Intro

Although the economics are still evolving, the Internet has now become a major source of news in America.

In September 2003, over half of the people in the United States - 150 million - went online, a record for Web use.¹ And half to two-thirds of those who go online use it at least some of the time to get news.

Whether the new medium is replacing the old, however, at this point is less clear. Although some people report getting news online at the expense of getting it from magazines and newspapers, the majority of online news consumers say they spend as much time with print as they did before. Television news, research shows, may be more affected.2

The Internet is the medium having the most success attracting young people to news, something that the older media were having trouble with before the Internet even existed.

Economically, producers of Web news are still trying to translate the rising number of people who get news online into the kind of profits to which traditional news media companies are accustomed. Journalism has traditionally been a slow-growth industry (CNN, for instance, took ten years to turn a profit). The Internet seems no different. Some of the biggest news Web sites are not yet breaking even. And the revenues that media companies do get from their Web activities, while rising, account for only a small fraction of their overall revenue. Gannett makes more revenue from its newspaper division in a week than its online division makes in an entire year.3

Still, online advertising revenues are growing at a much quicker pace than those in the traditional media. The Web has also continued to gain prominence with consumers, as evidenced by the $12.2 billion spent online between Thanksgiving and Christmas in 2003, an increase of 42 percent over 2002.4

The Web has produced a new breed of online competitors vying for local advertising dollars, especially classified. Their chief rival, the newspaper industry, has kept these new competitors at bay for now, but the battle is far from over.

In the meantime, a handful of giant media companies have come to dominate Web news, at least for the moment. Time Warner, the largest of them, controls two of the top four news sites. Nearly 69 percent of the most popular news Web sites are owned by one of the 20 biggest media companies. There are also a myriad of local Internet news sites, whose goals are not to compete for the nationwide audience but rather to appeal to the local community. Their popularity is harder to track.

Web logs, or blogs, such as instapundit.com and kausfiles.com, are an exciting new prospect for the Web. And some of these bloggers are influential. For now, though, bloggers appear to command only a fraction of the online audience. During the first week of the Iraq war, for instance, the Pew Internet & American Life Project found that only 4 percent of Internet users had visited a blog.

The Web is the only part of the mainstream news business that generally is seeing audiences grow, especially among the young. People like the convenience of the Web, its availability at work, its speed for delivering breaking news, and increasingly they are coming to trust the accuracy of the information they receive there. The problem is an economic one. How will Web journalism begin to pay its own way? If people increasingly substitute the Web for their old media before a robust economic model for the Web evolves, the economic effect could be devastating for journalism. Companies might begin to cut back significantly on their newsgathering abilities, as audiences abandon profitable old platforms in favor of less profitable new ones. The net in this case might weaken, not strengthen, the economic vitality of news organizations and the quality of American journalism.

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