How To Make Money In The Online News Biz Is Becoming Clear(er)

Online news has reached a critical turn: to the left lies quality content while to the right lies everything else - including most digital ads.


After 20 years of wrong turns and false trails, the online news business remains complex: product formats, consumption patterns and underlying business models are still changing while the red ink continues to flow (for most, at least).

Why is it taking so long to figure out a sustainable stable model for online news?

One key reason is that the barrier to enter the online news market is very low: with such a vast amount of source-content freely available online, it is possible to launch an online news venture simply by picking a subject area and re-purposing existing stories. Some people call that copyright abuse (they are wrong). But it would be hard to deny that this amounts to freeloading off someone else’s hard work.

Even if we knew nothing at all about the reality of the online news market as it stands today, then we’d expect that the low entry barrier would result in an over-supply of news content.

And because we know that the production cost of 'real' news is high then we should expect something else: the fact that it takes a skilled writer or journalist many hours or even days to write just one article means the oversupply will be concentrated at the lower end of the quality spectrum.

So we should expect an over-supplied news market with a heavy focus on relatively inexpensive re-writes – and that is pretty much what we have today.

But there’s another reason why the online news market is taking such a long time to figure things out: the playbook is constantly changing. For example:

  • The relatively recent arrival of advanced mobile devices means that users want to consume news content on all screens at all times;
     
  • The sharing and community behaviours that characterise social media mean that users want to share and interact with news content as well;
     
  • The rise of online video and the emergence of social image sites means that users now expect video content and beautiful pictures to be supplied as part of news stories;
     
  • Competition from other media forms means users have less time and many prefer to ‘graze’ on punchy headlines throughout the day, rather than investing the time needed to read articles in depth.

All in all, you could say that the online news market is a bit of a mess. 

But even so, we can glean some useful insights by breaking the online news market into 5 segments and thinking about the key trends that are shaping each of those segments. 

Segmenting the Online News Market

I grouped mainstream online news sources into three segments based on how much they invest in producing the content. Because this approach did not properly take into account blogs and machine-curated news content, I added those as two further segments to produce:

  • Type A: Deep Content, High Production Cost
    This type of content is invariably produced by long-established, branded publishers that have parallel print and online operations.

    These companies employ full time, professionally-trained journalists and writers which means that content production costs are the highest of all the segments

    Examples: Financial Times, The New York Times, The Economist, The Atlantic, Wired.
     
  • Type B: Solid Content, Medium Production Cost
    This type of content is similar to Type A in that it requires a full-time writing staff except: 
     
    • The content is distributed in a digital-only format (e.g. website and apps);
       
    • The cost of the writing staff when assessed on a comparative, per-person basis is lower which means that the average depth of writing must be lower than for Type-A sites;
       
    • The funding model is invariably via advertising, not paid models.

Type B content is not deep enough to attract a premium subscription, but it is too niche for it to attract the mass-scale audiences that are allowing Type C sites to grow.

Examples: Quartz, The Register, Vox, Gizmodo, The Verge, The Register. 

  • Type C: Surface Content, Low Production Cost
    Notwithstanding some notable exceptions (below), this sort of material mainly consists of sensational-type news content that is produced at low cost and in high volume. Oftentimes, stories are simple re-writes of material that is found elsewhere on the web.

    Type C sites are invariably funded by advertising that is frequently aggressive and usually involves ‘clickbaiting’ using salacious content that is provided by intermediaries like Outbrain and Taboola.

    In addition to the sensational, derivative, rewritten content that typifies Type C sites, there are two sub-segments: 
     
    • Top end: Some ‘deep’ content: It is significant that we are increasingly seeing ‘serious’ news content being published by some of these sites. For instance, Business Insider and BuzzFeed have invested in producing deeper content.
       
    • Lower end: Some ‘gutter’ content: At the lower end of the Type-C segment we have what could be termed ‘gutter sites’ where the focus is generating and filing as much ad inventory as possible for minimal outlay.

Examples: BuzzFeed, Gawker, The Mail Online, Business Insider.

  • Type D: Blog Content
    Comprising 100s of thousands or even millions of ‘long tail’ sites this segment comprises individuals who write blogs on a part-time basis – for interest, to supplement their income or because they have been told to do so by their employer. 

    Given that nobody is making a living solely from the advertising revenue their blog is generating, the most successful examples of Type-D sites are those which have been able to consistently publish high-quality content for which there is demand and where they have found other ways to monetise their users, for instance by selling consultancy services, building a profile which can be used to attract speaking engagements or reselling products and services provided by others.
     
  • Type E: Curated Content
    Google was the first web company to decide to curate news content, but the company’s Google News product has not been updated for years and, when compared with some recent services that have been launched into the curated news segment, Google News now seems rather crude. 

    The last few months have seen the introduction of a range of curated news services and initiatives that are based on re-publishing and re-distributing existing news content. However, unlike Google News which still simply provides links to the source articles, these new services add additional value in order to differentiate the content from the source articles. 

    Examples: Google News, Facebook Instant Articles, Apple News.

Analysis

There is a clear trend to increase quality, but only for some publishers.

Because quality content is expensive to produce we are seeing quality levels increase in some segments more than others:

Type A sites are way out in front and are investing in order to create even deeper content by:

  • Introducing detailed features and even theme-based article sets that border on research;
  • Creating brand value around their celebrity writers;
  • Developing a market position based on exclusivity and quality;
  • Offering more engagement with users though surveys and invitations to exclusive events.

In other words, Type A sites are trying to create a quality-based value proposition that has little to do with raw news content, which is increasingly seen as a commodity.

Type B sites cannot follow the same path because—being funded by advertising—they are under severe revenue pressure and therefore cannot afford to invest in the writing staffs needed to produce Type A content.

Type C sites are not following the quality path either. With few exceptions, Type C sites are locked in a race to the bottom. This is a race where the objective is to keep producing content that attracts large audiences while using every trick in the book to increase advertising revenue. For Type C sites, absolute quality is an optional extra.

Quality has to be primarily monetized using paid models, not ads

If you look at the wider Internet then it is clear to me that there is a general trend to paid-for models for many forms of quality media content (e.g. TV, music and film). And, in particular, premium subscriptions are the ascendant paid-for model.

I think that this existing trend is also shaping the online news market - because advertising simply does not generate enough revenue to support a professional writing staff that is producing Type A content.

Even bloggers are discovering this fact – with a consensus now emerging that the only way of making a living from a blog is to develop paid income streams, for instance by selling consulting services or selling products.

The majority of ad-supported news content will be in the lower quality tiers

If we are saying that the trend towards quality will have to be funded by paid models then the reverse must also be true: sites which are focused on lower-quality content will remain funded by advertising.

This means that, in the future, most online advertising for news content will be associated with low quality material.

We think that this should be very worrying for advertisers. Ultimately, the inference is that online advertisers are mostly not willing to pay what is needed to have their ads associated with quality content.

This could mean that the business case for a large segment of the entire digital advertising market is based on weak foundations: the global digital ad business is not only struggling to deal with click fraud, ad blocking, mis-targeting, privacy concerns and a litany of other woes, but a growing realization that most of their ads will be never be served alongside the best online news content.