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The Cold Hard Facts

Peter's blog about the final issue of the Rocky Mountain News and my desire to try and explain the challenges facing online content providers now that I've spent the better part of the last year learning everything I can on the subject compelled me to write a blog post on the subject.

I've been watching the demise of the newspaper industry with great sadness and interest. Until I took on the task of transitioning No Depression online I did not fully understand why journalism, and more specifically online journalism where writers are paid, was failing.

I come from a newspaper family. My dad spent his entire career from the early 60's through the mid 90's at the Spokesman Review and Spokane Daily Chronicle. He started in advertising sales and worked his way up to General Business Manager and spent his last years there at the helm of the business operations for both papers. After I graduated from the University of Washington School of Business I went to work for the Seattle Times and Seattle Post-Intelligencer selling advertising. I worked there for 7 years until the birth of my first son in 1993 and started working on No Depression in 1995 as the first issue was heading to the printer. There is ink in my blood. I'm a music fan for sure, but my first love is business and the publishing industry.

In trying to uncover or invent a viable business model for No Depression online I have been researching all I can about online advertising and have learned that according to industry experts it's a "broken business model". The average cost per thousand (CPM) received by web sites for banner ads sold through ad networks is in the range of $.60-$1.10 as cited by this interesting Media Post article, at our current traffic that wouldn't even add up to $1000 per month, and that would be ALL our ad inventory, with nothing left to sell direct. I opted not to devalue No Depression's content by taking the pittance we could receive from Google ads and banner ads from ad networks. The banner ads that we are selling directly are in the $6-$10 CPM range and with the challenges facing record labels these days it's been a struggle to sell even a small percentage of our available inventory. The amount we have been able to sell is not enough to cover even the basic business expenses, let alone the editorial budget, yet we reach considerably more people online than we did in print (over 80,000 unique visitors per month as of 4/10). For comparison an average print CPM is between $30 and $50. If No Depression had VC or investor money to work with I might have held on awhile longer, not that I see anything changing in regards to online business models anytime soon, but since it's been my own personal cash funding the shortfalls I have no choice but to work smarter and adapt quickly.

I've been following the trials of the newspaper industry and surveying other online content providers to see if there are emerging business models that will provide the revenue necessary to sustain business operations and editorial budgets. I attended a Seattle City Club panel discussion on the newspaper industry and got up at the end and asked the question "what's the business model" of the two panelists who are currently operating online. It was an interesting discussion but having been to several panel discussions on the topic by now along with researching extensively online I have found the outcome is always the same, the best and brightest in the industry have no idea of the path forward. The current economy is a factor but the web was already killing print, and revenue from web advertising is insufficient to support a viable business.

There is currently no workable model to charge a subscription for online content so that piece of the revenue which added a significant amount to our bottom line while in print is no longer available to help support the business.

Some believe that we are in the middle of a transitionary period currently where there is still plenty of quality free content on the web that's being aggregated from various newspapers who are paying writers to create content but as newspapers continue to fail and the source of that content dries up the pendulum will swing back the other way and people will be motivated to pay for quality journalistic content and business models will emerge to support content providers so they can pay writers. Don McCleese wrote a great piece on the No Depression web site, Yesterday's News Is Tomorrow's Loss that touches on this. It's an insightful article I highly recommend.

The Stranger, one of Seattle's weekly publications, wrote a great piece on the situation currently unfolding at the Seattle Post Intelligencer. Read it here. The PI is owned by Hearst and they announced a couple months ago that the paper was for sale and if no buyer stepped forward it would be shut down the middle of March. There has been speculation that they will go to an online only format and this article has some interesting insights as to what the future may hold for the PI. Given what I have learned I think it's probably the only way to go at this point and not entirely dissimilar to the path that I have determined is the path of last resort for No Depression at the current moment.

It saddens me greatly to be unable to pay No Depression writers and also to ponder a future without a daily printed newspaper. I can only hope that change will deliver a brighter future with currently unforeseen benefits. If you haven't already read the intelligent blog post by David Haskin "The Silver Lining" on this site, please check it out. And here's to a transformative future!

I'm a lover of quotes and these are some that I have referred to often through the trials and tribulations over the last year trying to keep No Depression alive.

"As for the future, your task is not to foresee it but to enable it."
Antoine de Saint-Exupery

"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty."
Sir Winston Churchill

"It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something."
Franklin Delano Roosevelt

"We must take change by the hand or rest assuredly, change with take us by the throat."
Winston Churchill

"Success seems to be largely a matter of hanging on after others have let go."
Publisher William Feather

Tags: depression, no, alternative, americana, business, country, cpm, fairchild, kyla, media, More…new, newspapers

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Comment by Ron Frankl on March 1, 2009 at 11:44am: Nice piece. Perhaps as traditional newspapers and magazines become extinct advertisers will migrate to their on-line successors, and the advertising revenue will be enough to sustain them. I don't foresee a day when people will spend any significant amount for access to content, and I think that any business model for on-line publications will have to be advertising driven. With the current economic climate, though, there is a whole other set of forces that are effecting the market and making it even more difficult to succeed.

Comment by Grant Alden on March 1, 2009 at 1:32pm: Here's one of several questions for which I have no answers, and about which I have written and talked and thought in several places: Why is the perceived value of an online eyeball so much different from the perceived value of a print eyeball?

We have come to the end, we think, of an era in which knowledge was actively disregarded, be that knowledge about global warming, stem cell research, or the presence of weaponry systems in Iraq. To some extent, the media reaps the worldwhine [sic] of its complacency in these events. And to some extent things have to tilt the other way, don't they?

Finally, a motto courtesy Mudhoney: "If you're not failing, you're not trying hard enough."

Comment by Jake London on March 2, 2009 at 10:07am: Nice piece. Thanks for sharing your thoughts. I think it's useful for people to see just how hard you have worked to try and keep ND viable in one form or another and how present circumstances are creating some very tough choices.

Comment by Jake London on March 2, 2009 at 10:30am: Definitely seems like there is an element of supply and demand, in the sense that as long as the "familiar" print advertising models exist and the perception is that they remain effective, they will be a drag on the market for on-line advertising. I suspect that on-line advertising is also being sold at under its "true" value to convince people to use it at all.

That being said, the print and traditional broadcast medium was so much more of a closed system than the web. So it was probably easier to enforce a certain cost structure.

I think the long term question is whether users, on the one hand, will be willing to pay a premium to have good signal filtered out of the mass of noise that is the internet, and whether advertisers, on the other hand, will be willing to pay a reasonable premium to more or less achieve the same goal in reverse (reaching perhaps less people in aggregate but more of the right people).

Seems to me that a lot of the models and methodology for really understanding the value of that relationship is still being developed. Ad Words are a cool idea. But they seem like the most actuarial approach to advertising short of spam. It's like telemarketing from mailing list you bought from someone in a similar business as opposed to just dialing numbers randomly out of the phone book.

There are definitely people who make money doing all those things. And to the extent that someone chooses to go to page where the Ad Words are, I guess it bears some tenuous connection to Permission Marketing.

But it's a very weak form compared to all the other great opportunities web provides for really getting to know a community/customer base. I hope that as people start to appreciate just how rich the experience can be, the value of it will continue to increase.

Finally, one other quick question: How much bigger would the ND community need to be to generate a high enough CPM on-line to generate the same revenue the mag was making when times were good? Or is there no size big enough to achieve that? Sorry if that's a dumb question.

Comment by Ben London on March 2, 2009 at 10:47am: Good read Kyla. We should put a panel together on this subject for the next MusicTech Summit in November.

BL

Comment by Kyla Fairchild on March 2, 2009 at 11:03am: Yes it is very much an element of supply and demand. I was going to post a reply to Grant's question regarding the relative value of online vs print eyeballs. What I hear is that when advertising was first offered online the price was set very low and unfortunately that set the standard that is still used today. Because there is so much more supply than demand the price stays low. I have also found that people are afraid of what they don't know and understand, so selling online advertising is a bit of a challenge due to that. No one wants to admit they don't know how it works or how it's sold, and so each ad sale is an education process. Online ads are sold using a different language and different metrics than print ads. It's not at all complicated or difficult, it's just different, and until you have someone who is able to explain it to advertisers who are willing to embrace the change there will be less demand than there should be. I have found that advertisers can get amazing values online and I'm surprised that more aren't willing to jump in and give it a try. It's part of the problem with monetizing the business, but the exposure that labels used to have to pay $1000-$1500 to get in the magazine they can get for $300-$500 online.

In answer to your question " how much larger the online ND community would need to be to generate the same amount of revenue we did in print ", using a CPM of $1.50 which is the high side of what most of the impressions would be sold at through an ad network it would take 6million to 7million unique visitors a month or approximately 24million page views a month. I hadn't ever actually calculated that out, but interestingly I have heard several times from several sources that the magic number to monetize a web site is 6million unique visitors per month. That would also depend on how many ads were on the page, and this calculation is for just one ad, and there would probably be more than that. And of course every business has different expenses and overhead so 6million could provide ample revenue for one business and not nearly enough for another.

Comment by Jake London on March 2, 2009 at 8:16pm: So it's really got to be many orders of magnitude larger than print publication. Yes? Or not?

Comment by Kyla Fairchild on March 2, 2009 at 8:44pm: yes, in order to bring in the same amount of revenue online as you could in print you need a substantially larger user base.

Comment by David Youngstrom on March 3, 2009 at 8:33am: What about a subscription basis, supplanted by donations? How many would it take, at say $25/year?
I, for one, would gladly pay, because aggregated, and more important, edited content is worth at least that much to me. Yes, there are many blogs out there that will provide content for free, but most of them are worth exactly what I paid for them - nothing. David Youngstrom

Comment by Ron Frankl on March 3, 2009 at 8:39am: But there are some people that will never pay a cent, on some general if misguided principle. For better or for worse, fifteen plus years into the era of the web as we know it, the majority of its users don't believe that they need to pay for content. For that reason, advertising revenue will remain the dominant revenue stream.

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