media update’s Adam Wakefield looks at how the Internet has changed news publishing, and why the decision to support a revenue model dominated by advertising was possibly an error in judgment.

The Internet disrupted news publisher revenue, and continues to do so

With advertisers having to pay very little for ad space on the Internet, revenue began draining away from print.

However, online ad revenue has not kept pace since, with the pay-per-click model delivering a fraction of what print advertising used to. In 2012, it was reported that for every USD $1 of new digital ad revenue generated by newspapers in the United States, USD $25 of print ad revenue was lost.

While news publishers chased clicks to feed their online advertising revenue streams, those streams have been getting smaller and smaller, with Google and Facebook now dividing most of the world’s online ad revenue between them.

In South Africa, according to PwC’s Entertainment and Media Outlook 2016-2020 report, newspaper revenue was projected to decline by approximately 2% between 2011 and 2017, and by over 3% by 2020. The same report notes that total newspaper revenue, which was R9.1-billion in 2015, will decline by a billion Rand or approximately 11% by 2020.

While digital advertising revenue was expected to grow by a compound annual growth rate of 13.7% between 2016 and 2010, it “will not counteract the decline in print advertising”. Circulation and circulation revenue has been predicted to decline, as increases in copy price fail to compensate for copies sold.

Publishers try to turn back the clock by returning to a combination of advertising and subscriptions  

The New York Times is a success story of digital publishing, but it only began offering digital subscriptions in March 2011. Peer newspaper The Washington Post, which recently announced its second straight year of profitability, only started phasing in paid online subscriptions in June 2013. Both publications are now pursuing a mixed revenue model over an advertising one.

In April 2017, editor and journalist Ferial Haffajee told media update at the IAB Digital Summit that media owners will acknowledge that they made a fundamental mistake by giving their product away for free in the beginning.

“I don’t know about you, but I pay for my news. I pay for the Financial Times, I pay for The New York Times; I pay for good journalism because it’s quality, it’s specialised, and it’s sophisticated,”

“The free model is an important democratising one in that you are making news free. But then what’s the quid pro quo in that? Who is going to pay for the journalist to do the important work, and what do you do when you can see journalism weakening?” Haffajee said.

Henriëtte Loubser, editor of Afrikaans news portal Network24, agrees that South Africa’s news publishers made a mistake by allowing readers to access their content for free. Loubser believes magazines have been more strategic than newspapers by not providing free online content.

“When you are talking about commodity news, the kind of news you can get by attending a press conference or writing from a press release, or that is widely distributed online, you can make out a case for news being for free,”

“When it comes to first-hand reporting, being on the scene, getting unique info and news angles, and producing content tailor-made for your market, journalism becomes more expensive for the institutions producing it, while at the same time hopefully becoming a premium product worth paying for.” Loubser adds.

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Subscriptions are one form of revenue that publishers are turning back to earn revenue online. If done well, it can make a significant impact. Read more in our article, Why online publishers are favouring subscriptions.