Eyeball Economics

Making life on the Net pay its way

by James Robinson

The words on the page that you read in the morning paper are the least important facet, in economic terms, of the stack of newsprint in front of you.

In the coldest sense, an audience only serves the purpose of serving up a couple hundred-thousand eyeballs so that a real buck can be made. Your happiness, your contentment with the Dominion Post is a mere trifle alongside the contentment of the liquor-store, or electronics shop, or whoever may have paid close to 16,000 dollars for that full-page spread. They’re worth roughly 10,000 consumers, paying $1.50 ahead each. That is not to say that all subsequent media are shills for lingerie. It’s just that consumers have never driven the medium; consumers can’t ever drive a medium. What drives it all is the desire that your eyeball, for just a few seconds, will linger on an advertisement, and consider a product.

You’d never pay for a newspaper, what they can pay for that privilege.

It is written often, and it is written loud, that eventually people will switch off TVNZ and put down the paper. These mediums that have so far have kept us informed (or tried to), will prove antiquated, once the broadcast audiences have finally splintered and the newspaper is dead. But when print dies and Simon Dallow is out of a job, it is assumed that these sources of news and information will be ready and abundant on-line. It is presented as a debate over medium – consumers prefer one, so the market will shifts.

The logic involved couldn’t be more simple – where the eyeballs go, the money follows. Aside from the convenience itself of getting things online, there is now an audience online to throw money at. Profits are drifting away from major media sources like sands in the hourglass. It makes sense: there’s a new medium for information. But if that’s the case – why can’t big-media (yet) make online anything close to the money that they’re losing in print?

Through its ability to prove to advertisers where, when and why someone will go to a particular site, the Internet has obvious appeal to advertisers. Surveys of the online advertising market have recorded steady double-figure growth, or thereabouts, for quite sometime now. The PriceWaterhouseCoopers survey of the market for the quarter ending March 2009 dipped under 10 percent, but when the market swings up, that slight contraction won’t last long.

So why isn’t big media widely touting the argument that as the traditional advertising market is contracting, the on-line frontier is growing at a steadily handsome rate? It is a clear symptom of a slow shift in power, which could be impossible to stop.

One reason is that while clearly the golden child, online advertising is still in its infancy. Based on the quarterly figures released by PWC quoted above, the traditional media advertising market is worth approximately 1.9 billion dollars a year, which is still roughly ten times the online advertising spend as it stands in New Zealand. Even more important to note is this fact; three-quarters of this $185 million dollar market doesn’t go to on-line media formats, to the area as a whole. It goes to Google, TradeMe, Facebook – and so on. These new online platforms don’t just wait for your eyeball, they come to it instead – and this is a huge one-up over the more traditional display advertisements online. It more intuitively targets adverts at you, seeking you out by what you like, who you like, how old you are, and what you’re searching for.

All the hype in other words, is true: The death of the traditional media may be eventually inevitable, the format antiquated, the eyeballs gone, the money leaking slowly out of the bottom of the advertising market – but it ISN’T going towards creating a market that will come close to providing anything close to a profitable playing ground for as many journalists, as do traditional print and broadcast media.

Look no further than the biggest examples in our own backyard for proof of this. Stuff.co.nz is one of New Zealand’s five biggest websites; it is Fairfax’s online flag in the internet mountain. With a reported 833,420 unique hits a month it is well above the weekly circulation of the Dominion Post in readers, if well below the total Fairfax print circulation. Stuff is one of the big fish in the water.

Yet when Fairfax NZ released their profit report for the last six months of 2008, where they had to report a 29 percent decrease in profit and a 15 percent decrease in revenue, there was no mention of their online achievements amongst the success stories they were trying to cling to. Instead they leaned very heavily on Trade Me, whose revenue rose 17 percent in the last six months of 2008. And rather strangely the Fairfax NZ managers also clung to a 3 percent rise in circulation revenue – thus showing that even when a token amount of extra money is being made over the counter, this doesn’t matter if advertising revenue is in freefall. APN recently took a 14 percent hit in revenue even though the NZ Herald website has been a successful venture for them.

Different standards apply. “Clients are more nervous about advertising in print. Print is an anomaly, there’s less justification for outcomes. There’s been a great lack of investment in research in traditional media, our understanding of how people read and relate to it only updates once every so often. But with on-line, every week a new study comes out. It is accountable. X online platform gets X results,” says Matt Bale, the Managing Director of OMD Digital in Wellington – the media agency wing of Clemenger BBDO. And he’s spot-on. Online media tells you how many people looked at what, and when. Who can tell how many people make it to a certain page of the paper, beyond the front few, with any certainty?

This money is gone forever from traditional media. “Can you imagine a day when someone chooses to go back to selling their goods in the paper, instead of on Trade Me?” Bale exclaims.

The prognosis then is seemingly terminal. But it will be a slow, painful death. As magazines, papers, radio-stations jump-ship, who will survive? How can you survive? And with all these formerly big pigs drinking from a much smaller trough, is there any room whatsoever for the little guy, the one who the Internet was supposed to swing the power back to in the first place?

The truthful answers to that last question are quite sobering. The very interactivity of the Internet is what counts against the idea of pulling up sticks and setting up online. Sites like Google, Bale says, have simply changed the way people have started to think about advertising. “You can’t get complacent with online media. New trends, new ideas are coming up the whole time.” But the way traditional online journalism is presented, and the role of advertising in it, has stayed relatively static in comparison.

Creativity then remains key. So is critical mass and the power in numbers that it entails. Stuff isn’t Facebook, but the Internet, in and of itself is inherently interactive no matter what you’re trying to do. Alastair Thompson, is co-founder of Scoop, an early leader in internet media in New Zealand and an endeavour that spawned Werewolf. Subsequently, Scoop helped start Ffunnell – a block of independent sites (geekzone.co.nz, throng.co.nz, publicaddress.net, kiwiblog.co.nz, and naturally Scoop.co.nz) that banded together to gain power-in-numbers – and, as he says, to try and hand over a niche audience of “high earning influencers and opinion leaders.” It is an approach that Matt Bale would definitely approve of, when he listed “banding together and creating a decent block of numbers, or delivering a niche audience” as the only two natural ways for an independent media source to thrive.

Ffunnell used their platform and numbers to actively engage readers and advertisers. They hosted a chat-forum for a product, encouraged users to run blogs about their experience with another. They delivered the audience and then encouraged interaction within the actual site itself, and people responded; the audience was there and they were clicking through. With online advertising when something is a success, it is a success. No speculation.

It is why Scoop has been a consistently profitable enterprise, which is not the rule in the media in this day and age. “Too many online publishers do not put sufficient effort into managing and targeting their online advertising sales efforts and instead, rely on networks and others to manage their inventory for them,” Thompson says.
“In doing so they ignore their strengths and in the process end up delivering sub-par results to their advertising customers and therefore also on their potential income streams.”

Thompson returns an enthusiasm for the medium and its possibilities that was not returned by Mark Copplestone, advertising manager for TVNZ.co.nz. Copplestone believes that the interactive advertising model needs to share risk between media and advertiser, and then share benefit to increase profitability. He’s advocating here for a model that would see a website take less up front, for more benefit at the backend of a successful advertising campaign. Which is curious, as this leans towards a model that has been discredited in the past – cost per click, or cost per sale has been discarded – it is a tough way to gain revenue as a website, and to be successful you risk turning yourself into even more of a shill, pushing the audience away from the actual content of a particular site, towards more engagement with advertisements for the monetary benefit of the site owners.

He sees that a lack of intuitive information on sites like his is holding him back; he can’t target audience members the way a site like Facebook can. He quotes “five to ten years” as the time frame for when that sort of convergence of information might be available to him – for when TVNZ.co.nz might be able to bridge user-information with content-preferences to target advertising accordingly. But five to ten years is a pretty long time in the online realm (what were you doing online in 1999?) and so it is hard not to feel like he just might get left behind.

It is not helping either that the current on-line audience is not close to being representative of its current share of the advertising- market. Copplestone and Thompson realise this as providers, Bale recognises this as a buyer. Bale tells me that is far from an either-or situation at the time being for buyers, on-line media have opened up a new channel, offering another part of the advertising spectrum to explore. Ominously for old media, the current gap between the share of the online audience and its share of the entire advertising market (ie, television, print, radio etc) will not only see the new, online entrant gaining ground – “But also, investment into newer frontiers. Behavioural targeting, to different audience with different messages and different websites.”

The pool of money may not currently represent the pool of eyeballs. But it will. And the bar will get higher, and expectations for return on advertising dollars will increase. “Online media needs careful representation planning and focusing in order to sell itself effectively,” Thompson says. And he’s right, and will only get more so.

When years from now, and online is mostly all there is, it will interesting to see how much of the current one-person-and-an-idea-and-a-keypad will have survived. Maybe with a smaller amount of potential money to make, there will be a rise in this sphere. Laura McQuillan is a local journalist and fashion blogger – it helps her to write about things she can’t write about in her day job, but she is realistic about her chances of selling adverts to niche fashion companies largely based overseas. Subsequently, she talks of the enterprise more as a hobby.

Jules Van Cruysen is a wine blogger, a self-described “professional-amateur.” He gets a couple of thousand hits a month but has struggled to monetise the blogs – running ads and getting paid can be two separate things the further away you get from the mainstream. But the blog is a calling card for his wine writing, and he works in the industry. So it is an extension of his professional life. But at this end of the market the situation seems too splintered to ever be profitable – not that the hobby journalists, or those utilising the internet as a tool of promotion, should ever be discredited.

Creativity in reaching advertisers may be one thing, but the other face of this is the idea of critical mass. With Ffunnell, Alistair Thompson has found a way to meld a bunch of successful indie start-ups into a bloc of numbers and interactive data that ad agencies increasingly demand. Yet it also looks likely that the sole players like Jules and Laura will continue to go it alone, plying a largely non-renumerated trade for the fun and the romance of it all.

As a medium, the Internet tore down the barriers of entry into being a media provider. It allowed people like Jules and Laura in. But at times, the noise was deafening with all these people in, and no-one knew where to look, so they just looked to the same old places as they did in the real world.

That was what was supposed to kill print in the first place, except it didn’t. Video never did kill the radio star, but in this case it has merely began a process of slowly, imperceptibly suffocating its profit margins. In the process, it will keep on opening up new frontiers of reaching your eye, draining masses of money away from traditional providers of media in a hypothetical future environment where online is the only real medium of information.

These sites of tomorrow will compete against whole new metrics of accountability for advertising dollars. For journalism to survive – at least in anything close to its current state of breadth and professionalism – a boundary-less sense of innovation, and whole new economies of scale will be required.

James Robinson is a writer based in Wellington