Crosbie Fitch says:

    If instead of selling audiences to advertisers, you’re one of those peculiar folk interested in selling news to those peculiar audiences in pursuit of it I’d check out the keynote speech http://www.digitaldeliverance.com/blog/2008/06/second_annual_global_conferenc_1.html at the Second Annual Global Conference on Individuated Newspapers.

  2. joe says:

    You’re 26?!
    :)

  3. Matthew Skala says:

    I have a theory that in some online advertising systems – Project Wonderful most notably – advertisers display risk-seeking utility. They pay more per unit for advertising if they can buy a lot of advertising all at once. I’ll buy a thousand clicks at a penny each, but if you can only sell me a hundred, then they’d better be less than half a penny each. Although that sounds irrational, it seems to be borne out by the actual prices people do pay in ad auctions. My link on this comment is to an article about this idea.

    If it’s true that advertisers behave that way, and if they do it in other media as well, that could help save newspaper and television advertising: the advertisers who want really big exposure can’t afford to target because there just aren’t enough readers or viewers in the targeted venues. Those advertisers may still be willing to pay for untargeted ads, even at a higher rate, just to get the sheer numbers they want.

  4. enigma_foundry says:

    I agree with all of the descriptions about the problems of newspapers, but I think these problems are entirely solvable by the transformation of newspapers in not-for-profits. This sounds counter-intuitive at first (why would they do well as a not for profit, other than the tax advantage, of course) until you consider the many benefits that news papers (and a free press in general) give to society–for example: the exposure of corruption, raising public health issues, the public discussion and debate of important issues such as War–and it can be seen that newspapers, as a social institution, have unique moral connectivity in the larger society, and that connectivity makes their functioning as a not for profit not only likely, but preferable.

    OK, that sounds like pie-in the sky theory, but it is actually happening. Here are a couple of examples:

    From the Christian Science Monitor:

    NONPROFIT JOURNALISM ON THE RISE
    At a time of layoffs and budget cuts at traditional newspapers, foundations and donors are funding new journalism ventures.

    SAN DIEGO – The police chief’s rosy crime statistics were a lie, it turned out. The councilman who urged water conservation was discovered to use 80,000 gallons a month at his home, more than five of his colleagues put together. And the school board president, according to an investigation, spent a full third of his time out of town and out of touch.
    The Voice of San Diego, a nonprofit online media outlet, doesn’t have enough journalists to field a softball team. Yet it has managed to take on the powerful with the panache of a scrappy big-city paper.
    It provides “the best coverage of city politics that we’ve had in years,” raves Dean Nelson, a journalism professor at San Diego’s Point Loma Nazarene University.
    The success of the tightly focused Voice, which relies on donors, offers a ray of hope for a troubled industry. Plagued by shrinking circulations and advertising, newspapers are shedding staff and downsizing their offerings. Even the pages have gotten smaller.
    By contrast, several nonprofit newspapers – though rare and often tiny – have sprung up in recent years both online and in print, funded largely by foundations and individual donors.

    link to discussion of this article at my blog: http://enigmafoundry.wordpress.com/2008/03/05/rumours-of-the-death-of-the-newspaper-have-been-greatly-exaggerated/

    And another story from the Saint Louis Business Journal:

    Pulitzer, Danforth back web news effort:

    Less than three years after selling the Saint Louis Post Dispatch to Lee Enterprises, Emily Rauh Pulitzer is helping a group of former Post-Dispatch reporters and editors launch an on-line news site designed to take aim at stories they say the daily newspaper fails to cover.

    The not-for-profit Web site, renamed this week as St. Louis beacon, began posting its free content during the past couple of weeks with the help of a $500,000 challenge grant from Pulitzer and a $200,000 no-strings donation from Bill Danforth, chancellor emeritus of Washington University.”

    Thus, the newspapers have inverted the market–they are selling a social good, and maintaining their independence, too.

  5. Spudz says:

    Toward the end of his post, Posner acknowledges that papers have trouble selling ads because it has gotten easier to reach niche audiences. That seems to me to be the real story: Even if newspapers had undiminished audiences today, they’d still be struggling because, on a per capita basis, they are a much clumsier way of reaching readers.

    The elephant in the living room here is that the same thing applies to television. Television advertising is a bit more targetable than newspaper advertising, but it’s not enormously so, and, analogously to the spread of online blogs and other sources of “news-on-demand”, we are beginning to see the rise of video-on-demand.

    Broadcast television as we know it has no chance to survive make its time.

  6. Vectorpedia says:

    The wave of the future is the web not print media

  7. Spudz says:

    How is investment planning relevant here? We had been discussing advertising.

  8. Mango says:

    I will find it interesting to see how blogs and other online media are affected if newspapers really do disappear because many of the stories are taken from newspapers and not an original piece of reporting.

  9. Spudz says:

    Eh, that’s odd. What had I been referring to in my previous message? I don’t see (or particularly remember) anything about investment planning here. :P

  10. Spudz says:

    Mango: there will remain market demand for reporting, and thus there will remain reporters. Whether they are paid employees of newspapers and other old-skool media or have some other personal business model, they will exist.

  11. Spudz says:

    How is this relevant to the issue of newspapers? It has to do with advertising, but on web sites in general, not just newspaper companies’ sites.

  12. ArabBible says:

    I agree with the article in that the newspapers need to sell targeted Ads

  13. Link says:

    Interesting post on targeting-ads………..thanks guys

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