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By the Project for Excellence in Journalism After a decade of high hopes, there are increasing concerns about the Web’s ability to meet the news industry’s financial challenges. The number of people going online for news on a regular basis is rising. The audience for major news sites is also continuing to grow. For many of these bigger players, the watchwords increasingly appear to be assimilation, acquisition and partnership. In 2007, among other examples, MSNBC purchased community news aggregator Newsvine and ABC News allied with Facebook, just as Google had earlier bought YouTube, and News Corp. acquired MySpace. But there are also nuances and growing concerns. There has been little evidence that these new acquisitions and alliances have added much to the bottom line or justified their expense. More significant, as a category, news Web sites appear to be falling behind financially. They are not growing in advertising revenue as quickly as other kinds of Internet destinations. And these figures do not include the most important revenue source, search, where news is a relatively small player. The most promising element heading into 2008 may be innovation. The news industry now appears to be taking to new technology in earnest. Sites are evolving quickly and, in a new development, the mainstream media are now among the more experimental players. More media sites are taking the reader away from the “walled garden” – their own content – linking to once-taboo outside sources or even inviting in third-party content, allowing hunting-and-gathering consumers to act more directly on their preferences rather than being led to them. Citizen media are also growing in ways unmistakable and engaging . Web sites run by citizen journalists are multiplying – rapidly approaching 1,500 heading into 2008 – offering stories, blogs and videos. And that trend is considered a healthy one by professional journalists, who call on citizens more frequently to inform their reporting. The journalism of the future increasingly appears to be a hybrid that takes advantage of the technology rather than fights it. But the questions of who will pay and how they will do it seem more pressing than ever. Content Analysis How does the lead news agenda online differ from that in other media? Is it a replay of what we find elsewhere? Is there any shifting of priorities? And among the most popular sites for news, commanding the largest share of the online news audience, how much original content is there to be found? Throughout 2007, the Project for Excellence in Journalism conducted a study of the lead news coverage every weekday on five of the most popular news sites on the Web -- AOL News, CNN.com, Google News, MSNBC.com, and Yahoo News.1 These sites range from generating their own content to solely aggregating content from other sources to having a mix of original reporting and reliance on other news sources. While much exists on these sites beyond the lead stories, the goal of this study was to investigate what stories and topics the Web sites were choosing to emphasize above all others. The most striking finding over all was a heavy emphasis on foreign news, particularly topics not involving the U.S. directly. One consequence of that, in turn, is that we found a smaller focus on major domestic news. We also found that the sites varied tremendously -- not only aggregators versus originators of news but also among the aggregators themselves. Yahoo was the most focused on the events in Iraq, while Google gave more attention to the 2008 election and AOL covered smaller, one-time news events. The two cable news Web sites mirrored the characteristics of their cable counterparts but with an added emphasis on international news. International Takes the Lead Over all, the lead news agenda online was the most international of any media we studied. At least in their top five stories, which is roughly analogous to the number of stories found on a front page of a newspaper and generally describes the number of stories featured at the top of a Web page, the leading Web sites studied put a premium on international news that far outweighed any other medium. Fully 25% of the top coverage dealt with non-U.S. international stories. This was nearly six times that of cable (4%), three times that of commercial network evening news and the network morning news (8%), nearly twice that of newspapers (13%), and about 60% more than radio news programming (15%).
In addition, 26% of the space was devoted to U.S.-international events, again more than any other genre, though not to the large extent as foreign news. Looking at the specific news stories covered enhances the finding. Of the top 10 news events in our online sample, six were foreign events, some of which involved U.S. policy and some of which did not. Events inside Iraq constituted the biggest story over all, accounting for more than one-tenth (11%) of the newshole of the lead stories online. Other events in the top 10 list were Iran’s weapons build-up (No. 4 at 3%), Pakistan (No. 5 at 3%), the U.S. military campaign in Afghanistan (No. 7 at 2%) and, at No. 10, the Israeli-Palestinian conflict (2%) By contrast, Afghanistan and Israel were not among the top 10 stories in the media over all and the other foreign stories all got a smaller share of the news agenda. Top Stories for Online Sites in 2007
Top Stories for All Media in 2007
This emphasis on foreign coverage online was a trend that occurred throughout the entire year of 2007. In every month except one (December), these sites devoted the most attention in their lead news to an international story. From January through October it was the war in Iraq — either events on the ground there or the debate over U.S. policies about the war. In November, the top story did not even involve the U.S. The chaotic events occurring in Pakistan led, accounting for a full 14% of the online newshole for the month. December was the only month where an entirely domestic story, the presidential campaign. was the biggest online story (16% of the newshole).
No other overall media sector studied came close to giving international news such consistent top play. It is only at the more specific programming level that resemblance appears. On the commercial evening newscasts, international news events got the most coverage seven months of the year and the PBS evening news gave it top billing in nine. Morning network television, on the other hand, only had three months where an international news story got the most coverage (all three months being the debate about U.S. policy in Iraq). Even in newspapers, the sector with the second-most focus on non-U.S. foreign news, a domestic news event got the most coverage for eight months. Cable television had a domestic story in the lead 10 months in 2007. Domestic News in the Background One result of the emphasis on international news is that certain domestic topic areas and specific news stories got less prominence. Elections and other U.S. politics, for instance, received the lowest percentage of coverage in the online sector —just 8% of the online newshole studied, 17% in cable television, 11% on newspaper front pages and 10% in network television. Online Topics for 2007
Totals may not equal 100 due to rounding. One area of domestic news that the Web sites gave more attention to in their lead stories was crime. Only cable television spent more of its news coverage (13%) on crime than the Web sites did (7%). In fact, for all of the domestic topics covered online, only stories about politics took up more space than coverage of crime. The greatest percent of this coverage were one-time events rather than continuing stories, followed then by coverage of the Virginia Tech shootings and the trial of I. Lewis (Scooter) Libby Jr., the White House official whose prison sentence was commuted by President Bush.
A number of domestic stories commanded less attention online than in other genres. Immigration, for example, was the No.12story of the year online (1% of the online newshole). While it received considerable more attention on cable television (5%) and radio (4%) and was the No. 4 story in the media over all. The tragedy of the Virginia Tech shootings was the No.13 story online (1%) while it was the No. 7 story on cable (2%) and No. 9 on network television (2%). Certainly users can find news stories about a large variety of topics lower down on these sites, in the margins of the news sections or through user-generated searches. But, to the extent that editors or algorithms are making a news agenda, there is higher priority placed on international news. And the PEJ has found in past research that it is often only these lead stories that take advantage of the online capabilities, offering users multimedia components such as slide shows, video clips or links to background information. A User’s News Agenda? If the Web is all about democratization of the news and the flow of information, there is an interesting chasm in the priority of news public interest. Through the year, the one area that the public consistently said the press gave too much attention to was foreign news. President Pervez Musharraf’s decision to declare a state of emergency in Pakistan, the Mideast peace summit meeting at Annapolis, Maryland, the agreement by North Korea to abandon its nuclear weapons program and the Lebanese Army’s battle with Islamic militants were all stories that the public felt generated too much media attention. (See Overview) Does this suggest that the Web sites, at least in their lead news coverage, are less reflective than other media of users’ interests? One important difference is that the audience for many of these Web sites, according to online news professionals, is more international in origin. The audience for network evening newscast, for instance, lives by and large in the United States. The audience for Yahoo News lives around the world. Site Differences – The Aggregators The mix of online outlets studied is more diverse in structure and news process than any other genre studied. Three of the sites aggregate news, one with a completely computer-based algorithm (Google News) and two tied to cable news channels (CNN.com and MSNBC.com). We’ll first consider the aggregators. Google News uses a computer-based algorithm to determine the most popular stories being read throughout the net. It does not include any originally reported material, but takes its headlines and links from a wide variety of sources that originate from all over the globe. Yahoo News is another frequently updated aggregator site, but it uses human editors to select stories throughout the day. The editors rely heavily for their top stories on wire services such as the Associated Press (98%) and, as we have found in past research, update it continuously. At least in these top stories, Yahoo News tends to emphasize breaking news as it happens rather than offering different angles on a given story, analysis pieces, or multimedia treatment of top stories. AOL News also relies heavily on wire news services for its content, but the home page looks less like a listing of the top stories and more like an interactive newspaper in that each of the highlighted top stories on the center of the page is given a teaser, a photograph, and perhaps an interactive feature. In addition to the feature stories, AOL News is incorporating more and more user input by having sections on the home page devoted to “blog chatter” and “user-submitted news.” These sections are different from the prominent stories highlighted by the editorial process from AOL. How did the various structures sites play out in the featured news coverage? How did Google’s algorithm-based selections compare with the stories on a aggregator such as Yahoo, a site that is still mostly written by outside news organizations but involves an editorial selection? Geographic Focus for the Top 5 News Web Sites
Google and Yahoo stood out for a similar devotion to international events, more than other outlets. Fully two-thirds of the lead coverage on each site was about foreign news (65%) for Yahoo and 64% for Google). Google devoted a little more space to non-U.S. international events (37% versus 32% on Yahoo). But within this geographic breadth, their specific story lineups were quite different. Google’s top story of the year was domestic — the 2008 presidential campaign, accounting for 10% of the lead coverage. This was close to five times the attention it received on Yahoo, where it barely made it into the top 10 list (coming in at No. 9 with 2%). Top Stories for Google News in 2007
Google has even structurally imposed priority for foreign news. Beneath the top two or three stories featured on the center of the page are topic-related sections, the first of these is “World” news, followed by “ U.S.” news. Yahoo News stood out in its lead news stories for a devotion to events inside Iraq. Those events alone accounted for a full 16% of lead coverage, making it the top story over all for 2007. Those events ranked first on the other three Web sites as well, but not at that degree of coverage. (MSNBC.com devoted the second most attention to it at 12%.) Coverage of these events got three times the attention on Yahoo as the second- place story, the debate over U.S. policies there (5%). In fact, events in Iraq got the top most billing—the No. 1 lead story in more one out of every four weekday mornings (27%) in 2007. Top Stories for Yahoo News in 2007
The other story that stood out on Yahoo’s news page was the U.S. economy. Throughout the year, its lead stories tended to give more attention to the U.S. economy, 4%, than the 2008 presidential campaign, 2 %.) Top Stories for AOL News in 2007
If Yahoo was the most caught up in one news story, AOL News was the reverse. Readers of its news page got the greatest mix of lead stories day-to-day. AOL spent less time on the Iraq War (13% total) than any of the other Web sites, and no single news story took up more than 7% of the coverage. Over all, the top 10 stories accounted for just 28% of the newshole, at least 20% less than any other Website studied (MSNBC.com 42%, CNN.com 35%, Yahoo news 49%, Google news 41%). And the last two stories on the list — global warming and the investigation over the leaking of Valerie Plame’s association with the CIA, each accounting for 1% – did not show up in the top lists of any of the other four Web sites. Another way to consider AOL’s tendency toward smaller, one-time news events is by looking at the top story for each download. What landed in the No. 1 spot? Here again, the big news events of the year were less common. On 13% of the days tracked, the lead story was not among the list of major stories that PEJ was tracking as part of its weekly index. Among the other sites, an average of only 9% were not big news events.
For example, on the morning of July 9, AOL led with a story about the NAACP planning to hold a symbolic funeral for the “N-word,” a story that did not attract much attention in many other media outlets. On that same day, MSNBC.com led with a story about a tougher immigration policy in Oklahoma, Yahoo News led with a story about President Bush invoking executive privilege to prevent some of his staff from having to testify in the investigation over the fired U.S. attorneys, Google News led with a story about Pakistan’s President Pervez Musharraf trying to deal with a conflict with militants at a mosque in his country, and CNN.com led with a story about the shutdown of the Pennsylvania state government over a budget dispute. All these stories on the sites other than AOL were stories that received much more coverage in the media over all than the story that AOL chose to lead with. The differences in subject matter between AOL News and Yahoo News cannot be accounted for by the sources that the sites use for their lead stories. Both AOL and Yahoo use wire services for more than 90% of the lead news coverage on their sites, most of it coming from the Associated Press. So while each site often relies on similar sources, they make very different editorial decisions about which stories to lead with. Source by Web Sites
Google News, on the other hand, a site that produces no original content itself sends its users to other sites for their news content. And when a user follows a link from one of the lead stories on the Google News site, 17% of the coverage was wire content that appeared on some other site while 82% of the coverage was original reporting by the cited news organization, most often newspaper outlets. Site Differences – Sites Tied to Legacy Media Two of the sites in the year-long study were tied to legacy media, in particular cable news channels. In what ways do the sites tied to legacy media differ from those who are not likewise connected? And how similar is each to their cable identities? The CNN.com and MSNBC.com homepages mirror to a certain degree the news tendencies of cable counterparts but augmented with the characteristics of online news such as a greater emphasis on foreign news. CNN.com is similar to the CNN cable network in that their specialty is in featuring up-to-the-minute news and spends less of its focus on its on-air personalities and more on the ability for users to customize the site. On the CNN.com homepage, the latest headlines are featured prominently on the page with one story usually getting the clear top billing because of a large picture and sizable headline. CNN.com also offers ample opportunities for users to watch streaming video clips that accompany the news stories of the moment. Below the top lists of breaking stories, CNN.com has sections for two headlines for various groups of news (such as “Politics,” “Entertainment,” and, “Science”). The site also has links to blogs written by CNN’s television personalities and information about their programs, but those are not as prominently placed. MSNBC.com, on the other hand, has built its own identity by being the home for NBC, MSNBC and Newsweek magazine. The site offers a combination of breaking news, often from wire stories, along with longer pieces from Newsweek and prominent links to the various NBC and MSNBC television-related Web sites. Like CNN.com, multimedia features are prevalent on the site, although unlike CNN.com, MSNBC.com will often feature multiple stories on the top of the page with pictures and story teasers rather than focusing on one or two emerging stories only. Beneath the top stories on the page, MSNBC.com also has sections devoted to specific topics, but, unlike CNN.com, the sections include six or more headlines along with multiple video news reports for each section. A quarter of the lead coverage for CNN.com (25%) was about stories that went beyond the boundaries of the U.S., while only 17% of the lead coverage on MSNBC.com did so. Top Stories for CNN.com in 2007
Top Stories for MSNBC.com in 2007
Comparing the CNN and MSNBC Web sites, both had the same top story for the year, events on the ground in Iraq. And both sites spent about the same percentage of coverage on the Iraq policy debate (CNN.com at 5% and MSNBC.com at 6%). However, MSNBC.com gave twice as much coverage to the presidential campaign (10%) as CNN.com did (5%). MSNBC.com also gave more coverage to the U.S. economy throughout 2007 (3%) than CNN.com did, which at 1% was not one of the top ten stories of the year on their site. MSNBC.com’s emphasis on the presidential campaign reflects an identity that the cable channels established this year. (See Cable news investment section for more) In the programs studied throughout 2007, the cable channels devoted almost a quarter of its newshole (24%) (See Cable content section for more) to the campaign, more than any other news outlets studied. While the percentages are smaller online, the priority of politics relative to other news and to other Web sites stands out.
Similar ratios’ exist in coverage of the policy debate about the war in Iraq. It was one of the most covered stories on both MSNBC.com (No.3) and the programming studied on MSNBC cable (No. 2). But the percent of newshole it garnered was much smaller on the Web site (6%) than the cable channel (16%). The similar ranking but smaller percentages on the Web site suggest the slightly different role each outlet plays in daily journalism. The cable television news programs, especially ones like Hardball and Countdown, are more about pundit-driven analysis and discussion of one or two news events of the day. The Web site that at least in brand name is associated with the cable channel (they are separate companies produced on separate coasts) is a place more for event-driven coverage of breaking events. This also helps to explain why the reports of the war in Iraq, which were almost all event-driven stories, were the lead story on MSNBC.com at 12% and the policy debate about Iraq, at 16%, was the No. 2 story on the cable channel. CNN and CNN.com have a closer relationship: they are at least the same company and are produced in the same city, although the television people are not directly responsible for the Web site. And here the contrasts between cable and the Web were not as sharp. For CNN.com, the presidential campaign was the No. 3story of the year (5%) while it was the top story on the cable channel at 10%. Likewise, CNN.com focused more on the events in Iraq (the No.1 story at 11%) while the cable channel focused more on the policy debate about potential planning for the war (No. 2 at 10%).
The most striking difference between CNN and CNN.com’s lead news coverage is in the emphasis on immigration. On the Web site, immigration was the No. 7 story of the year at 2%. However, on the cable channel, immigration was No. 3 at 7% of the airtime. Much of this difference can be explained by the presence of on the cable channel of Lou Dobbs, who devoted 22% of his airtime to immigration. It is clear that the focus Dobbs has on immigration on his cable show does not carry over to the editorial decisions made about the lead stories on the CNN.com Web site. The focus of the Web sites in this study on international news is even more evident when comparing CNN.com and MSNBC.com to their cable counterparts. CNN.com (at 25%) and MSNBC.com (at 17%) devoted much more coverage to issues not involving the U.S. than did the corresponding cable channels, with CNN only devoting 6% of its airtime to non-U.S. stories and MSNBC giving even less with only 2%. Footnotes 1. For each site studied, the Web sites were captured every weekday between 9 and 10 a.m. ET. The Project captured and coded the top five stories on each site, as those are the most prominent as determined at that time by the news service. Audience As the number of people going online continues to grow, how people use the Internet is changing rapidly, as does what they access and how often they visit those sites. Americans are going online more frequently, spending more time there and relying more on search and links rather than brand-name destinations to navigate the Web. They are also spending more time looking at content and less time e-mailing. Video is becoming more important. And while still a niche activity, mobile access is widely expected to grow, thanks to a revolution that may be led by the Apple i-Phone. The Web is becoming a more integral part of people’s lives. Eight in 10 Americans 17 and older now say the Internet is a critical source of information — up from 66% in 2006. According to the same survey, more Americans identified the Internet as a more important source of information than television (68%), radio (63%) and newspapers (63%).1 Another survey found that fully a third of Americans now say the Internet is the most essential medium (up from 2 in 10 in 2002), trailing television by only 3 percentage points.2 The Online Universe In 2007, as the number of people going online grew, so did the frequency with which they went there, as well as how much time they spent. Over all, 75% of adult Americans use the Internet, according to data from the Pew Internet & American Life Project gathered from October 24 to December 2, 2007. That number is up from the 70% during the same time in 2006.
When respondents are asked about more regular use – say, if they went online “yesterday” – there is even more growth. Fully 72% of Internet users said they had been online the day before, up from 65% in 2006, the survey found.
Data from other sources seem to confirm the finding. According to the USC Annenberg Center for the Digital Future, Americans 17 and older said they spent 15.3 hours a week online in 2007, up by more than an hour per week over 2006.3 In a November 2007 Harris Poll, Americans reported spending 11 hours per week online, up from nine the previous year, and eight hours in 2005.4 Online News Viewing How many of these Americans are going online specifically for news? Nearly three-quarters of those who go online have used the medium at some point for news in 2007, a percentage that has not changed over the past five years, although the total the universe of online users has grown during this time. But, as was the case for more general use, the number going online regularly for news is growing. In late 2007, more than 7 in 10 Americans (71%) said they went online for news, the same number reported in 2002, according to the Pew Internet & American Life Project. But the number who reported going online more regularly has grown considerably. In the October to December survey, 37% went online yesterday for news, up from the 30% who did so at the same time in 2005 and the 26% who did so in 2002. This is the highest number recorded by the Pew Internet project.
Online Video One element of Internet growth is the use of videos, but how much it has grown is less certain. According to a 2007 study from the Online Publishers Association, 44% of online video users say they watch them on at least a weekly basis — up from 24% a year ago. More frequent use is up as well, according to the study. Eight percent report watching video online daily, up from 5 percent a year ago. A different study, from Horowitz Associates, a market research company, put that number even higher among high-speed Internet users. It found that 61% of them watched online video content at least once a week, up 36% from 2006.5 Meanwhile, the Pew Internet & American Life Project’s first major report on online video shows as of March 2007, 57% of online adults have used the Internet to watch or download video, and 19% do so on a typical day. For those with broadband connections at home or work, 74% report having watched video online.6 Other research suggests more regular online video consumption could be quite a bit lower. The Leichtman Research Group, which looked at the general population, found only 4% of all adults over 18 watch video online at home every day, and 14% watch once a week. In comparison, 93% of all adults spend at least an hour a day watching television.7 Whatever the number, the bigger audience bodes well for video on news sites. News videos appear at the top of most-watched lists in several studies. Research from the Pew Internet & American Life Project found that news was the most popular genre, surpassing comedy, movies and television, music and sports. Thirty-seven percent of adult Internet users report ever having watched online video news. Ten percent said they had done so yesterday.8 Other research also finds news to be the most popular online video category. According to an Online Publishers Association study, 14% of video users said they watched online video news on a daily basis, up from 5 percent a year ago. A third study, from advertising.com, found that news was the leading category (62%), followed by movie trailers (38%) and music videos (36%).9 At the same time, investors increasingly see the medium as a lucrative one. A Dow Jones survey found the amount of venture capital channeled into video-related startups was up 95% in 2007 over 2006, reaching $682 million.10 Who is most likely to watch online news video? Everyone, with the exception of young adults, according to survey research from the Pew Internet & American Life Project in February and March of 2007. These younger Americans, the 18-to-29-year-old group, preferred comedy (56% vs. the 43% who said they had watched news). But even comedy may qualify as news to some. “Much of the content viewed by young adults, such as clips from The Daily Show or The Colbert Report, blurs the line between news and comedy,” the Pew report argued, referring to two cable television programs on the Comedy Central channel.11 The rise of video viewing brings a significant shift to the possibilities and appeals of the Web, which for many years had remained largely text-based. The newspaper industry, which used the text-based structure to its advantage online, appears to have understood this shift to a more video-based platform. With greater competition online from other news that is video-based, the industry is grappling with what balance to strike, at the same time trying to find the resources and time to train staff in video story-telling (see Newspaper Chapter). How is video consumption online affecting television viewing? For now, there are conflicting data. One study found that 32% of frequent YouTube viewers said their time spent watching television is most likely to have taken a hit, and 36% said their YouTube viewing comes at the expense of visiting other Web sites.12 Yet research from advertising.com came to a different conclusion: 80% of Americans said online video usage does not cut into their television viewing.13 The Changing Way Online Information is Accessed The most important change in the Internet in 2007 may not be in the size of the audience per se but the growing recognition of how people are using the medium. And that may start with the way people arrive at Web sites. For years, much of the strategy behind major Web sites connected to larger companies, particularly in news, was to lure users to a home page or section front and try to keep them there. The New York Times site, for instance, features its own content, as most other news sites do. Some people have likened it to entering a walled garden. Even aggregator sites like America Online tried to create a good deal of proprietary content to persuade users to choose it as their Internet provider. For many, particularly Web sites engaged in producing news, the walled garden connected to long-held and cherished professional principles. Visitors were being directed to content the site could vouch for, usually already vetted. This was core to the concept of brand — the reason for coming: If it’s here, you can bank on it. The focus was on collecting eyeballs, and any link that sent readers offsite was frowned upon. “A link that went to a competitor’s site was almost treasonous,” as Mark Glaser, the author of MediaShift, a PBS weblog that tracks the Internet, put it.14 But early in online development, a different philosophy emerged. Aggregators such as Yahoo, and later Google, did not produce news but helped users navigate work produced by others. Blogging represented something of a hybrid, a place where individuals offered comments but also passed along news stories and linked visitors to other blogs — news and opinion as a social dialogue. The same was true of social networking sites and viral marketing. In 2005, Dave Winer, a pioneer blogger who ushered in the development of Really Simple Syndication, or RSS, feeds (explained below), began to see the value of having news sites mimic, at least somewhat, the gateway model. “Imagine putting your best news, with links to pages with your ads on it, in the right column of a River of News style aggregator with all your competitors’ news on it (and weblogs, of course, thank you),” he said. “Now the readers no longer need to go to your competitors’ home pages. You’ve just given them an incentive to come to you to get news from them.” The kind of change Winer was talking about was bold, and most news Web sites stuck to what they knew. Even as late as 2007, PEJ found sites largely keeping users inside their own content.15 But we may look back at 2007 as the year that consumers could act more directly on their preferences, rather than being led to them. In 2004, most users came to a Web site through its home page, Advertising Age reported in April 2007.16 While the magazine offered no hard data for that, it did have some numbers for how things worked now. By 2007, only 43% arrived at Web sites via their front pages, the magazine reported. Instead, nearly 57% report first making contact with a Web site by clicking to a page buried deep inside. At some sites, the numbers may be higher. The editor of one of the country’s largest newspaper sites told us in a background briefing that fully two-thirds of the traffic to his paper’s site now comes not through the home page but, in effect, through the side door, through aggregators, blog links and other means. When the New York Times announced in September 2007 it would no longer charge readers for online access to its opinion columnists, an article in the newspaper explained as follows: “What changed, the Times said, was that many more readers started coming to the site from search engines and links on other sites instead of coming directly to NYtimes.com. These indirect readers, unable to gain access to articles behind the pay wall and less likely to pay subscription fees than the more loyal direct users, were seen as opportunities for more page views and increased advertising revenue.”17 This is a major reason, in turn, that Rupert Murdoch considered for a time eliminating the paid content requirement for the Wall Street Journal online. The paper was thought to be losing more in potential advertising revenue from higher traffic than it was gaining from subscriptions, but Murdoch said in January 2008 that the paper would continue to charge readers for access to much of its Web site. Murdoch, who took control of the paper a month earlier, finally decided to keep the it behind the paid wall, at least for now, company officials said.18 This recognition is changing the way sites are being designed, including in news. “The walled garden is over,” the editor of one of the country’s most popular Web sites privately told us this fall. Indeed, a PEJ analysis in December 2007 found some local sites, such as the online version of the Cleveland Plain Dealer and several others owned by the Advance/Newhouse Group, one of the top five newspaper companies by daily circulation,were now linking to outside content. But this is not new only for smaller newspapers. The Los Angles Times, the fourth largest newspaper in the country, announced in February of 2008 that it had added the ability to place hyperlinks in its news stories.19 Some leading media sites have gone a step farther, taking much of the work out of updating outside links by using “disaggregation.” CBS.com and Washingtonpost.com, for instance, now embed coding, called widgets, into their pages, that bring in live content – advertising, links or images — from third-party sites without the need for constant monitoring. Aggregators like Sphere, Technorati and Newsgator also help news sites keep up with the wave of online content that could be helpful links for readers. Technorati, the leader, for instance, tracks 112.8 million blogs and over 250 million pieces of tagged social media. Once Again, Content is King This horizontal nature of Web traffic — people moving among sites, hunting and gathering as they please — may also be linked to another growing recognition about how people use the Web. There was new evidence in 2007 that more Americans were spending time online with content rather than with communication tools, like email. According to a study by the Online Publishers Association, nearly half (47%) of all time on the Web was devoted to content, up from 34% in 2003. The study also found a significant decrease in time devoted to communication, falling from 46% in 2003 to 33% in 2007. The study’s authors attributed the trend toward content-driven viewing to four factors that open Web doors wider or save users time:
How Internet Users are Spending Time Online
Source: Online Publishers Association What is not clear is whether the extra revenue that could result from consumers spending more time online with content — and news in particular — will be enough to offset sluggish ad revenue growth on older media platforms, such as television and newspapers. The data now suggest that ad spending on the Internet, including news, is growing. However, both growth rates are slowing. ( See Economics Section and Advertising Chapter.) In this horserace between content and communication, e-mail is still the single most popular activity online. According to data from the Pew Internet & American Life Project conducted in late 2007, 60% of Internet users said they sent and received e-mail, compared to the 37% who received news or the 19% who watched any kind of video.20 And according to Lee Rainie, director of the Pew Internet project, people are also communicating on social network sites like MySpace and Facebook, activity that is not captured by research organizations. News Over the Phone If the Web is becoming a more horizontal activity, and content is more of a draw, how much of it is moving to cell phones? In 2007, the evidence suggests online access through mobile phones was still a niche activity. The debut of Apple’s iPhone in June of 2007 may begin to change that. In February 2008, the company projected sales of 10 million iPhones by the end of the year.21 In addition, other technology companies such as Google are developing software and other technology to make it easier to use the Internet over the phone. These companies, though, have a long way to go. As of March 2007, the latest period for which data are available, more than 60% of U.S. broadband users owned an Internet-enabled mobile device, but just 5% reported using the Internet there, according to research conducted by Media-Screen, a research firm.22 And another study, conducted in July 2007 by Avenue A|Razorfish, a Web design firm that develops applications and layouts, suggests usage of the Internet through cell phones is higher, with 36% using them to check weather, news or sports headlines. Still, 64% said they had never used their phones to do so. Moreover, 76% had not viewed video on their phones.23 For those people who do use their phones online, what news sites do they tend to visit? Data from January of 2007, six months before the release of the iPhone, found it is a mix of traditional news, pure play and sports sites. “While the use of mobile TV is a growing trend among mobile phone users, its current devotees appear to be the early adopters of new technologies,” said Serge Matta, senior vice president of comScore Telecom Solutions. “As is the case with the majority of technology lifecycles, early adopters include many younger and male consumers. Once the early adopters have had a chance to fully engage with the technology and share their experiences with colleagues, mobile TV is substantially more likely to reach a critical rise in the marketplace.”24 Podcasting As with using cell phones to access the Internet, podcasting is popular with only a certain few heading into 2008. The number of Americans who own MP3 players, such as Apple’s iPod, continued to rise. Nearly a third of Americans (30%) over the age of 12 owned an iPod or other MP3 player in 2007, an increase of 8 percentage points over the previous year.25 And there is no shortage of podcasts ready to stream over those phones. According to PodNova, an Internet site to place to find podcasts and videoblogs, there were 90,000 online in 2007. But only 13% of Americans over 12, or 32 million, have ever listened to podcasts, according to Arbitron.26 And just 1% downloaded a podcast on a typical day, said James Belcher, a senior analyst with eMarketer.27 That does not appear to have affected the inventory for news podcasts. According to Podcast Alley, an organization that tracks podcast content and trends, there were 36,018 podcasts as of October 2007. Of those, 984 focused on news and politics. And of the top-10 podcasts that Podcast Alley tracked in October, half were on news and politics. (See Radio Chapter.) Online Audience Metrics: The Web’s Biggest Challenge? All the changes in online audience viewing habits have made a tough job even tougher – measuring. And, because audience is so closely tied to ad dollars, the perennial lack of a standard method to count viewers is a source of ever-growing frustration, particularly among marketers. Over the past several years, the big names that once dominated the online metrics industry – notably, comScore and Nielsen//Net Ratings — have been joined by dozens of others, including Google. These new entries into the market offer very different ways to assess online usage that often yield very different traffic figures, even for the same site. In short, there are no standard measurement data for advertisers as there are, for example, for network television. For some advertisers, the uncertainty of gauging Web traffic may be behind a slowdown in the growth rate of online advertising — from 36% in 2006 to 26% in 2007. When it comes to accurately measuring traffic, the stakes for Web site operators and advertisers are high. Except for a bumpy ride when the dot-com bubble burst in 2000, spending on online advertising has grown robustly each year. And even with a slowdown, the Web generated more than $15 billion in the first nine months alone of 2007, according to the most recent data released by the Interactive Advertising Bureau, a trade association that helps media companiesincrease their ad revenues. (See Economics Section.) “You’re hearing measurement as one of the reasons that buyers are not moving even more money online,” said Wenda Harris Millard, president for media at Martha Stewart Living Omnimedia. Living Omnimedia and formerly chief sales officer at Yahoo. “It’s hugely frustrating. It’s one of the barriers preventing us from really moving forward.”28 A number of experts believe strong revenue growth will continue only if there is widespread agreement on the accuracy of online traffic measurements. In its infancy, the Web appealed to many advertisers who presumed that audiences left a measurable footprint when they clicked on an ad. Unlike older media platforms — radio, television and newspapers — advertisers would no longer have to play a guessing game to determine the number of people who saw a particular ad. Advertisers were attracted to those sites that generated the most traffic, so unique visitors and page views became the vital statistics for media companies and advertisers (unique visitors are the number of people who go to a Web site, and page views are the number of pages seen by visitors). Nielsen Net//Ratings, along with comScore, ruled the scene, allowing marketers to make key business decisions based on the volume of traffic. But even as advertisers poured money into the Web, some expressed dissatisfaction with how traffic was being measured. And recently these concerns have grown louder. In April 2007, Randall Rothenberg, president and CEO of the Interactive Advertising Bureau, published an open letter requesting an audit of how comScore and Nielsen//Net Ratings gauged Web traffic. “We simply cannot let the Internet, the most accountable medium ever invented, fall into the same bad customs that have hindered older media and angered advertisers for decades,” Rothenberg wrote. Some also wondered whether there were more valuable data — such as how much time a user spends on a site — than visitors or page views.29 These questions have become particularly relevant with the rise of online video consumption. When someone views a video online, as compared to text, there may be a drop in their number of page views but the person’s amount of overall time spent online could increase. The picture gets even murkier with the increasing popularity of Ajax, a Web technology that updates data automatically without a user having to refresh the page. For example, on Yahoo’s Finance site, stock prices continuously change as their value changes in real time on Wall Street. Because pages using Ajax programming are not continually refreshed, page views decline, failing to take into account the fact that users are spending more time on the site. For advertisers, these changes create a different, perhaps even more valuable, opportunity to reach consumers because they are engaged with a particular Web site for a longer period of time. In a move that reflects the continuing evolution of the online metrics industry, Nielsen//Net Ratings announced in the summer of 2007 that it would change the method by which it ranked top Web sites. Now, rather than counting visitors, Nielsen will calculate how much time the average visitor spends on a site. “The page view was exposed as a flawed metric over the last year and Nielsen clearly listened to customers and tried to get out ahead of things with this new metric,” said Jeff Lanctot, a senior vice president at Avenue A|Razorfish. Others, however, say this change is only a preliminary move toward establishing a better tracking system. According to Robert Niles, editor of the Online Journalism Review, Nielsen’s announcement is “just a toddler’s step toward the larger goal of cleaning up the mess that is online audience metrics.” Nielsen and comScore no longer have the playing field to themselves. Criticism of these companies, which employ panel-based methodologies, intensifies. Some critics contend that the panels lack representation from college students, Hispanics and other demographic groups.30 An increasing number of smaller services that track online metrics have emerged recently, although it is difficult to keep count. Among the best known of these services, which generally rely on radically different sampling methodologies, are Alexa, Quantcast and Hitwise. Hitwise seems to have emerged from this new crop as a significant new force in the industry. Its data are regularly cited in publications such as Broadcasting & Cable, Wired and Forbes. Hitwise, founded in Australia in 1997 and introduced in the U.S. in 2003, collects its data differently than comScore and Nielsen, which rely on panels of users for their data. They assemble these users by installing software on the participants’ computers to record online behavior. Hitwise, in contrast, collects anonymous data sent directly from Internet Service Providers such as Verizon, Comcast and AOL. Over all, 25 million online users are included in the sample, although some critics contend it is biased toward home users and misses those who surf the Web at work. Hitwise’s general manager for global research, Bill Tancer, argues that data based on this larger sample size enable his clients to study their customers’ Web behavior on a “granular level.” In addition to the number of visits to a Web site, clients can see precisely their share of the online market and even the sex and age breakdown of their users. For Barenecessities.com, an online retailer of women’s intimate apparel, the number of monthly unique visitors to its Web page are not the only data it needs. Barnecessities.com uses Hitwise to keep track of how its smaller rivals, not traditionally tracked by the leading measurement companies, are performing online, according to Dan Sackrowitz, vice president for marketing and business development at the company. Will the online metrics industry mimic the VCR market in the 1970s and 1980s — one clear winner (VHS) and one clear loser (Beta)? For now, it does not appear that will be the case. The rise of these smaller and newer companies that aspire to shake up the world of Web metrics may be a welcome development for advertisers and businesses long searching for more than one option, but several metrics could all continue to thrive and compete, offering a more complete picture. “Web publishing is complex and fast changing,” said Katie King, lead digital strategist at Marsteller Interactive’s office in Washington, D.C. “The most successful players are always tracking new ways to analyze what they do. Even though it is challenging for all of us to keep up with the pace of change, I believe having lots of tracking tools is an advantage, and gives me a richer source of information.” High-Speed Internet In September 2007, the number of Americans going online through a high-speed connection reached a majority of users for the first time. By December, the Pew Internet project found that 54% of all online adults had a high-speed connection at home, up from 45% the same month in 2006.31
Other data also suggest that access to high-speed Internet connections is growing robustly in the United States. According to the data published by the Federal Communications Commission (FCC), the number of high-speed connections in 2006 increased 61%. By December 2006, there were 82.5 million high-speed lines, an increase of 31.3 million from the same time in 2005. In 2005, the number grew 37%. Since 2000, the number of high-speed lines has increased 1,122%, according to FCC data. A substantial majority of high-speed lines, or broadband, are hooked up either through a cable modem or digital subscriber line (DSL), which transmits over telephone wires. According to the FCC, nearly 70% of all high-speed lines fall into one of these two categories.32 Other studies suggest their share may even be higher. What accounts for their recent growth? “The most significant factor here is the aggressive push by phone companies to offer affordable DSL plans that competed with cable company offerings,” Lee Rainie, the director of the Pew Internet & American Life Project, told us. “This prompted some cable operators to drop prices, too. Both sides ramped up their marketing dramatically. Another factor at work was that more and more people were drawn to the greater amount of content and activities they could do online.” Broadband users view more Web pages, including news pages and online video clips, than those who connect to the Internet on a dial-up connection, research from Pew Internet shows. Broadband access provides more opportunities for telecommuting, long-distance education and online health care services not readily available in rural areas, for instance. In response, there has been growing pressure for a more aggressive public policy to expand broadband lines. To support their push for a more active government role, advocates point to international data showing the United States trailing other industrialized countries in the total number of high-speed lines. According to June 2007 data from the Organization for Economic Co-Operation and Development, the U.S. currently is ranked 15th in the number of high-speed subscribers per 100 inhabitants.33 Footnotes 1. “Annual Internet Survey by the Center for the Digital Future Finds Shifting Trends Among Adults About the Benefits and Consequences of Children Going Online,” USC Center for Digital Future, January 17, 2008. 2. “Internet Usage and Importance Expand,” eMarketer, July 2, 2007. 3. “Annual Internet Survey by the Center for the Digital Future Finds Shifting Trends Among Adults About the Benefits and Consequences of Children Going Online,” USC Center for Digital Future, January 17, 2008. 4. “Four in Five of All U.S. Adults — An Estimated 178 Million — Go Online,” the Harris Poll, November 5, 2007. 5. “Study Tracks Broadband Video Consumption on Multiple Platforms; Six in Ten Internet Users Watch Online Video Content Weekly, Up 36% From Last Year,” Horowitz Associates news release, December 4, 2007. 6. “Online Video,” Pew Internet & American Life Project, July 25, 2007. 7. Jack Loechner, “Men 18 to 34 Years Old Are Key Online Video Viewers,” Center for Media Research, February 27, 2007. 8. “Online Video,” Pew Internet & American Life Project, July 25, 2007. 9. “Bi-Annual Online Video Study: First-Half 2007 vs. Second-Half 2006,” Advertising.com, 2007. 10. Richard Waters and Kevin Allison, “Video sites spark fears of bubble,” Financial Times, April 30, 2007. 11. The same study also found that news video viewing in particular was higher among men than women, as well as those with higher levels of income and education. Mary Madden, “Online Video,” Pew Internet & American Life Project, July 25, 2007. 12. “One-Third of Frequent YouTube Users Are Watching Less TV to Watch Videos Online,” Harris Interactive press release, January 29, 2007. 13. “Online Video: Consumers Prefer News Clips, Shorter Ads,” Advertising.com press release, August 28, 2007. 14. Mark Glaser, “News Sites Loosen Linking Policies,” Online Journalism Review, September 17, 2003. 15. PEJ’s research found that more than half the sites it studied did not contain links to additional information, either on their own site or from another place. “Digital Journalism: A Topography of News Websites,” The State of the News Media 2007, March 12, 2007: http://stateofthenewsmedia.org/2007/narrative_digital_findings.asp?cat=2&media=2 16. Data were presented by Marketspace’s chairman, Jeffrey Rayport, who presented the findings to a gathering of online publishers in London in March 2007, according to the magazine. Abbey Klaassen, “Economics 101: Web Giants Rule ‘Democratized’ Medium,” Advertising Age, April 8, 2007. 17. Richard Pérez-Peña, “Times to End Charges on Web Site,” New York Times, September 18, 2007. 18. Richard Pérez-Peña, "Wall St. Journal to Continue Its Charges for Web Content," New York Times, January 25, 2008. 19. Richard Perez-Pena, “For Publishers in Los Angeles, Cuts and Worse,” New York Times, February 19, 2008 20. The video number comes from Pew Internet’s February-March 2007 survey. 21. Scott Hillis, “Apple affirms iPhone target,” Reuters, February 27, 2008 22. The authors of the study, conducted by Media-Screen, found that the top mobile Internet activities are: sending e-mail (47%), playing games (27%), reading the news (16%), and watching television programs (13%). “Media-Screen Finds Mobile Internet Still Has Long Road to Mass Adoption,” Media-Screen press release, March 19, 2007. 23. Tameka Kee, “Connected Consumers Love Web 2.0. But Not on Mobile,” MediaPost, October 3, 2007. 24. comScore Study Reveals That Mobile TV Currently Most Popular Among Males and Younger Age Segments,” comScore press release, April 23, 2007. 25. “The Infinite Dial 2007: Radio’s Digital Platforms,” Arbitron and Edison Media Research, April 19, 2007. 26. Arbitron, “The Infinite Dial 2007: Radio’s Digital Platforms,” April 19, 2007. 27. “Podvertising,” eMarketer, February 23, 2007. 28. Louise Story, “How Many Site Hits? Depends Who’s Counting,” New York Times, October 22, 2007. 29. Even the difference between unique visitors and page views can greatly impact traffic figures and thereby revenue. As Ari Rosenberg, a media sales consultant, sees it, using unique visitors instead of page views would decrease advertising expenditures online because each unique visitor normally goes to multiple pages on a site. In other words, the totals for unique visitors are usually lower than the totals for page views. The sites that fare better here are portals or search engines, with very large numbers of unique visitors who do not go deep into the site. According to Rosenberg, “The big fellas who have amassed the largest number of uniques will win out. Only the big guys have enough unique visitors to sell this way and not lose their shirts. Yahoo, at a reported 100 million uniques, looks like a magazine on steroids, making more mature content brands like Newsweek — which is considered a mass reach vehicle in print — appear paltry online, with a reported 8.5 million uniques.” Online Publishing Insider, March 29, 2007. 30. In December 2007, one of Spain’s largest media companies, Prisa, sued Nielsen Online over the number of unique visitors that Nielsen reported for Prisa’s flagship media property, the newspaper El País. Cf. “Print Bits: El País Sues Nielsen; Telegraph Gains, Guardian Falls in November,” Paidcontent: UK, December 21, 2007. 31. Data provided to the Project for Excellence in Journalism by the Pew Internet & American Life Project. 32. Broadband, according to the FCC, includes the following high-speed transmission technologies: DSL, cable modem, fiber, wireless, satellite, and broadband over power lines (BPL). 33. “OECD Broadband Statistics to June 2007,” OECD.org, February 20, 2008. Economics The economics of the Internet are still new and still being sorted out, but for now and the foreseeable future the news industry is still betting on advertising revenue as its basis. In 2007, online ad revenue continued to grow, but for the first time fell short of analyst expectations. And growth rates over the next several years are now expected to slow even more. Moreover, news is lagging other online categories in growth. Despite all this, given even greater slowdowns in other platforms, at least one major research firm predicts that by 2011 the Internet will trail only newspapers and broadcast television in total revenue. What is less clear is how much news will be a part of that. And all this may change if new forms of advertising or revenue grow, or if the portable technology of video, podcasting and cell phones, now relatively small revenue enhancers, increase beyond anyone’s expectations. Growth in 2007 Ad spending online is still growing, but not as quickly as in recent years. Through the first nine months of 2007, online ad revenue grew by 26% to $15.2 billion, according to Interactive Advertising Bureau. But that number was down from a 36% growth rate through the same period a year earlier. Depending on the source, growth predictions for the full year 2007 vary. JMP Securities projected 26%, while Borrell Associates put the figure at a low of 10%.1 But whatever their differences in accounting and projections, most analysts agree that growth is slowing and they offer a number of reasons why. First, the industry has not yet agreed upon an audience measurement, a source of complaints from online media and advertisers. As online measurement firms experiment with the most effective way to count online viewers, advertisers can only guess how many consumers are seeing their ads. ( See Audience section and Advertising chapter). A weakening U.S. economy could also be slowing the online ad market. Real gross domestic product was expected to grow just 2.2% in 2007 and 0.8% in 2008.2 Some experts also contend that advertisers need to make their Web strategies a higher priority and bring digital out of the back room. According to a survey conducted by the Association of National Advertisers, the Interactive Advertising Bureau and Booz Allen Hamilton, only 24% of marketers believe their organizations are “digitally savvy.”3 But most marketers realize that online is now critical to their broader ad campaign strategies. According to the Interactive Advertising Bureau’s president, Randall Rothenberg, “Marketers large and small have come to accept digital media as the fulcrum of any marketing strategy.”4 Looking Ahead Despite the slowdown in growth, as ad strategies become more and more directed toward the Web, most analysts see the Web’s piece of the pie growing. By 2011, Veronis Suhler Stevenson predicts that online advertising will reach $35 billion, a compound annual rate of growth of 18% between 2006 and 2011. That projection trails only newspapers ($60 billion) and broadcast television ($53 billion).5 Advertising Spending
Source: "Communications Industry Forecast 2007-2011," Veronis Suhler Stevenson The market research firm offered two main reasons for the shift in priorities in years ahead. First, it considers online ad rates a bargain relative to television and print, which will help it grow. Second, the capability that online offers advertisers to both track and target audiences will be even more appealing once the industry refines its methods of measuring. If the projections are correct, they carry one other implication. While online advertising may be slowing, it is still growing at a brisk pace, while the competition, newspapers and television, are expected to be basically flat. Ad Dollars and the News As the Web becomes a stronger advertising tool, news sites are not expected to grow as much. In 2006, the rate of growth for ad spending on news sites already had not kept pace with other leading categories. Data from TNS Media Intelligence, based only on display advertising and excluding search and video, show that in 2006, ad revenue for news and current events sites grew by just 9% from the year before, to $767 million. And that rate of growth is down from 12% in 2005.6 Over all, news is the third-largest category of online advertising, behind portals and search engines, as well as business/finance/investing sites. In 2006, portals and search engines such as MSN, Yahoo and AOL took in $1.3 billion, an increase of 13%. Business sites took in display ad revenue of $901 million, up 26% from 2005. Top 25 Web Site Categories by Ad Revenue, 2006
Source: Data from TNS Media Intelligence on more than 2,800 sites. Local vs. National Advertising Another way of parsing Web ads is by their geographic focus — those aimed at a national audience and those targeting a more local one. As far back as 1998, national ads have accounted for a much greater portion of ad spending. While this continues to be the case heading into 2008, local ads are gaining ground. According to Borrell Research, local ads are projected to increase 32% in 2007, to $7.5 billion, from $5.7 billion in 2006.12 National ads, on the other hand, are expected to grow 20%, though overall spending is still nearly three times that of local ads.
Newspapers (36%) continue to dominate the local market but “pure-play” Internet companies, such as Google, Yahoo and Monster, are closing the gap (33%). Following are YellowPages (12%), other print (such as local magazines, with 9%), television stations (8%) and radio stations (2%).13 In response to strong growth in local online advertising, Web sites also are beefing up their sales forces. The number of local online-only salespeople increased 26% in 2006, with budget figures for 2007 showing an additional 35% increase.14 Video Advertising Online video advertising was expected to grow exponentially in 2007, though in sheer dollars is still a very small number. eMarketer projected that advertising on online video will grow 89% in 2007, to reach $775 million. But even with that growth, it will account for just 4% of total online ad spending. By 2011, the market is expected to multiply by more than five, to $4.3 billion, but still less than 10% of all Internet expenditures, eMarketer projects.15 That $775 million does not include the videos that marketers are creating and posting on their own sites. A February 2007 Advertising Age article listed some examples, including “Unilever creating mobisodes for Dove Calming Nights”; “General Motors launching mini-documentaries as part of its MyCadillacStory.com”; and the ambitious Bud.tv project out of Anheuser-Busch, essentially the brewery company’s own Web entertainment network targeting 21- to 27-year-olds. (A mobisode is a brief episode meant to be seen on a cell phone.) (See Advertising Chapter.) As Suzanne Johnson, a senior product marketing manager at Akamai, a company that has Apple, Audi and IBM as Web clients, put it, “We have to question what’s coming to be the ultimate ad format. Is it going to be a paid sponsorship? Marketers are also investing a lot on their own.”16 The industry seems unsure, even divided, over the potential of video ads online. Some marketers have found reason to doubt consumers are drawn to ads on online videos. A study conducted by Forrester Research in late 2006 found that 75% of Web video users ignore ads placed either before or after video clips.16 Others have found just the opposite. Research from DoubleClick conducted in 2006 found that video ads generated around three times as many clicks as image ads did.17 Another question is whether the classic 30-second format that works on traditional television will succeed online. In a summer 2007 Advertising.com survey of 500 consumers, 63% said online video ads should be shorter than television ads.18 And it is not just consumers who lean toward brevity. Another 2007 survey by Advertising.com, this one of publishers of a range of Web sites, found that 93% preferred 15-second ads, compared to 70% who favored the traditional 30-second format.19 Advertising.com also asked publishers which format they most prefer. Most seem to be moving toward in-banner ads, or ads that run within a banner, or pre-roll ads, which run before content begins playing. Ads that run at the end of the video, or post-roll ads, have become much less popular, the survey found, presumably because most viewers have clicked off by then. Big, Bigger, Biggest In the early days of the Internet, some writers such as George Gilder pictured an inherently democratic utopia where virtually anyone with a modem and computer could compete with the richest media companies. But when it comes to advertising, the Web’s biggest recipients are big media companies, according to data from IAB/Pricewaterhouse Coopers. In 2006, the top four sites — Google, Yahoo, AOL and MSN — accounted for 85% of all online ad dollars, as measured in gross dollars (“gross” is the amount before reductions, deductions and taxes).20 In net dollars, or the amount after adjustments, the share of total dollars fell to 57% for the top four sites.21 Who receives the rest? The data suggest a large part filters down to other large corporate media sites, such as Disney Internet Group, Fox Interactive and New York Times Digital. Altogether, the top-10 sites received 99% of all gross dollars and 70% of all net dollars. Podcasting Advertising As the science of audience measurement evolves, podcasting ads will continue to generate only a very small piece of the ad revenue pie, even over the next five years. According to eMarketer, advertising on podcasts will grow to $400 million in 2011, up from $165 million in 2007 and the $240 million expected in 2008.22 “I definitely see growth in podcasts because they’re free and targeted,” says Chad Stoller, executive director of emerging platforms at Organic, which is part of the Omnicom Group.’ “But it’s still going to get lumped into that experimental media category until measurement improves and audiences grow.”23 (See Radio Chapter.) Advertising on the Cell Phone What about cell phones? For now, the number of Americans using their cell phones to keep up with news remains small (see Audience Section.) The same is true for advertising on mobile phones. Data from eMarketer suggest that advertisers would spend $878 million on mobile phones in 2007, more than twice what it was in 2006 ($410 million). Although significant, $878 million still would represent just a very small percentage of total online spending. Spending is expected to jump to $1.5 billion in 2008, $2.3 billion in 2009, and $3.2 billion in 2010.24 Business Model What could a slowdown in online advertising revenue mean for the industry? Revenue from media companies’ digital operations are still just a fraction of total gross revenues. According to Borrell Associates, newspaper online revenues account for roughly 3% to 8% of total dollars, and television and radio sites bring in even less, from 1.5% to 3.5% on average.25 Over the past five years, as the dust settled from the dot-com bust of 2000, major newspaper companies saw online advertising grow sharply. The five-year compound annual growth rate at 13 major newspaper companies during this time was 35%, according to Borrell Associates. But in the first quarter of 2007, growth rates fell to 18%.26 This is also true at Web companies with no links to old media, such as AOL, which experienced a major slowdown in ad revenue in the third quarter of 2007, growing just 13%, compared to 46% the same quarter a year before.27 The question that many continue to dodge: What will media companies do when it becomes apparent that online revenues will not compensate for sluggish growth on older platforms? News organizations are considering or initiating a variety of solutions, including consolidating staff and experimenting with access to online content. “We have to find ways to grow revenue or become more efficient by eliminating fixed costs,” said Joseph Lodovic, president of MediaNews Group.. “Why does every newspaper need copy editors? In this day and age, I think copy-editing can be done centrally for several newspapers.” The New York Times reported in late September 2007 that it was dropping its Times Select subscription program, which allowed access to Times columnists and other features but not the newspaper’s basic menu of news, even after it generated $10 million a year in revenue. “[O] ur projections for growth on that paid subscriber base were low, compared to the growth of online advertising,” said Vivian Schiller, senior vice president and general manager of the site, NYTimes.com.28 On the other hand, after studying proposals that the Wall Street Journal drop subscriptions to the paper’s Web site, its owner, the News Corp., decided to continue charging, at least for now. In 2007, The Journal charged about four times what the New York Times does for each ad shown on its Web page. If the Journal moved to a free model, critics contended, it could not command the same premium because advertisers would lose access to the highly educated, high-income business professionals who can afford the $100 annual subscription fee. As of December 2007, another successful business news Web site, that of the Financial Times, offers its readers four options. Unregistered users can read only five news articles in 30 days. Registered users can read 30 articles a month and receive news by e-mail. At the third level, those who pay an annual fee of $109 have unlimited access to news and commentary. And last, for $299 a year, premium subscribers have news and financial data delivered to their cell phones or PDAs. “To get caught between all this ‘free’ or ‘paid’ is too simplistic,” said Ien Cheng, publisher of FT.com. “We see this as a third way.”29 But the Financial Times’ hybrid strategy — mixing both subscription and ads — clearly appears to be an exception to a broader trend. Most media companies, old and new, are shifting to a pure ad-based model on the Web. MediaNews, a chain of 57 newspapers, now sees 7 percent of its sales come from online ads. Its CEO, Dean Singleton, says he wants to see that figure at 20% in five years. And at AOL, all signs point to an even greater reliance on online advertising, despite its setbacks in 2007. (See Ownership Section.) “The business model for advertising revenue, vs. subscriber revenue, is so much more attractive,” said Colby Atwood, president of Borrell Associates. “The hybrid model has some potential, but in the long run, the advertising side will dominate.”30 The Top 25 Online Advertisers Data from TNS Media Intelligence showed that spending by the top 25 U.S. Internet companies on display advertising, the second most popular format after search, increased 18% in 2006 compared to the year before.31 But eight companies on that list actually slowed down their spending, according to TNS. Those included overall leader Vonage Holding as well as 19th-place Time Warner, which decreased spending by 46%. The 17 remaining companies – including second-place AT&T and Walt Disney Co., coming in fourth – increased spending over 2005, with a total growth rate of 86%. Top 25 U.S. Internet Advertisers, 2006
Source: Data from TNS Media Intelligence on more than 2,800 sites. Main Categories of Online Advertising Three main categories of online advertising account for roughly 80% of total spending (see Advertising Chapter): Search advertising continued to account for the largest share of online advertising. Through the first six months of 2007, $4.1 billion, or 40% of all spending, fell into this category, according to the most recent data published by the Interactive Advertising Bureau.7 Display advertising, banner ads placed on Web sites, came in second, generating $2.1 billion, or 21% of all online advertising in the first half of 2007.8 Third is classified advertising, which brought in $1.7 billion, a drop in share from 20% to 18% in the first half of 2007.9 The remaining 20% of spending was allocated largely to rich media, which include video, referrals, sponsorships and e-mails.10 Some industry analysts expect search ads to remain the top category. eMarketer, for instance, projects that search will account for 40% of all online spending through 2011. It projects display ads will make up 20% and classifieds 17%.11
Footnotes 1. Mark Walsh, “eMarketer: Online Ad Spending Growth to Slow,” MediaPost, February 27, 2007. 2. Economist, February 20, 2008. 3. “HD Marketing 2010: Sharpening the Conversation,” Booz|Allen|Hamilton, October 7, 2008. 4. “Online Ad Growth Rate Ebbs in Q3, But Continues to Outpace All Major Media,” November 12, 2007. 5. “ Internet Advertising Revenues Continue to Soar, Reach Nearly $10 Billion in First Half of ’07,” Interactive Advertising Bureau, October 4, 2007. 6. Ibid 7. Ibid 8. Ibid 9. “Online Ad Spending to Reach $42B by 2011,” eMarketer, November 7, 2007. 10. “What Local Media Web Sites Earn: 2007 Survey,” Borrell Associates, June 2007. 11. Ibid 12. Ibid 13. “Online Video Ad Spending to Surge 89% in 2007,” eMarketer, November 6, 2006. 14. “Fifty Percent of US Population Will Watch Online Video in 2008,” eMarketer, July 25, 2007. 15. Abbey Klaassen, “Web-video vaults are full, coffers are not; Absence of ad model hobbling growth,” Advertising Age, February 19, 2007. 16. Brian Morrissey, “In-Stream Ads Annoy Web Viewers,” AdWeek, October 31, 2006. 17. “Video Ad Benchmark: Average Campaign Performance Metrics,” DoubleClick, February 2007. 18. “Bi-Annual Online Video Study: First-Half 2007 vs. Second-Half 2006,” Advertising.com, 2007. 19. “2007 Interactive Publisher Survey,” Advertising.com, 2007. 20. “News Media Internal Auditors Interactive Media Audit Perspectives,” presented by Mike Pearl, partner, PricewaterhouseCoopers, August 2007. 21. Abbey Klaassen, “Economics 101: Web Giants Rule ‘Democratized’ Medium,” Advertising Age, April 8, 2007. 22. “Heard the Latest About Podcasting?,” eMarketer, February 4, 2008. 23. Gavin O’Malley, “Podvertising To Grow Fivefold, But Remain Niche,” Online Media Daily, February 26, 2007 24. Advertising Age, Digital Marketing & Media Fact Pack, April 23, 2007. 25. “What Local Media Web Sites Earn: 2007 Survey,” Borrell Associates, June 2007. 26. Ibid 27. Time Warner Inc. Form 10-Q, filed 11/07/07 for the period ending 09/30/2007; Time Warner Inc. Form 10-Q, filed 11/1/2006 for period ending 09/30/2006. 28. Richard Pérez-Peña, “Times to Stop Charging for Parts of Its Web Site,” New York Times, September 18, 2007. 29. Eric Pfanner, “Financial Times Will Allow More Free Access to Web Site,” New York Times, October 1, 2007. 30. Richard Pérez-Peña, “Times to Stop Charging for Parts of Its Web Sites,” New York Times, September 18, 2007. 31. Advertising Age, Digital Marketing & Media Fact Pack, April 23, 2007. Ownership Which companies dominate the online industry? It depends on which criteria you use. Whatever the method, a few big companies show up as Internet leaders. If revenue is the standard, there are three main players -- Time Warner, Google and Yahoo. If traffic is the measuring stick, Microsoft and News Corp. — thanks to the popularity of MySpace — enter the picture.1 When it comes to online news, the same four Web sites continued to dominate in 2007 as have in the past: Yahoo News, CNN.com, MSNBC.com, and AOLNews.com. Mergers and Acquisitions 2007 was an active year for media deals in the online world. The first three quarters saw more than 637 transactions, matching the number for all of 2006. What’s more, these deals totaled more than $95 billion in value, surpassing last year’s total of $61 billion by 56%.2 Online advertising companies were among the most sought after, and the biggest names — AOL, Yahoo, and Microsoft — made a number of notable purchases. By mid-year, advertising deals such as Google’s purchase of the digital marketing company, DoubleClick, had topped $12 billion.3 Why were online advertising sites the most sought-after? According to an August 2007 article in the New York Times,more people are spending time on social networking sites and less time on online portals.4 “Just like Yahoo, AOL is fighting MySpace, Facebook and others for audience and ad dollars, and those are tough competitors,” Jordan Rohan, an analyst with RBC Capital Markets, told the New York Times.5 As a result, owners are feeling increasing pressure to acquire a more lucrative stake in the online advertising market, and add more revenue streams. How long the run on online advertising and content companies will continue is less certain. At least one analyst, John Suhler, president of Veronis Suhler Stevenson, said tightening credit markets, though not likely to affect the number of transactions, may significantly reduce the number of high-value deals, or those estimated at more than $2 billion.6 Perhaps no potential acquisition created more interest than that of Facebook, the social networking site developed in February 2004 initially to appeal to college students. Facebook was opened to the general public in September 2006. Meanwhile, its friends-making theme struck a chord with the general public, attracting more than 58 million active users worldwide, as of December 2007. In October 2007, Microsoft beat out Google to acquire a 1.6% stake in the site for $240 million. Facebook’s founder, 23-year-old Mark Zuckerberg, did not appear interested in an outright sale. Although Facebook rivals News Corp.’s MySpace in total members, some question whether the site is worth its bidding price. According to the Economist magazine, investors estimate Facebook’s 2007 revenues at just $100 million, with “tiny profits.”7 Facebook, which Microsoft valued at $15 billion, seemed excessive to those who see long-term challenges in making money from social networking sites. “No one knows what the scene is going to look like in five years’ time. It is the Wild West out there,” the News Corp. CEO, Rupert Murdoch, replied when asked about Facebook’s valuation. Some analysts disagreed. “The partnership can’t be measured in dollars — its chief benefit is to give Microsoft a critical foothold in the emerging ecosystem of social network-based advertising, and Facebook is a formidable partner for long-term growth,” said Andrew Frank, vice president for research with Gartner, an information technology research firm. Other analysts view the deal as a worrisome sign that the tech industry may be headed for a market crash similar to the one precipitated by the dot-com boom of the 1990s. Others argue that venture capitalists, older and wiser, will take a more sober, long-term approach to valuing deals this time around.8 Profiles of Major Online Media Companies According to data from the online measurement companies Nielsen//Net Ratings, Hitwise and comScore, three of the most popular news sites are Yahoo News, AOL News and Google News, owned by three of the biggest online companies. In 2006, for instance, Time Warner, which owns AOL News, was the U.S. media company with the most revenue from its media properties, according to data published by Advertising Age. Google (No. 19) and Yahoo (No. 21) were lower on Advertising Age’s list. In official filings to the Securities and Exchange Commission, Yahoo, Google and AOL do not break out revenue for their news properties, making it nearly impossible to discern how much money the companies are generating from their online properties. Therefore, the discussion about revenue and earnings in this section will refer to these companies’ total revenues. There are both differences and commonalties among the three companies. Yahoo and Google are pure-play Internet companies, meaning all their revenue is generated online. And virtually all that revenue comes from advertisements placed on their search engines. AOL, in contrast, represents a minority share of its parent company, Time Warner. Revenue from AOL, of which news is just one small part, accounted for just over one- fifth of Time Warner’s total revenues in 2006. In 2006, AOL shifted largely from an Internet provider to one more dependent on revenue from advertising. The company made more moves in 2007 to strengthen its ad revenue stream in the years ahead, with perhaps less success than it had hoped for. Nevertheless, AOL appeared even more committed to generating revenue from marketing over the Web in 2007, acquiring a number of online advertising companies, and moving a step closer toward the models adopted by its rivals, especially Google. Google continues to dazzle Wall Street, getting bigger, more profitable and gaining even more market share in its core business — search. Through the first nine months of 2007, Google’s earnings grew 46%, to nearly $3 billion, compared with the same time the year before. Revenue, meanwhile, grew by 59%, to $11.8 billion.9 With a market value of $187 billion, Google, which went public in 2004, was by the end of 2007 more valuable based on stock market capitalization than such older companies as Coca Cola, Wal-Mart, Hewlett-Packard and IBM.10 The gains in 2007 came after robust growth in 2006, when the company added nearly 5,000 employees and increased revenues by 73% to $10.6 billion. Profits had increased 110% in 2006, reaching $3.1 billion, according to SEC filings.11 Most of the advertising revenue at Google, 60%, comes directly from its search engine at www.google.com. The remaining ad revenue of 40% comes largely from its Google Network members. According to Google’s Web site, the network is a “large group of Web sites and other products, such as e-mail programs and blogs, who have partnered with Google” to display ads.12 The source of Google’s success is its dominance of the search market. In October 2007, for instance, 64% of all searches in the United States originated on Google, up from 61% a year earlier. Yahoo’s share, meanwhile, remained at 22% while third-place MSN fell from 11% to 7%, according to October data from Hitwise.13 Traditional media companies have noticed missed Google’s amazing growth. Several newspaper companies that once considered Google a major competitor have agreed to partner with Google, Yahoo and other online media companies to compensate for little or no growth in revenue from print ads. Google also made gains abroad, especially in China and other emerging markets. Over all, 43 percent of its total revenue in 2006 was generated outside the United States. As of early 2007, the company had 32 sales offices in 19 countries.14 Nearly half its engineer hires in 2006 were placed abroad, including in China, Brazil, Russia, and India. Beyond search, Google seems to be everywhere and anywhere, pursuing more ad revenue as it looks ahead.15 It has sought to compete in markets with well-established leaders: e-mail, social networking, online news, instant messaging and, most recently, cell phones. According to Jennifer Simpson, a senior analyst with the Yankee Group research firm, “Google is trying to make itself into a ubiquitous brand, where it’s everywhere on the Web.” History offers no guarantee that Google will be able to succeed in these new markets. Microsoft, Yahoo and AOL all achieved a great success in branching out with cutting-edge applications, but struggled to maintain their dominance as technology’s leading innovators. Google also made a big splash in the world of online video in October 2006 when it acquired YouTube, the most popular video-sharing site with 57.4 million unique viewers in the U.S., for $1.65 billion.16 At the time, media mogul Mark Cuban was quoted as saying only a “moron” would buy the site because it eventually would be “sued into oblivion” for copyright violations. A year later, questions remain about the fallout from the YouTube purchase. YouTube’s legal troubles remain unresolved. In March 2007, Viacom announced it would sue YouTube for $1 billion, alleging that 160,000 of Viacom’s clips had been uploaded to the site. “Their business model, which is based on building traffic and selling advertising off of unlicensed content, is clearly illegal and is in obvious conflict with copyright laws,” the company said in a statement.17 As of late 2007, Viacom showed no signs of backing off the lawsuit. Second, there are questions about how much YouTube will contribute to Google’s bottom line. It was thought Google planned to charge $20 per viewing. One blogger suggests that, in a best-case scenario, it will take five years for YouTube to generate the amount of revenue Google currently gets from its search engine.18 Citigroup estimated YouTube would bring in $135 million in revenue in 2008.19 At that clip, the number of videos watched on the site would have to grow 1,642 percent before YouTube accounts for 5% of Google’s revenues. Why does Google invest in news? Once again, it is hard to evaluate Google’s financial stake because the company does not break out revenues for news. Since Google News, fully produced by computer algorithms that distribute other news organization’s original reporting, was launched in 2002 and remained in beta form until early 2006, there were questions about whether Google News made any money. According to Adam Penenberg, writing for Wired, Google News would bring up unwelcome copyright issues if it chose to place advertising on its home page.20 But that may not matter. According to Lucas Grindley, a blogger and operations manager on the Web site of the Herald-Tribune in Sarasota, Fla., Google is able to make money from its ad-free service because of branding and its ability to drive heavy traffic to newspaper sites often filled with Google AdSense ads. “All multi-billion dollar companies are in it for the money, Google included,” Grindley wrote in April 2007. “They’re not featuring Google News prominently on their ever-so-sparse home page just to be nice.” Yahoo After a disastrous 2006, Yahoo appeared to be making gains in 2007. But the company’s 2007 economic performance continued to pale in comparison to that of Google. It was estimated in mid-2007 that Google, in just one quarter, far surpasses what Yahoo makes in a year.21 Through the first nine months of 2007, Yahoo’s earnings declined 6%, to $454 million, compared to the same time a year earlier. Revenues, meanwhile, grew to $5.1 billion, an increase of 8%. But things were much worse in 2006.22 For the entire year, earnings dropped 60%. Revenues, meanwhile, were up 22%, to $6.4 billion.23 Like Google, the lion’s share of Yahoo’s revenue comes from advertising -- 88% in 2006.24 Heading into 2008, Yahoo remains more focused on the U.S. market than Google, although it, too, is becoming more international. In 2006, nearly a third (32%) of its total revenue came from abroad, up from 30% in 2005 and 26% in 2004, according to documents filed with the SEC.25 Yahoo attributed some of its growth to its implementation of Panama, the company’s long-awaited online advertising platform, purchased in the fall of 2006. Panama promised advertisers a quality index, which gives them a better sense of why certain ads are more effective than others. In the third quarter of 2007, Yahoo increased its share of all spending in the search market to 20.4% in the third quarter, up from 8.5% in the second quarter.26 Is that enough for Wall Street? Some analysts had projected that Panama would boost Yahoo’s search revenue by as much as 45% in 2007.27 Much of Yahoo’s troubles with investors may have a lot to do with the general perception of the company. According to blogger Alan Mutter, author of the Reflections of a Newsosaur blog, Yahoo “is not the technology leader. Yahoo is the technology follower.” In late 2007, one business analyst, Jeffrey Lindsay of Sanford C. Bernstein, went so far as to say Yahoo would be worth more if the company was broken up. “It appears that Yahoo will not take bold measures to right the ship,” Lindsay wrote in a research report. “We believe that Yahoo still has a potentially high intrinsic value. We believe, however, that to stop the inevitable slide into irrelevance the management team must consider more radical actions and strategies.” In February 2008, Microsoft formally bid for Yahoo, offering $44.6 billion in cash and stock. Yahoo declined the offer as too low, the New York Times reported.28 Shortly after, there were news reports that Yahoo and News Corp. had begun talks about a possible acquisition. As of late February 2007, there was speculation that Microsoft may offer Yahoo more money or conduct a proxy fight to acquire Yahoo. When Yahoo replaced Terry Semel with co-founder Jerry Yang as CEO in June 2007, the company made it clear that it remained committed to a strategy that bucks the conventional wisdom of how Web behavior has changed over the past few years. With mounting evidence that the initial concept of the portal as a gated community is in decline (see Audience Section), Yahoo insists that it is still a place where consumers can find all their informational and communication needs: In a much-discussed October 2007 blog posting, Yang told users that Yahoo is still a starting point that will “help you better manage your life and connect you to what matters most to you.” That, according to Yang, includes e-mail, search, news, sports and finance. How is Yahoo investing in its news operations? Yahoo News is the top news site in the United States, according to data from Nielsen//Net Ratings and comScore, but, since most media companies do not break out revenues and profits for their news divisions, analysts cannot be certain. But at least some of Yahoo’s budget, it seems, is allocated to licensing fees it pays to post articles from more than 7,000 sources. There is also some original reporting. Kevin Sites’ In the HotZone, launched in 2006, was the company’s first attempt. In 2007, Yahoo Sports published findings from its eight-month exclusive investigation of former Heisman Trophy-winner and current NFL player Reggie Bush of the New Orleans Saints, focusing on possible NCAA violations while the running back played at the University of Southern California. Yahoo has also created several pages that mix more traditional journalism with consumer information, such as Yahoo Food and Yahoo Health, which offer communities of users ways to organize around their interests as well as blogs from experts. AOL In 2007, AOL’s ambitions to move from a subscription-based to advertising-supported model were somewhat undermined, according to its economic data. In 2006, when AOL essentially abandoned its dial-up subscribers and shifted focus to online advertisers, revenue from subscriptions dropped 14% while ad revenue surged 41%. But over all for the year, revenue dropped 5%, underscoring the critical boost subscriptions had given AOL’s bottom line.29 The hope was that online advertising would continue to grow even more in 2007, defying critics’ skepticism that AOL’s transition would be a relatively smooth one. Instead, growth in revenue from online ads slowed considerably. In the third quarter of 2007, for instance, ad revenue grew 13% while subscription revenues decreased 56%. And over all, revenues fell 38%.30 Some analysts are concerned that AOL will not be able to generate enough revenue to compensate for canceled subscriptions. According to Forbes columnist Louis Hau, “AOL’s transition to an ad-supported business is proving to be a tad rocky.”31 There is also continuing pressure for AOL to bolster Time Warner’s earnings, which led to 2,000 AOL employees being laid off in October 2007, adding to the 5,000 let go the previous year.32 Time Warner continues to deny rumors that it plans to sell AOL after the retirement of its chairman and CEO, Richard Parsons, which is expected in 2008. Looking ahead, what is AOL’s strategy? “Publishing is no longer just about the portal,” Randy Falco, the CEO for AOL, told the New York Times. “We are going to be in as many different places as possible.” Falco said he believes that everything does not have to be tied to the AOL brand, “which evokes many, not entirely positive, associations.”33 Some contend that AOL’s money-making focus will be on selling ads not on its own Web properties, but on other Web sites. And AOL does not have to look far for a model. “[Google] combines its own site with a network that represents millions of other sites,” Falco said. “The reach of the network attracts advertisers, but most of the profits come when those ads are run on its own site.” AOL’s recent purchases suggest it is beginning to act on that strategy. The company’s most notable acquisition was the targeted ad network Tacoda, whose clients include Coke, Bank of America and General Motors, purchased in July 2007 for $275 million.34 Tacoda is described as using “behavioral targeting” to give online advertisers insight into select audiences. Again, analysts see Google’s success as the inspiration. “The rest of online advertising, from banner ads to video spots to pop-up ads, is getting Googlified,” Business Week said in May. “Google made the business of selling ads against search results a runaway success — in the process making display ads less attractive to advertisers. Not only can advertisers target just the right customers based on search terms they type in, no guessing required, but those advertisers also can track exactly how many people click on the ad and whether they bought something as a result.” In May, AOL also bought Third Screen Media, the leading mobile ad network, and AdTech Ag, an international serving company based in Germany. In early November, it spent $300 million on Quigo, an Israeli startup that specializes in online advertising.35 In 2006, it bought Lightningcast, which delivers ad solutions for video content. In the wake of these acquisitions, critics appeared divided over the long-term implications for AOL and its parent company, Time Warner. “We wake up one day and now AOL has become a real player in online advertising,” said Bob Davis, a managing partner at Highland Partners, a venture capital firm. But AOL’s future seemed a bit cloudier for Anthony Noto, an analyst at Goldman Sachs. “This is a conglomerate company, and there are two underlying companies that are really driving the valuation: AOL and Time Warner Cable, both of which have some uncertainties right now,” Noto told the New York Times in November 2007.36 Net Neutrality One issue that appeared to have cooled down a bit in 2007 is net neutrality. The ins and outs of net neutrality are complex and confusing; the name itself is hard to define. In simple terms, net neutrality is the idea that those who provide Internet service treat those who produce the content on the Web equally. It is the framework that exists now, which allows users to access Google, blogs and everything in between at the same speed. This approach offers the same terms to everyone, whether they are one of the largest media companies or an ordinary citizen. On one side of debate are those who oppose writing net neutrality into law. These forces, arguing free-market economics, say that the Web should be left free of burdensome regulation, which they contend would reduce the investments in the Internet needed as more and more bandwidth is utilized. Under this scenario, how fast a site runs or how much it pays to an Internet service provider may one day be determined by that site’s content. Opponents of net neutrality include a number of telecommunication companies, such as AT&T, Comcast and Verizon, free-market advocacy groups, as well as the Communications Workers of America, which, according to its Web site, is “America’s largest communications and media union, [and] represents over 700,000 men and women in both private and public sectors, including over half a million workers who are building the Information Highway.” Then there are those who urge codifying net neutrality, currently a policy but not a regulation, as the law of the land This side argues that a differentiated pricing arrangement could be unfair to certain content producers, particularly smaller, non-commercial sites who may not be able to absorb any higher fees set by the telecommunications providers. Consequently, those sites unable to pay the premiums would be forced to run at slower speeds, and theoretically, be less desirable to Web readers. Without net neutrality, they contend, the big will just get bigger. In a worst-case scenario, proponents of net neutrality contend, an Internet provider could deny access to a particular form of content. To support their assertion, they point to an incident that occurred in the fall of 2007, when Verizon Wireless prevented an organization that favors abortion rights from sending text messages to its members who had agreed to receive them. Those lobbying for net neutrality include a broad coalition of corporate Web companies, including Google, Amazon.com, Yahoo and eBay, along with a number of consumer rights groups, many bloggers and several conservative religious organizations. After Democrats won control of the House and Senate in November 2006, many advocates hoped the shift in power would lead to legislation codifying net neutrality. By the end of 2007, it had not happened, although a number of presidential candidates from both parties did offer positions on the issue during the campaign.37 Perhaps most significant, in June 2007 the Federal Trade Commission urged policy makers to “proceed with caution” before enacting any legislation. Regulators, the report read, simply “do not know what the net effects of potential conduct by broadband providers will be on all consumers, including, among other things, the prices that consumers may pay for Internet access, the quality of Internet access and other services that will be offered, and the choices of content and applications that may be available to consumers in the marketplace.”38 For now, it appears the Internet is still too raw to be regulated. Online News Leaders Which news sites generate the most traffic each month? This is a key question for the top Web sites, as they compete to attract the largest audience. Advertisers, meanwhile, analyze traffic figures to see which sites have gained momentum and which have cooled off. Nielsen Online and comScore, despite growing competition from companies like the Australian-based Hitwise (See Audience Section), remain the most-cited sources for determining which sites generate the most traffic. Both Nielsen and comScore utilize a panel-based methodology to measure Web traffic. But because Nielsen and comScore differ in which sites they include in their samples, there is often considerable divergence between the traffic numbers compiled by the two rating houses. This leaves advertisers and others unsure about which figures to trust and where the eyeballs and clicks are going. And as the figures below indicate, the differences lead to different lists of who is on top and who has momentum. The Big Four In 2007, four news sites continued to generate the largest audiences: Yahoo News, MSNBC, CNN and AOL News. The rank order among them has remained the same since 2005. While Nielsen and comScore both found that the audiences for each of these four sites grew in 2007, they differed on how much. Over all, comScore showed lower year-to-year growth among the top sites (although some of this was because of higher traffic figures for 2006). At the very top is Yahoo News, which according to Nielsen Online data averaged 32.6 million unique visitors a month in 2007, up 15% from its 2006 average. comScore reports slightly higher figures, 35 million unique visitors a month, an increase of 13% over 2006. At No. 2 is MSNBC.com. although the two measurement firms differ quite a bit in their exact figures. According to Nielsen data, MSNBC averaged 29.2 million unique visitors a month in 2007, an increase of 14% year to year. But comScore reports an average of 26.7 million per month, but just a 3% growth rate. In third place is MSNBC’s cable rival CNN.com, which drew an average of 29.1 million a month in 2007, according to Nielsen, a 20% surge compared with 2006. Again, comScore’s numbers are lower, with half the rate of growth — 10% -- and an average of 23.4 million unique visitors a month. And fourth is AOL News. In past years, this has been the site with the greatest variance between comScore and Nielsen, with comScore ranking AOL News much closer to CNN.com and MSNBC.com than Nielsen. This year, comScore’s numbers are still higher, but not by nearly as much. Much of this seems to be due to 19% growth reported in the Nielsen numbers, with an average of 20 million unique monthly visitors in 2007. ComScore reports a slightly higher average, 22.9 million, but an increase over 2006 of just 9%.
The Rest of the Top Sites There is a significant drop-off in the number of monthly unique visitors to the remaining top 20 sites, a group that includes a mix of newspaper Web sites, television news sites and collections of sites under one news brand. (In this section, we will analyze the traffic data from Nielsen and comScore separately.) Nielsen Online Among the newspaper sites in Nielsen’s 20, the most popular in 2007 was NYTimes.com, with a reported average of 14.7 million unique visitors a month. The site, which granted users free access to its opinion columnists in late 2007, grew by 18% year to year, according to Nielsen data. Next is USAToday.com, though its audience actually declined by 3% in 2007 to an average of 9.6 million unique visitors per month. The third individual newspaper site to crack the top 20, Washingtonpost.com, averaged 8.6 million unique visitors, growing 9% from its 2006 average. In addition to CNN.com and MSNBC.com, three other television news sites were among the most popular in 2007. ABCNews.com’s audience grew 8% over 2006, averaging 10.6 million unique visitors per month. This kept it ahead of CBSNews.com (9.2 million per month), although CBS had a higher growth rate (11%). Fox News’s Web site also increased traffic by 20% in 2007, reaching an average of 8.3 million unique visitors a month. There were a number of sites aggregated under one corporate news brand that finished among the top 20 sites. The most popular one was Tribune Newspapers, according to Nielsen data, which averaged 13.2 million unique visitors per month in 2007, up 17% year to year. Gannett newspaper Web sites (excluding USA Today) averaged 12.8 million unique visitors, down 1% compared with 2006 data. Other sites in this category were McClatchy newspaper Web sites (8.9 million unique visitors, up 39%), Internet Broadcasting Web sites (8.8 million, down 28%), Hearst Newspaper Web sites (7.9 million, up 3%) and World Now Web sites (7. 8 million, up 6%). Two other sites, Media News Group Web sites (6.7 million), and Advance Internet Web sites (6 million), were new to Nielsen’s top 20 list in 2007. Google News, a news aggregator that offers no original content, also made the top 20 list in 2007, averaging 10 million unique visitors, up 7% year to year. Why did the audiences for some sites surge while others remained flat or even declined? It is hard to say. While ABCNews.com increased its digital staff in 2007, CBSNews.com announced at the end of the year that it was reducing its online personnel by 30% and ceasing operations of perhaps its most well-publicized blog, Public Eye. Yet Nielsen data found the audience for CBSNews.com grew at a stronger rate than ABCNews.com in 2007. Heading into 2008, it remains difficult to understand the ebbs and flows of Web traffic trends. comScore comScore’s list of the most-trafficked Web sites indicates a different line-up, with several that do not appear in Nielsen’s rankings. A number of individual newspaper Web sites appear on comScore’s 2007 list. comScore reports an average of 9.4 million unique visitors a month for the New York Times, up 9% year to year. USAToday.com ranks as the second-most popular newspaper site in 2007, (ahead of the Washington Post) averaging 6.8 million unique visitors a month, but by comScore’s count, as with Nielsen, it was losing traffic (8%) compared with 2006. For the Washington Post, 5.4 million visitors were recorded, an increase of 6%. Two other papers are included in comScore’s list. Boston.com, the Web site for the Boston Globe, averaged 3.5 million visitors a month, increasing 9% during 2007, which saw the Boston Red Sox winning the World Series once again. And the Wall Street Journal Web site entered the top 25 in 2007. Among the television sites, comScore has ABCNews.com edging out CBSNews.com (7.7 million unique visitors per month vs. 7.5 million at CBS). ABC, however, fell 1% year to year while CBS was up 9%. comScore also reported large increases, 29%, at FoxNews.com, with an average of 6.6 million unique visitors a month. The BBC News Web site, with headquarters in the United Kingdom, fell 12%, according to comScore, coming in at the bottom of the list with 4.4 million visitors per month. Most of the Web sites collected under one corporate name increased their audiences in 2007, according to comScore. Tribune Company newspapers averaged 9.8 million visitors a month, an increase of 13%. Belo news sites, which include the Dallas Morning News, attracted 4.5 million visitors per month, an increase of 22% over 2006. McClatchy sites drew 6.2 million visitors a month, up 28%. Sites in the MediaNews Group averaged 3.7 million, up 48%. Cox Newspaper Web sites, which include the Atlanta Journal- Constitution, were virtually flat, averaging 3.4 million per month. Two other aggregated sites, Hearst (6.5 million) and Scripps (2.2 million), were new to comScore’s top-25 list in 2007. Online Media Ownership Trends The most popular news sites are still largely owned by the richest media companies, a trend we have noted in previous editions of the annual report. Of the top-20 most popular news sites, 17 are owned by one of the 100 largest media companies in terms of total net revenue generated in the U.S. in 2006, based on an analysis of data from Advertising Age and Nielsen Online. For instance, Time Warner, the leading U.S. media company in 2006 with $34 billion in revenue, owns both CNN and AOL News, two of the four most popular news sites in 2007. Compared with 2006, the number of sites owned by the richest companies increased by one. What’s more, the 10 richest companies are increasing their hold on the top Web sites. In 2007, they owned 30% of the most popular news sites, up from 21% in 2006 and 25% in 2005. Two of the three sites not owned by the richest media companies are Internet Broadcasting and World Now, which both aggregate local news sites. The third was the Associated Press, a non-profit cooperative.
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