By the Project for Excellence in Journalism

We may well look back at 2008 as milestone in the history of the Web as a news destination.

By various measures, the number of people who began to rely on the Web as a regular or even their main news source appeared to jump.  For national and international news, according to survey data, the Web surpassed all other media except for television as a destination.

Some of the gains came from new news operations popping up, often subject-specific sites offering deep and rich content. Some came from mainstream news outlets enhancing their own content. Mainstream news sites still get the lion ’s share of online audience and enjoyed major gains. And some of the growth is a matter of expanding access to broadband and people becoming more accustomed to the Web’s advantages in convenience, speed and depth.

But the rise in the Web ’s news audience in 2008, even at legacy news sites, only added to the crisis in facing journalism.

For it also became patently clear during the year that the economic model largely responsible for financing journalism in the old media, advertising, will not do so in the new. Online advertising over all began to slow down, and display advertising in particular, the primary ad-revenue source for news, appeared to actually decline. The internals of the data look even bleaker still.

By all appearances, the limited prospects for online advertising that supports news in 2008 became a settled issue. Even worse, little progress appeared to be made during the year in developing any new revenue models, the biggest challenge the news industry faces in its fight for survival.

Instead, the industry seemed preoccupied, even early in the year, with simply trying to cope with declining revenue in its legacy platforms. Many companies simply cut costs at levels equal to their declining revenues. By fall, the deteriorating economy turned that structural crisis into something close to a terrifying free fall.

The combination of rising Internet audiences and the steep recession appears to be shortening the time line that the traditional news industry now has to sort out its problems.

The challenge for the old media was to use their legacy revenue to figure out how to financially reinvent themselves on the Web.

Now, as that already-declining revenue dries up even faster with the recession, and the migration to the Web among audiences accelerates, the time left to sort out a new revenue model seems to be shrinking.

Among new alternative news outlets, the economic model looks no more promising. For all the experiments with new ways of reporting, producing, disseminating and sharing news content, most of the money to support them has come either from philanthropy or private individuals. There has been little honest assessment of economic sustainability. 

Content Analysis

By the Project for Excellence in Journalism

If the news agenda of legacy media is shrinking, the evidence suggests a broader and certainly more international flavor online.

In 2008, a year dominated by the presidential election and the economic meltdown, and when coverage of the Iraq war plummeted, the leading news websites provided the most coverage of events outside the U.S. borders. And some domestic issues beyond the economy and the election were also more prevalent online. 

The presidential election and the economy certainly dominated. But they did so to a lesser degree online than in the media over all. And as a result, much as we found a year earlier, the five leading news websites also offered more coverage of foreign news among their top stories and other matters as well.

Online, time of day also matters. Users who went to a site early in the day were more likely to see foreign news coverage than those who went to the same site late in the day.

The focus of each site’s leading news coverage varied. The Web aggregator sites differed significantly from each other, and varied even more from those tied to legacy news operations. Yahoo News, for instance, was much more focused on the three major storylines of the year. Google News, by contrast, offered the largest amount of foreign news coverage.

But they also shared certain characteristics that distinguished them from other media, too.

These are all among the findings of a yearlong examination of the five most popular news sites, some 6,539 stories, over 262 days. The sites examined were AOL News, CNN.com, Google News, MSNBC.com and Yahoo News.

Online as a Source for International News

The top online news sites got somewhat less international in 2008 than they were the year before.

In 2008, 18% of the news coverage on leading online news sites was about non-U.S. international stories, down from the 25% in 2007.

And another 9% was about U.S. foreign affairs, down from 22% in 2007.

International Coverage: Online vs. Media Over All

2008

Design Your Own Chart

Source: PEJ, A Year in the News, 2008

But this was still significantly higher than any other media sector in 2008. In the media generally, 10% of news coverage was about international affairs not involving the U.S. and another 6% was about U.S. foreign affairs.

Over all, seven of the top-10 stories of the year on the websites studied were international events. In the overall media five were.

One of the major reasons for the decrease in U.S.-related international coverage online was a decrease in attention paid to Iraq. In 2007, Iraq made up 17% of the online news coverage and was by far the biggest story of the year. In 2008, Iraq made up only 4% of online news coverage.

Top Stories Online vs. Media Over all
Percent of Newshole

Source: PEJ, A Year in the News, 2008
* Includes stories about the campaign, results, and the transition
† Includes stories about the financial crisis, economic issues, gas/oil prices, auto industry, and Freddie Mac/Fannie Mae
‡ Includes stories about Iraq policy debate, events in Iraq, and the impact of the war in the U.S.

Online, Iraq was replaced as a major story by events in a host of other hotspots. Pakistan, for instance, was the fourth-biggest story of the year on the news websites studied. Other than online, only the newspaper category had Pakistan in its top-10 stories of the year (at No. 8).

Other foreign stories that received more attention online than anywhere else included the Georgia/Russia conflict, the Israeli/Palestinian conflict, the internal unrest following elections in Zimbabwe and the major earthquake that hit China.  (In 2007, Pakistan and the Israeli/Palestinian conflict also received more coverage online than in any other sectors.)

Election as Top Story

As elsewhere, online the No. 1 story was the presidential election. But here it filled only a quarter (25%) of the newshole on the news sites rather than the 36% in the media generally. Only newspaper front pages (23%) were lower.

News websites generally feature one or two stories most prominently on their home pages at a given time, and the election was the biggest focus in those stories through the year as well. Almost a third (29%) of lead stories on the news home pages were about the election. One example occurred on April 30, when Yahoo News led with a picture of Barack Obama giving a speech condemning inflammatory comments made by his former pastor. The story had the headline, “Obama Tries to Dig Out: His candidacy is reeling from Jeremiah Wright’s comments. Now Obama is dropping nuance and showing some fire.” The headline then linked to an analysis by Time magazine reporter Karen Tumulty that Obama had been facing a series of setbacks including the controversy over Wright.

Frame of Campaign Coverage
Percent of Campaign Newshole
January 6-November 3, 2008

Source: PEJ, A Year in the News, 2008

With online’s tendency toward breaking news, its focus of the presidential campaign coverage was even slightly more horse-race-focused than the media over all. From early January until Election Day, 63% of online campaign coverage was on the political horse race, which was more than the 57% in the media over all. (Meanwhile, 12% of the online coverage about the campaign was about the policy elements of the campaign, which was almost the same as the media over all, 13%.)

In part because of their greater tendency to focus on horse race, the leading news websites also tended to offer more coverage favorable to the candidate ahead in the polls than the press generally. During the last eight weeks of the campaign (September 8-November 2), 47% of the stories focused on Obama were positive (up from 38% in the press over all), 30% were neutral (vs. 34%), and 22% were negative (compared with 27%).

In contrast, Republican nominee John McCain received more negative coverage online than in the media generally. Almost two-thirds (64%) of campaign stories on the top websites focused on McCain were negative, which was more than the 57% of campaign stories in the media over all. Only 8% of online campaign stories about McCain were positive compared with 14% over all.

Domestic Subjects

Just under three-quarters of the top story coverage online was about domestic affairs (73%). While that was up substantially from the year before (53%), it was still low by the standards of the year (in the press over all it was 83%).

The primary reason that online still offered less domestic news than the media in general is that the top news websites had less coverage of the election and economy. Together, 39% of the online coverage was devoted to those stories compared to 51% of the media over all. The only sector that was close to online was newspapers (42% devoted to those two subjects).

The answer is in part tied to one of the strengths of online news — the ability for the sites to update stories frequently throughout the day and report breaking information almost instantly.

Top Broad Story Topics: Online vs. Media Over All
Percent of Newshole

Source: PEJ, A Year in the News, 2008

While elections/politics (at 22% of the newshole) was the largest single topic covered online, that number was smaller for websites than for any other media sector except for newspapers (also at 22%).

Economic coverage was the second-largest topic area covered by online news sites at 12%, while business news was an additional 4%. Many of these stories would focus on breaking economic news that would hit the homepages soon after being announced. At approximately 4 p.m. Eastern Time on September 16, for example, the homepage on AOL News led with a breaking story that the Federal Reserve had decided to not cut interest rates despite the previous day’s big drop in the stock market.

But on a litany of other domestic topics, the Internet news sites studied actually offered among the highest amounts of coverage. And a good deal of this may have something to do with the orientation of Web news sites to events that are fast breaking.

Crime reporting, at 6%, for instance, was higher than all of the other media sectors studied except for cable television, also at 6%.

Also at 6%, disasters and accidents were reported online more than any sector except for network television (at 7%). These types of breaking stories, such as the tornadoes that struck on February 5 (Super Tuesday for the presidential primary campaign) were often among the lead stories that websites promoted as breaking news.

Morning vs. Evening Coverage

Web sites are unique among news products in that they can be updated and viewed at any time. A person who visits a Web site in the morning may find very different lead stories from one who visits the same site in the evening. What differences might one find?

Beginning April 28, 2008, and going through the end of the year, PEJ rotated the times that we captured websites each weekday. On one day the websites were captured between 9 and 10 a.m. Eastern Time, and on the next day they were captured between 4 and 5 p.m. Eastern Time.

Having this rotation allows us to discover how different the news agenda might be for users who visit the sites at the beginning and end of a typical workday on the East Coast. The differences, while relatively minor, do suggest that certain late-breaking stories become more prominent later in the day, while foreign coverage is more present early in the day, with much of the world hours ahead of the U.S. news cycle.

Differences in Broad Story Topics by Morning and Evening Online
April 28,2008 - Dec. 31, 2008
Percent of Newshole

Source: PEJ, A Year in the News, 2008

The biggest difference between morning and early evening is that there is significantly more international news early in the day. A fifth (20%) of the top news coverage online in the morning on the East Coast is non-U.S. international stories compared to 15% later in the day. This may be due in large part to the differences in time zones since many overseas visitors to those sites are more likely to view the sites during early morning in the United States.

Differences Between Sites

The mix of online outlets studied is more diverse in structure and news process than any other genre studied. The online sample for PEJ’s leading news sites consists of two types of sites: aggregators (Google News, Yahoo News and AOL News) and sites that are tied to other news organizations (MSNBC.com and CNN.com). (Starting in 2009, given a growing shift in audience to online news, the PEJ sample will include 12 websites rather than these 5). PEJ discovered that in 2007, despite the similarities in the way a site chooses its leading news stories, the subject matter between similar types of sites can differ significantly. This same pattern also held true in 2008.

Top Stories of Online Aggregators
Percent of Newshole

Source: PEJ, A Year in the News, 2008
* Includes stories about the campaign, results, and the transition
† Includes stories about the financial crisis, economic issues, gas/oil prices, auto industry, and Freddie Mac/Fannie Mae
‡ Includes stories about Iraq policy debate, events in Iraq, and the impact of the war in the U.S.

PEJ’s content analysis includes the three most popular aggregation sites—Yahoo News, AOL News and Google News. Of the three, Yahoo News, which uses human editors to select its stories, was much more focused on a few major stories throughout the year. AOL News, which also uses people to make the story selections, was the most focused on a wide range of domestic news. Google News, which employs computer algorithms to decide with stories are most prevalent, was the most international.

At Yahoo News, over half of the top story coverage (51%) was about the three major storylines of the year—the presidential election, the economy and Iraq, compared with 37% for Google News and 32% for AOL News.

At AOL News, domestic news filled 79% of the space among the top stories during the year (compared with 66% at Yahoo News and 61% at Google News). But the election was filled the least of this top newshole, just 20%, less than both Google News (26%) and Yahoo News (24%).

At Google News, the rest of the world was a bigger story (non-U.S. coverage filled 28% of the newshole studied). Eight of the top 10 stories of the year for Google News were international events.

Select Broad Topic Coverage by Online Aggregators

2008

Design Your Own Chart

Source: PEJ, A Year in the News, 2008

Who Produces the News on Aggregator Sites

Because AOL, Yahoo, and Google produce little to no original content on their news sites, they all rely heavily on wire stories such as those from the Associated Press or Reuters.

For Yahoo, 86% of its coverage was from wire services, compared to 90% for AOL. Google linked to many wire stories, but 79% of its leading news coverage was from news organizations other than wire services compared to 21% that was from wires. These other news sources encompassed a wide range of outlets from the New York Times to CNN to international-focused sites like the BBC and the Voice of America.

Story Format of Online Aggregators
Percent of Newshole

Source: PEJ, A Year in the News, 2008

These numbers are similar to what we found last year with one exception, at Yahoo. ¹ In 2007, almost all of Yahoo’s leading news coverage (98%) came from wire stories. That number fell in 2008 to 86%. Much of this change came from more copy being featured from two sources, Politico and Time magazine, such as a March 26 Time interview with Hillary Clinton, in which she described her plan to win the Democratic nomination for president despite trailing Obama in delegates by a slight margin at the time.

Site Differences — Sites Tied to Legacy Media

Two of the sites in the yearlong study, CNN.com and MSNBC.com, were tied to the legacy media of cable news channels.

While the television channels associated with these sites differ more markedly according to our content studies, (see Cable TV Content Analysis for more) the two websites are quite similar in news judgment.

Each site gave roughly the same amount of coverage to the top three stories of the year. (CNN.com gave 28% to the presidential election, for instance, and MSNBC.com gave 26%.)

Top Stories for Online Sites Tied to Legacy Media
Percent of Newshole

Source: PEJ, A Year in the News, 2008
* Includes stories about the campaign, results, and the transition
† Includes stories about the financial crisis, economic issues, gas/oil prices, auto industry, and Freddie Mac/Fannie Mae
‡ Includes stories about Iraq policy debate, events in Iraq, and the impact of the war in the U.S.

Both CNN.com and MSNBC.com also split similarly between foreign and domestic topics. CNN.com devoted 21% of its newshole to foreign topics compared with 23% for MSNBC.com).

And how did the two websites compare to their cable channel siblings on television?
To begin with, neither website was as election-heavy or domestically focused as their cable channel counterparts.

Story Selection: MSNBC Online vs. MSNBC Cable

2008 Coverage of Big News Events

Design Your Own Chart

Source: PEJ, A Year in the News, 2008 Election includes stories about the campaign, results, and the transition. U.S. Economy includes stories about the financial crisis, economic issues, gas/oil prices, auto industry, and Freddie Mac/Fannie Mae. Iraq War includes stories about Iraq policy debate, events in Iraq, and the impact of the war in the U.S.

Story Selection: CNN Online vs. CNN Cable

2008 Coverage of Big News Events

Design Your Own Chart

Source: PEJ, A Year in the News, 2008 Election includes stories about the campaign, results, and the transition. U.S. Economy includes stories about the financial crisis, economic issues, gas/oil prices, auto industry, and Freddie Mac/Fannie Mae. Iraq War includes stories about Iraq policy debate, events in Iraq, and the impact of the war in the U.S.

The election was the largest story of the year for CNN.com (28%) and MSNBC.com (26%), but those paled in comparison to the level of coverage on CNN’s cable channel (55%) and MSNBC’s cable channel (72%).

On the other hand, both websites devoted significantly more time to the other top stories of the year – the economy and Iraq. MSNBC.com devoted 16% of its leading news coverage to the troubles with the U.S. economy and 5% to Iraq, while the cable television station devoted 7% to the economy and 1% to Iraq. CNN.com devoted 17% to the economy compared to 12% on the cable channel and 4% to Iraq compared to 1%.

CNN.com and MSNBC.com offered more overseas news than their cable television siblings. More than three-quarters (79%) of the leading news coverage on CNN.com was focused on domestic topics, compared to 91% on CNN’s cable channel. On MSNBC.com, that number was 77%, but still less than the 96% of domestic coverage on MSNBC’s cable channel.

Beyond that, CNN.com and CNN both emphasize breaking news. 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. Most of these headlines come from CNN’s own reporting. The homepage features a list, updated every 20 minutes, of the most popular articles on the site. 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 “World,” “Entertainment” and “Science”). The site also has links to blogs and podcasts produced by some of CNN’s television personalities, but those are not as prominently placed.

Another area that CNN experimented with a great deal in 2008 was its iReport section. While this section was not included in PEJ’s study of the main news stories on the site, iReport is a way that users could upload their own videos and share their stories and first-hand experiences with other users.

MSNBC.com, on the other hand, has built its own identity, while also trying to be the home for both NBC and MSNBC on television. The site offers a combination of breaking news along with longer pieces from Newsweek and prominent links to the various NBC and MSNBC television-related websites. Multimedia features are prevalent on the site, as they are on CNN.com, 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 only on one or two developing stories.  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. MSNBC.com does have a way that users can send in pictures to the site, such as photos of their favorite locations to NBC’s Today Show, but it is not as prominent or unfiltered as CNN’s iReport section.

Audience

By the Project for Excellence in Journalism

Introduction

The Web in 2008 became a regular and even primary news destination for more and more Americans.

Several surveys found that the number of Americans who used the Web regularly for news jumped. And at least for some news the Internet has now overtaken most other media as a favored news delivery platform.

One poll, in December 2008, found the number of Americans who said they got “most of their national and international news” online increased 67% in the last four years.¹ The presidential election was almost certainly a key factor in the growth.  More than a third of Americans said they got most of their campaign news from the Internet in 2008 — triple the percentage in previous presidential election year.²

The growth in online news consumption cut across age groups, but the growth was fueled in particular by young people. Young voters and activists now rank the Internet as a news source of importance parallel to television.³

And the shift was likely not just a matter of changing audience tastes. News organizations and the political community both were also more aggressive about delivering news and information online, and giving consumers more ways to gather, organize and share it across multiple devices. From personalized news pages sent to a person’s e-mail, delivery of content on “smart” mobile phones, news-ranking sites that list the most-recommended news stories and more sharing of content among news producers, what was available from the traditional news media digitally was richer, even if much of this was the same information simply made more readily available.

Add to that social networking sites like Facebook. And the video site YouTube also became a major delivery system for people to get news posted and recommended by friends and associates, and often from political campaigns. The Obama camp reported more than a billion minutes of campaign-produced material was downloaded from YouTube. And Youtube reported that the Obama campaign’s 1800 web videos were viewed 100 million times in total.⁴

Internet News Use

By any number of yardsticks, the traffic to news websites jumped in 2008.

According to a PEJ analysis of comScore data, the average number of unique visitors to the top 50 news sites each month grew 27% in 2008 over the year before.⁵   The number of monthly unique visitors to all 700 news and information sites measured by comScore grew 7%.

Comparing one media platform to another can be complicated, given the different ways different media are measured. Often the clearest reference is found in survey data.

According to Pew Research Center data, as of August 2008 the percentage of Americans who went online regularly for news (at least three times a week) was up 19% from two years earlier to nearly four in ten Americans (37%). No other medium was growing as quickly. Most saw audiences flat or declining.

The new numbers put the Web ahead of several other platforms for the first time. In the same August survey, 29% of Americans said they “regularly” watched network nightly news, 22% watched network morning shows and 13% Sunday morning shows.

The percentage of Americans who relied on the Internet regularly, according to this data, was now roughly similar to that who regularly watched cable television for news (39%).

More people still read a newspaper “yesterday” (34%) or listened to news radio (35%) than had viewed news online “yesterday” (29%). But the gap was narrowing.⁶ 

The biggest jump came in the number of people relying on the Web for national and international news in particular. In December, 40% of Americans said they got most of their national and international news online, up 67% from 2004, the last presidential election year, when the number was 24%. That put the web ahead of newspapers (35%). Only television, cable, local and network combined, ranked higher (70%).⁷

Other surveys reinforced the notion of a jump in online news consumption. In November 2008, for instance, the Pew Research Center’s Internet & American Life Project found 36% of Internet users said they now used the Web for news on a “typical day,” a 16% jump from two years earlier (December 2006) when the number was 31%.

The numbers, it is important to note, refer to the platform by which people acquired their news, not the source gathering it. Virtually all of the most popular news websites are those associated with traditional news organizations, whose legacy platforms are paying for the news gathering, or are aggregators, which collect content from traditional newsrooms and wire services rather than produce their own. But given the financial implications of the Web on the news business, the numbers are no less significant.

This growth in online news consumption was not due to more people using the Internet generally. The percent of people who go online for any reason has held fairly steady at 70% to 75% of the U.S. population since 2006.

But those who go online do it more often and for longer periods of time than in the past, and they increasingly seek news. Since 2004, for instance, the percentage of online Americans saying they went online “yesterday” increased from 58% to 72%. And the number logging on multiple times a day from home jumped from 27% to 34%.⁸ Another study found that over the last three years, the amount of time the average user spent online increased from 14 hours a week in 2006 to over 17 hours as of January 2009.⁹

Consider that that in January 2009, the Digital Future Report from the University of Southern California’s Annenberg School found that 79% of adult users said the Internet was now their “most important” source of information (not just for news), higher than television (68%) or newspapers (60%). Getting news online, in other words, has become more of a reflex and a larger part of people’s daily lives.¹⁰

For all this, one other factor has remained constant in Internet news trends: the people who go online for their news tend to be more educated. That has not changed over the last decade even as the number of online news users has grown.

Ten years ago a college graduate was more than three times as likely as someone with a high school education or less to regularly go online for news. That gap remains just as large today. Fully 61% of college graduates go online for news at least three days a week, compared with just 19% of those with no more than a high school education.¹¹

Beyond demographics, the accelerating move by audiences generally to the Web just deepens the paradox facing the news business.

As their audience migrates online, and the old media continue to build their offerings there to service them, the media are properly developing their market share in the new media environment. The more success legacy news operations have online, however, the more damaging it is to their current revenue base, since the Internet increasingly cannot pay for itself from any of the current economic models (see Online Economics).

Internet Audiences and the Election

Almost certainly a major reason for the surge in online news consumption in 2008 was interest in the election. While television remained the dominant delivery source, the percent of Americans who said they got most of their campaign news from the Internet tripled between October 2004 and October 2008. Fully a third (33%) reported getting most of their election news online, up from the 10% who did so four years earlier.¹²

By the last week of the election, 59% of voters said they had sought out or encountered at least some political information online.¹³

Young people were a major factor in that growth. Nearly three times as many people ages 18 to 29 cited the Internet (49%) as their main campaign news platform as mentioned newspapers (17%).¹⁴

Among those over age 50, nearly the opposite was true: 22% relied on the Internet for election news while 39% look to newspapers. Even with that, compared with 2004, use of the Internet for election news has increased across all age groups. Among the youngest cohort (age 18-29), television has lost significant ground to the Internet.¹⁵ 

Most Popular News Sites

Which news sites were enjoying this boost in traffic? The evidence suggests growth across a range.

To some extent, the biggest Web sites got even bigger. The top four news sites alone, for example, increased their audience by 22% in 2008, according to data from comScore, or a combined 23.6 million visitors a month. That rate of increase is more than twice as fast as in 2007 and more than five times the rate in 2006. At Yahoo News, the most-visited news site according to comScore, the number of visitors rose by 13% for the year. The number rose 24% at No. 2 MSNBC.com, 34% at No. 3 CNN.Com, and 20% at No. 4 AOL News.

(Tracking the exact order of which of these sites is first, second or third is complicated by the fact that the different measuring agencies use different methodologies, but all show substantial growth).

The traffic data also suggest that a host of niche sites that barely registered or did not exist during the previous presidential election also benefited. Huffingtonpost.com, a news aggregator, producer and blogging website, for example, catapulted into the 20 most-visited sites in September 2008, according to data from comScore, with 4.5 million users during the month, an increase of 474% compared with September 2007.¹⁶

Politico.com, which started in 2007 (see New Ventures Section) with a focus on national politics, increased fivefold to 2.4 million visitors between September 2007 and 2008. RealClearPolitics.com, which aggregates political news and polling, grew 489% during that period.¹⁷

Audience Growth: Top News Sites vs. Select Political Sites

September 2007 vs. September 2008

Design Your Own Chart

Source: comScore, Inc.

But even with those gains, traffic to those sites remained a fraction of what the leading news sites drew. As a group, HuffingtonPost.com, RealClearPolitics.com and Politico.com drew an average of 3.9 million more visitors per month in 2008 than in 2007. To put that into perspective, Yahoo News.com gained 4.5 million by itself. The evidence clearly suggests that while a variety of new sites grew, in general, the big got even bigger, extending their share of Internet traffic.

After the election, some of these niche sites were more successful than others at retaining those audiences. In December, the Huffington Post still drew 81% of the viewers it did in September and October, when interest in the campaign was highest. Salon.com, the left-leaning online magazine, retained 77%.  Two newer sites, however, did not do as well. Politico’s website kept just about half its audience. And the Real Clear Politics website, which had grown in advance of the election, kept only 21%.¹⁸

Top News Sites (Nielsen)

Average monthly unique visitors, 2007 vs. 2008

Design Your Own Chart

Source: Nielsen Online

Top News Sites (comScore)

Average monthly unique visitors, 2007 vs. 2008

Design Your Own Chart

Source: comScore, Inc.

New Modes of News Consumption

Not only were more people getting their news from the Internet in 2008, but they also were doing it in new and different ways, much of it enabled by news organizations developing more ways of disseminating their content. Mobile viewing, the sharing of stories on social networks and video sites, and posts on a multitude of microblogs became more widespread in 2008 while earlier tools like also e-mail and RSS remained popular. By compiling, sharing and customizing the news they consume, people in a sense are becoming not only their own editors, but also critical agents in the trajectory of a news story.

Mobile News

The technology that got some of the greatest attention in 2008 was mobile phone communication. Purchases of  iPhones, BlackBerries and other smartphones grew rapidly in 2008. In the first quarter of the year alone, smartphone sales totaled 7.3 million units, a 106.2 percent increase from the same period in 2007.²¹    And news outlets began more aggressively to take advantage of this digital platform to deliver instantly updated text, audio and images.

The Pew Internet & American Life Project found in March 2008 that 62% of all American adults had used the Internet through a wireless connection: 58% had used their cellphone or personal digital assistant for things other than talking; and 41% had logged onto the Internet away from home or office with a handheld devices or laptop computer. Many, of course, had made such connections both ways.²² By the end of the year, according to Nielsen Mobile, there were about 40 million active users of the mobile Web.²³ That amounts to one-fourth the universe of the 160 million adult using the Internet on computers.

With that large and growing usage, mobile phones seem destined to become a major mode of information delivery. Two challenges face news companies as a consequence.  First, they must compete with the dozens of other applications available for smartphones, such as navigational aids, music sites, games and video viewers. Second, they need to find a way to make money on a platform that may be even less suited than computers to display advertising.

While the traffic numbers are there, and despite much talk of mobile advertising revenue, ads have as yet proved difficult to display in this platform and the question of how audiences would receive them remains unanswered. And if it is not going to be advertising, is there another revenue source for news from mobile? Like much of the digital revolution, that is unclear.

Still, several major players have moved to accommodate the mobile technology. The New York Times and the Associated Press have invested heavily in delivery options for users of smart phones. Both are primarily focused on attracting mobile users to their content with the hope that a model for making money will follow.

The New York Times began preparing its content for mobile phones in 2006. By July 2008, it had an active mobile Web page with downloadable tools, including an application for the Apple iPhone and Amazon’s Kindle, a digital reader that delivers print in a user-friendly and eye-friendly format.

The Associated Press’s Mobile News Network, opened in May 2008, provides access to international, national and local news from a network of local media sources and its own Washington and foreign correspondents.²⁴ The project cost millions of dollars to start, according to Jeff Litvack, the AP’s global director of news media markets.²⁵

Mobile phone users can access the Mobile News Network by visiting its mobile site.  The application provides continually updated news, photos and video.

The Mobile News Network is the first product released by the AP’s Digital Cooperative, an initiative aimed at finding new digital outlets for news and information produced by AP members. The network was initially tailored first for the iPhone to take advantage of the device's multimedia capabilities. But later in the year the network created applications for other smartphones, including BlackBerry.²⁶  In September, the mobile network content received more than 26 million page views.²⁷

The AP said the network attracts revenue for its members from two streams: local ads sold by member news organizations and national ads sold by national ad networks contracted by the AP. The net revenue is split between the provider of the content, a local news organization or AP staff, and the seller of the ad, which could be the news organization’s ad staff or the AP’s national ad network. For example, if the Nashville Tennessean gets a story on the network that is accompanied by an ad placed by the national ad network, the revenue gets split between the Gazette and the national ad network. But if the same story is accompanied by an ad sold by the Gazette’s sales staff, the Gazette gets to keep 100% of the proceeds.²⁸

The trend is not limited to national-scale news producers. The Cincinnati Enquirer in 2008 maintained a mobile website that offered personalization options and the ability to receive customized text messages. The Enquirer’s mobile website gets more than 500,000 page views per month.²⁹

Mobile technology jumped forward in 2008 as Apple released its iPhone with 3G, and Blackberry followed with a 3G phone of its own. The 3G technology gives fast access to the Internet and e-mail over cellphone networks worldwide. The high-bandwidth network also makes it possible to more efficiently surf the Web, download e-mail, get directions and watch video.

In October, Google released its open-source operating system, Android, which can be run on almost any mobile phone. It can essentially make any smartphone perform the same functions as an iPhone. It offers free wireless use and allows for easy addition of applications from anyone who takes the time to create one. 

Applications, or apps, are Web-based tools that allow users to do anything from streaming video to finding nearby restaurants. Apple had 1,700 applications for sale by late 2008, and its technology strictly limits where users can obtain applications.

Google, by contrast, hopes its open-source approach, which allows anyone and everyone to develop applications, will eventually challenge the popularity of the iPhone.

(Google has not publicly discussed its revenue model for Android. Reportedly, the company is going to incorporate its online advertising platforms within Android's applications.³⁰)

Social Networking

A growing number of  internet users also turned to social networking sites such as MySpace and Facebook to share information in 2008. These sites allow users to create profiles and swap messages, photos and links to other Web pages with a circle of friends. During 2008 alone, the number of people visiting social networking sites grew by 9% to 104 million.³¹

Fewer in number than the people using mobile phones, social networking appears to be especially popular among the young, African Americans and liberal Democrats.³²

In August 2008, 30% of those with social networking profiles said they at least occasionally got local, national or international news through these sites.³³ About a quarter said they share news on their network pages.

Micro-blogs

Americans also turned in greater numbers in 2008 to “micro-blogs” like Twitter for breaking news. Twitter is a digital social networking service that allows its users to send and read other users’ messages — usually text messages of no more than 140 characters in length.

Between December 2007 and December 2008, unique visitors to the site grew more than tenfold, to 2 million. That compared to 20% growth between December 2006 (soon after it launched in July 2006) and December 2007, according to comScore.

By 2008, the journalistic applications for Twitter became more apparent. Producers of content have found value in offering one-line descriptions that link to larger pieces of work. News audiences turned to Twitter feeds for eyewitness accounts of real-time events.  When gunmen stormed hotels and other sites in Mumbai (the former Bombay) in November, twitter.com was flooded with entries from users in the city who provided updates based on their observations on the ground.

Growth in Audience for Twitter.com

2007 - 2008

Design Your Own Chart

Source: comScore, Inc.

Forbes.com called the news event “Twitter’s moment.” Users typed regular updates “with information or commentary on the crisis, turning a service that specializes in distributing short, personal updates to tight networks of friends and acquaintances into a way for people around the world to tune into personal, real-time accounts of the attacks.”³⁴

Twitter also became a popular tool for reading real-time accounts of the 2008 political conventions, the Israeli invasion of Gaza that began in December 2008 and the January 2009 crash-landing of a US Airways passenger jet in the Hudson River.

Google bought a service in 2007 similar to Twitter called Jaiku, which allows users to view messages in chronological order across a timeline.

News Ranking Websites

Still another way of consuming news online, news-ranking websites, such as reddit.com and digg.com, grew in popularity as well in 2008. These news Web sites not only display news stories, but they also allow users to vote on their favorites and “push” the most popular news stories to the top of the communal Web page. Still, only a small share of Internet news consumers (5%) say they have ever used one of these sites to find news stories.

The relatively small group that uses these sites is disproportionately young and male. According to one survey, 11% of men younger than 30 who go online for news say they use news-ranking websites to find stories. Only 3% of the women in that age cohort did so, however, and only 4% of male online news consumers over 30 used them.³⁵

E-mail

E-mail, among the oldest digital formats, also continued to grow in 2008 as a way for citizens to share news with friends. As of August 2008, the sizable majority of those who went online (68%) said they had been e-mailed a news story by a friend or associate, up from 61% in 2006, according to data from the Pew Research Center for the People & the Press.³⁶ Fully 27% of Internet users said they received an e-mailed story in the past week. And nearly half of Americans (47%) said they themselves had sent a news story to someone, up nearly 18% from 2006, when the number was 40%. In addition, about 15% of Americans say they receive e-mail news alerts and summaries via their inboxes.

Customized News

By 2008, more Web news consumers than ever before were also taking advantage of online tools to tailor the news to their needs or tastes. Such customization tools allow people to set up Web pages with their favorite subjects and sources, or to receive e-mail alerts tailored to their interests.

By the summer of 2008, about half of online news users (44%) told a Pew survey that they were using some kind customization tool to acquire news.³⁷

That might have taken a number of forms. For instance, the survey found that 22% of Americans say they have a customizable Web page that includes news items.³⁸ These can be as simple as an AOL home page that is adjusted for the local weather forecast to a newspaper Web page programmed to highlight local news to a self-designed home page tailored to specific interests.

RSS

Many of those who customize their news use RSS, which stands for really simple syndication. The technology allows users to create their own news pages that automatically update such things as the score of favorite sports teams, news stories on topics or by certain sources, local traffic conditions, blogs and other material. According to the Pew survey in the summer of 2008, 7% of Americans said they used the technology.

The more time people spend with news online, the more likely they are to create such self-tailored page. About a third (36%) of Internet news users say they have a customizable Web page. But among the heaviest Web news consumers — those who go online for news daily — fully 44% say they have a customizable web page that incorporates news items.³⁹

While RSS has continued to be used, other new options have become more prominent, and RSS, according to Media Analyst Rick Edmonds of the Poynter Institute, has not met “the big claims being made for it several years ago.” 

Activities online

Beyond news, how do Americans divide the whole of their time on the Internet? The bulk of time (45%) was spent accessing content, be it news, music or visiting Wikipedia. They divide the rest of their time among four activities: conducting Internet searches (5%), making online purchases (13%), communicating (28%) and visiting social networking sites (9%).⁴⁰

Time Spent Online

Design Your Own Chart

Source: Online Publishers Association and Nielsen Online

Although these figures suggest people spend a very small amount of their time searching (searches usually take seconds to execute), such searching is something virtually all Internet users do. As of November 2008, about 86% of Web users reported having ever used a search engine.⁴¹  And about half of Web users engage in search on a typical day.⁴²

Conclusion

Was 2008 a breakthrough year for online traffic or a unique event? Certainly the trend lines continued — and at a faster pace. The answer should come soon enough as to whether the election was a transformative moment for the Internet or a one-time news event unusually well suited to the Web’s strengths.

Our sense is that we will look back on 2008 as a year that catapulted the Web audience to new, sustained levels. If so, it will have also deepened the paradox of the Internet. While it intensified interest in news, the shift to online news consumption also accelerated the dismantling of the economic foundation for gathering the news. The question going forward, then, becomes an even more desperate effort to monetize that Web audience.

SIDEBAR: Analysis of Nielsen, Hitwise and comScore Rating Services

Measuring traffic on the Internet has become increasingly complicated. A number of methods have emerged, but no single methodology has been accepted as a standard.

Nielsen and comScore use a panel of Internet users to estimate total U.S. Internet traffic. Just as a telephone polls contact a sample of Americans, Nielsen and comScore contact a sample of Internet users who agree to share how they spend their time on the Web. Internet users who participate then download software on their computers that tracks their online visits without attaching any personally identifiable information to the traffic data to ensure anonymity.
Nielsen uses a random sample of Internet users by collecting its panel with telephone calls, the method used by most pollsters today. Achieving a random sample of participants for the panel is a key advantage. With a random sample, Nielsen can take the traffic data and more effectively generalize to U.S. population of Internet users as a whole. Nielsen runs two panels – one consisting of people at work and the other of people at home – for a combined total of 30,000 people.

ComScore recruits what it calls a convenience sample instead of a simple random sample by offering incentives to participants. ComScore then applies statistical methods to adjust, or weight the results to reflect the demographics of the actual online population.⁴⁴

For example, after it obtains traffic data from a panel, comScore analysts may discover they have a smaller percentage of males than the online population at large. They then add more results from males so that they are correctly represented. ComScore says this gives it an advantage because it uses more people (about 150,000) and maintains three panels – at work, at home and at universities -- to ensure that the data capture how students are using the Internet differently from adults at home or at work.

Hitwise takes a wholly different approach. It does not gather data directly from individual computers as comScore and Nielsen do. Instead, it gets the data from Internet service providers (ISPs) who aggregate traffic data across all the individuals to whom they deliver Internet access. Hitwise provides ISPs with proprietary software that allows ISPs to analyze website usage logs created on their networks. To ensure the data is representative, Hitwise says it collects “from a geographically diverse range of ISP networks in metropolitan and regional areas, representing all types of Internet usage including home, work, educational and public access.” The sample of ISPs, however, is not a purely random one.

Hitwise feels its data offer some advantages. First, it reports data using specific website addresses (like www.CNN.com). ComScore and Nielsen report data that includes all related websites (like money.CNN.com), a definition that can change over time. Hitwise data also put a premium on anonymity. Because it collects aggregate data, it never has access to the personal information of Internet users.

Different methodologies often result in different results, and that is the case here. Nielsen and comScore, for example, both rank Yahoo News, MSNBC.com, CNN.com, and AOL News as the four most-visited sites. Both rank AOL News as fourth. Hitwise, however, ranks AOL News as the 11th-most popular news site.
While Hitwise ranks the Drudge Report as the 5th-most popular site, it does not register on the top 25 sites as listed by comScore or Nielsen.

Hitwise included a number of sites that are not generally regarded as traditional news sites and did not appear on the Nielsen or comScore lists. These include Yahoo Weather, Yahoo Local, and TVGuide.com. Both comScore and Hitwise listed some that Nielsen did not list, including the Weather Channel and Weather Underground. Nielsen did not include any of those websites in its categorization. According to Hitwise’s press office, differences materialize largely because of what the company categorizes as news.

Footnotes

1. “Internet Overtakes Newspapers As News Outlet,” Pew Research Center Survey, Pew Center for the People & the Press, December 23, 2008

2. “Internet Now Major Source of Campaign News,” Pew Research Center for the People & the Press, Oct. 31, 2008

3. “Internet Overtakes Newspapers As News Outlet,” Pew Research Center  Survey, Pew Center for the People & the Press, December 23, 2008

4. Patrick Ruffini, “The Internet Is TV. Twitter Is the Internet,” techpresident.com, Dec. 18, 2008

5. This figure is based on PEJ’s analysis of comScore media Metrix data. It represents mean unique visitors of the top 50 websites, excluding weather, entertainment and other specialty sites (another leading internet audience measurement company, Hitwise, calculated a similar audience growth of 23% in its “news and media” category).  

6. “Key News Audiences Now Blend Online And Traditional Sources,” Pew Research Center Biennial News Consumption Survey, Pew Center for the People & the Press, August 17, 2008

7. “Internet Overtakes Newspapers As News Outlet,” Pew Research Center  Survey, Pew Center for the People & the Press, December 23, 2008

8. Pew Internet & American Life Project, regular surveys and projections, available at http://www.pewInternet.org/

9. The Digital Future Report 2009, Center for Digital Future, University of Southern California,  Annenberg School Survey

10. If forced to choose, a different survey found, consumers would rather keep their Internet or wireless service and give up their cable subscriptions or landline phones. According to the October 2008 report by Toronto-based Solutions Research Group, “Many consumers, with minor exceptions, view [Internet and wireless access] as essential utilities like water and electricity.” (Wendy Davis, “Survey: In Tough Times, Internet Still Seen As Necessity,” Daily Online Examiner, October 23, 2008)

11. “Key News Audiences Now Blend Online And Traditional Sources,” Pew Research Center Biennial News Consumption Survey, Pew Center for the People & the Press, August 17, 2008

12. “Continuing Partisan Divide in Cable TV News Audiences; Internet Now Major Source of Campaign News, ” Pew Center for the People & the Press, October 31, 2008

13. “Liberal Dems Top Conservative Reps in Donations, Activism,” Pew Research Center for the People & the Press, October 23, 2008

14. “Continuing Partisan Divide in Cable TV News Audiences; Internet Now Major Source of Campaign News, ” Pew Center for the People & the Press, October 31, 2008

15. “Continuing Partisan Divide in Cable TV News Audiences; Internet Now Major Source of Campaign News, ” Pew Center for the People & the Press, October 31, 2008

16. Henry Blodget, “Huffington Post Still Blowing Doors Off,” Silicon Valley Insider, October 22, 2008

17. Henry Blodget, “Huffington Post Still Blowing Doors Off,” Silicon Valley Insider, October 22, 2008

18. PEJ Analysis of 2008 comScore web traffic data

19. “Integrating TV & Internet Measurement,” Nielsen website, http://www.nielsenmedia.com/nc/portal/site/Public/menuitem.55dc65b4a7d5adff3f65936147a062a0/?vgnextoid=293f0671455bb010VgnVCM100000ac0a260aRCRD (accessed February 11, 2009)

20. ComScore obtains its estimates of the online population through a survey of randomly selected Americans

21. “Gartner Says Worldwide Smartphone Sales Grew 29 Percent in First Quarter of 2008,” Gartner press release, June 6, 2008 

22. Pew Internet & American Life Project, March 2008 available at http://www.pewInternet.org/pdfs/PIP_Mobile.Data.Access.pdf  

23. “Moving to Mobile,” Newspaper Association of America, press release, accessed October 10, 2008

24. Tanya Irwin, “AP Launches Mobile News Network App For BlackBerry,” Online Media Daily, October 21, 2008

25. Steve Smith, “Building A Mobile News Network,” Mobile Insider, July 10, 2008

26. Tanya Irwin, “AP Launches Mobile News Network App For BlackBerry,” Online Media Daily, October 21, 2008

27. “AP Launches Mobile News Network App for BlackBerry Smart Phones,” Editor & Publisher, October 20, 2008.

28. Interview with Jeff Litvack, AP’s global product development director, February 5, 2009

29. “Moving to Mobile,” Newspaper Association of America, press release, accessed October 10, 2008

30. David George-Cosh, “Google set to take on iPhone and BlackBerry,” Canwest News Service, accessed from Nanaimo Daily News, Sept 22, 2008

31. Online Publishers Association Internet Activity Index

32. Fully 65% of people 18 to 24 say they have a profile on MySpace, Facebook or another social networking site. That is 82% of those who go online at all. Only about half as many people in their early 30s who go online have created social networking profiles (41%). Among older age groups, much smaller numbers have created profiles. African Americans who go online are much more likely than whites to have a profile on a social networking site:  44% vs. 29%. Roughly 4 in 10 liberal Democrats (43%) who go online -- and 32% of self-described liberal Democrats over all -- say they have a profile on social networking site. That is twice the percentage of conservative Republicans who have social networking profiles.  (“Key News Audiences Now Blend Online And Traditional Sources,” Pew Research Center Biennial News Consumption Survey, Pew Center for the People & the Press, August 17, 2008)

33. “Key News Audiences Now Blend Online and Traditional Sources,” Pew Research Center Biennial News Consumption Survey, Pew Center for the People & the Press, August 17, 2008

34. Brian Caulfield and Naazneen Karmali, “Mumbai: Twitter’s Moment,” Forbes.com, November 28, 2008

35. “Key News Audiences Now Blend Online and Traditional Sources,” Pew Research Center Biennial News Consumption Survey, Pew Center for the People & the Press, August 17, 2008

36. “Key News Audiences Now Blend Online and Traditional Sources,” Pew Research Center Biennial News Consumption Survey, Pew Center for the People & the Press, August 17, 2008

37. “Key News Audiences Now Blend Online and Traditional Sources,” Pew Research Center Biennial News Consumption Survey, Pew Center for the People & the Press, August 17, 2008

38. “Key News Audiences Now Blend Online and Traditional Sources,” Pew Research Center Biennial News Consumption Survey, Pew Center for the People & the Press, August 17, 2008

39. “Key News Audiences Now Blend Online and Traditional Sources,” Pew Research Center Biennial News Consumption Survey, Pew Center for the People & the Press, August 17, 2008 

40. Communication is defined as visits to Web sites and Internet applications that are designed to facilitate the exchange of thoughts, messages, or information directly between individuals or groups of individuals. Examples include web-based email, instant messanging services, and online listservs. Online Purchases are defined as Web sites and Internet applications that are designed for shopping online, like Amazon.com or eBay.

41. Online Publishers Association Internet Activity Index

42. Pew Internet & American Life Project, May 2008, available at http://www.pewInternet.org/trends/Daily_Internet_Activities_Jan_07_2009.htm

43. “Integrating TV & Internet Measurement,” Nielsen website, http://www.nielsenmedia.com/nc/portal/site/Public/menuitem.55dc65b4a7d5adff3f65936147a062a0/?vgnextoid=293f0671455bb010VgnVCM100000ac0a260aRCRD (accessed February 11, 2009)

44. ComScore obtains its estimates of the online population through a survey of randomly selected Americans

Economics

By the Project for Excellence in Journalism

The most important issue facing journalism is whether the Web will ever deliver the kind of revenue that legacy platforms once did.

If there were doubts before, 2008 made it all but certain that the traditional advertising revenue model — retail, display and classified from print, and traditional image video ads from television — would not come close to being enough.

Even before the recession hit full force in the fall, indeed as far back as 2007, online advertising for news sites was already slowing down. The deteriorating economy only made a difficult situation worse.

It is now obvious that if the news business is to survive in any recognizable form it must invent a new economic model in which traditional advertising is at best only part of the revenue equation.

“The notion that the enormous cost of real newsgathering might be supported by the ad load of display advertising down the side of the page, or by the revenue share from having a Google search box in the corner of the page, or even by a 15-second teaser from Geico prior to a news clip, is idiotic on its face,” a 2008 research report from Sanford C. Bernstein & Company concluded.

Yet by all signs, only marginal progress seemed to have been made in developing any new ways to monetize the Web. Much of industry was simply trying to keep its head above water.

And the evidence suggested that new forms of advertising and new platforms of delivery offered little hope of reaching adequate scale anytime soon. Video advertising, for instance, grew rapidly early in the year, but the numbers are still quite small and they slowed considerably as the year ended. Advertising on mobile devices, where distribution and use are growing rapidly, is also small and projected to remain so.

Online Ad Revenue Growth Slows in 2008

Over all, online ad spending for all websites, news and otherwise, rose in 2008, but the rate of growth slowed.

For the first nine months, ad revenues online totaled $17.3 billion, up 14% from the record $15.2 billion posted in the same period a year earlier.¹

But analysts predicted that growth rate would almost certainly be lower by the end of the year.  “A weakening economy will continue to be a challenge to all forms of advertising-supported media, said David Silverman, a partner at PricewaterhouseCoopers.²  

And 2009 is expected to be the first year since the start of the decade in which some components of interactive advertising will show little or no growth, according to an outlook report from Borrell Associates, the media research firm.³

For news, the prospects are even dimmer. While search advertising was expected to grow, the category that news sites depend on most, display (which includes graphical banner and pop-up ads), was projected to decline. Even if the nation’s economy improves, the Borrell report said, advertisers are likely now to opt for search over display, with display having already seen its most lucrative days.⁴ “No form of advertising yet invented has grown forever,” it said. “Interactive ad spending is no different.”⁵

The result is that online ad growth for legacy media like newspapers is not coming anywhere close to making up for the losses in the old media platforms.   In its newest report, Veronis Suhler Stevenson, the private equity investment company, estimates  that newspaper ad revenue — both print and online combined — declined by 15.6% in 2008 and would fall another 19.1% in 2009.⁶

The long-term problem here becomes obvious. Print is shrinking. The Internet  is not coming anywhere near those old newspaper levels, especially for news sites. (eMarketer projections put newspaper ad revenue from online and print both in 2012 at $28.4 billion. That would be roughly 40% less than the industry took in during 2006).

The math seems increasingly inescapable. Advertising on the Internet, at current rates projected out, will never resemble the kind of economic foundation newspapers enjoyed in print, or that flowed to news on television.

Ad Revenue and the News

How much of this Internet advertising does go to news?

One research group tries to isolate this. TNS Media Intelligence develops an estimate of the top 25 websites in the United States based on display advertising, not including search or video. It then breaks those sites down by category.⁷

Its analysis suggests news represents only a minority of the display ad revenue attracted online.

Its two categories of news sites, local news and guides and national news and current events sites, together made up 19% of the revenue among these top websites in 2007, the latest year available.⁸ And that is the area of online advertising where they have the biggest presence.

If that number is at all representative, it suggests that display advertising online would have a long, long way to go to make up for declining ad revenue in print and television. Even before the financial credit crisis hit in September, Veronis Suhler Stevenson projected that for the two online ad categories most oriented to news, display and classified, spending would reach $16 billion by 2012. If news sites represented 20% of that, it would amount to roughly $3 billion, or less than one tenth of what newspapers alone took in during 2008.

Online news professionals point out that even these numbers may inflate the potential for newsgathering, as opposed to news aggregating. David Payne, former senior vice president and general manager of CNN.com, warned that news organizations will be disappointed if they are expecting online ad revenues to make up for the traditional sources of revenue they have long counted on. Payne wrote in a column for Media Week:   “it should be no secret that news organizations -- even those with the most successful online properties -- are in for some serious adjustments in the future. Most have the vast majority of their budgets tied up in headcount and newsgathering. When there is pressure on those budgets in a declining revenue state, heads roll and newsgathering is slashed, initiating an ugly spiral.”⁹

Top 25 Website Categories by Display Ad Revenue, 2007
Dollars, in Millions

Source: Data from TNS Media Intelligence on more than 2,800 sites.
Note: Dollars are in millions for calendar 2007 and represent only display advertising; excludes search and broadband video. Percent change computed vs. 2006 data, not shown. No 1 is multiservice such as MSN, Yahoo and AOL and No. 10 is just portals and search engines such as Ask .com and About.com. Categories are from TNS.

Display Advertising

Another problem, already noted, is that display advertising, the category flowing more to news, has already begun to slow down, and now the industry expects that trend to continue.

This bears a little more detail.

Even before the economic meltdown in the fall, Veronis Suhler Stevenson projected that the growth rate of display advertising revenue online would slow to 13.9%, down from growth rates of 15.6% in 2007 and 38% in 2006.¹⁰

Later in 2008, the market research firm eMarketer projected an even steeper drop in the growth rate. In December, it estimated that by year’s end online display advertising would have grown by only 3.9%.¹¹

Display advertising online comprises two categories, national and local. In 2008 national display was hurting most. According to Borrell Associates, by the end of 2008, national display advertising revenue was expected to fall by 13% from a year earlier. And the firm predicted that trend was expected to worsen, falling 14% more in 2009.¹²

Local display, by contrast, was expected to remain healthier in 2008 before falling in 2009. It was projected to rise in 2008 by 23% and then decline by 4% in 2009.¹³ 

And the growth rate is expected to slow even further in the years ahead. Veronis Suhler Stevenson estimates that display advertising will grow at an annual compound average of 10.6% between 2007 and 2012, half of the 20.3% annual growth rate it had between 2002 and 2007.

“The sparkle of banner advertising has dimmed,” Borrell Associates said in its 2009 outlook report. “Advertisers are turning their attention toward newly sparkling formats that may hold greater efficiency” like search and streaming video.¹⁴

One reason that online display revenue is slowing is falling prices. Average display ad rates slid during the third quarter of 2008, according to PubMatic, an ad consulting firm for online publishers.¹⁵ Measured as the cost of reaching 1,000 website users, the rate fell from 50 cents at the end of 2007 to 26 cents in fall of 2008.¹⁶

“It’s not surprising that [the rate charged for display ads has] been trending down, but what is surprising is the size of the drop,” rather than the rate charged for ads said Rajeev Goel, president and co-founder of PubMatic.¹⁷

Rick Edmonds of the Poynter Institute cites two factors for the declines. First, the oversupply of space online, including blogs, YouTube and social networks had already begun driving rates down. Then the economic downturn of 2008 cut ad budgets further across all platforms.

Certainly some of the industries that use display advertising most heavily – auto and retail for example – cut their ad budgets after the financial crisis in September.

Top 10 U.S. Internet Display Advertisers, 2007
Dollars, in millions

Search Advertising

The advertising category growing most online is search, which to date has not substantially benefited news.

In this form of advertising, the consumer is presented with ads based on the search term he or she types into Google or another search provider. It commands most of the revenue in online advertising, and it was expected to weather financial storms and remain strong in 2009.

Before the credit crunch hit in September, eMarketer projected paid search advertising would increase by 40% during 2008. After the crisis, they revised that downward, to 21.4%.¹⁸

Even the reduced rates will be difficult to sustain as the Internet matures. Between 2007 and 2012, for instance, Veronis Suhler Stevenson projected revenue from search to grow at a compound annual rate of 16%, to $26.2 billion. The preceding five years it had grown at a compound annual rate of 42%.¹⁹

News sites receive some revenue from search advertising, although PEJ was unable to locate anyone in the industry with specific estimates. Search engines such as Google and Yahoo share some ad revenue with a news website that uses their search technology. Presumably, a news website may also benefit indirectly when a Google search drives traffic to its story, where a user is exposed to display ads.

As growth slows, search is also expected to lose some of its total share of online ad spending.  According to estimates from Veronis Suhler Stevenson, search’s share of online advertising revenue is expected to fall from an estimated 42% in 2008 to 37% in 2012.²⁰ Two smaller categories — social networking and online video — are expected to grow more strongly.²¹

Still, that is a much higher growth rate and share of ad spending than projected for display.

The estimates from eMarketer, which are much lower, are in the table below.

Projected Growth for Online Advertising Spending, by Category
Dollars, in billions

Video Advertising

As growth in display advertising slowed, experts wondered whether video ads had the potential to inject new life into revenue for news websites.

The answer, offered in 2008, is that despite rapid growth, video is still a small revenue source and has yet to show real promise for the future.

Advertising in online video and rich media — which refers to any moving or dynamic web content such as a news ticker that scrolls across a web page or streaming video — was projected to grow by 44% in 2008, to $3.6 billion, from $2.5 billion a year earlier. The good news is that the rate of growth here is expanding.  In the preceding five years video ad revenue grew by an annual compounded rate of 33%.

The bad news is that the figure of $3.6 billion represents only 10% of Internet advertising, which itself is not as large in 2008 as people expected. 

Veronis Suhler analysts forecast that online video would grow by annual compound rate of 39% by 2012 to $12.7 billion, a significant amount. By then, they estimate, it would represent 18% of total Internet ad spending. Only ads on social networking sites, which represented about 7% of Internet advertising in 2008, were expected to grow faster.

The effectiveness of video ads, however, is still largely an unknown, and growth could be slowed by the recession. “It’s harder to prove that ads … embedded in a video are effective in luring Web surfers to a site or enticing them to make a purchase,” said Russell Fradin, president of Adify, a company that helps firms set up online advertising networks.

Even if these ads prove effective, the question remains: how many of these news sites will succeed in capturing enough ad revenue to stay in business?

Advertising on the Cellphone

One other potential source of expanding the universe of digital advertising is mobile.

The jump in mobile technology with the advent of faster 3G networks raised expectations about rapid growth in advertising. Apple released the 3G iPhone and Google the Android operating system, which allows smartphones to operate much like an iPhone. The Google operating system can be run on almost any mobile phone, permits free wireless use and allows for the easy addition of applications from anyone who takes the time to create one.

There are about 40 million active users of the mobile Web, according to Nielsen Mobile.²² As that number increases, there will be an increasing demand for information on mobile devices.

Advertisers have taken note of these increases and have shifted spending to mobile devices. They were expected to spend $1.3 billion in 2008, up 59% from a year earlier, according to data from Veronis Suhler Stevenson.

The rate was expected to slow somewhat, to a compound annual rate of 34% between 2007 and 2012. That would put mobile ad revenue $3.6 billion at the end of the period.

Local vs. National Advertising

One other concern for news online is what has happened with local advertising.
Online advertising buys have tended to be aimed at national audiences through large national websites and portals such as Yahoo. In recent years, those national websites have taken aim at the billions of dollars spent on local advertising, a direct threat to regional and local media that hoped to lure their most important advertisers to their Web sites.

A decade ago, 80% percent of Internet advertising was national and 20% was local.  By the end of 2008, Veronis Suhler Stevenson estimated the gap had narrowed to 70-30 as local merchants grew more comfortable advertising on Google, Yahoo and Monster and other “pure play,” or Internet-only, sites.  Projections call for that same ratio to continue through 2012.²³ Another estimate, in the chart below, estimated the gap reached closer to a 60-40 ratio in 2008.

Local vs. National Online Ad Spending

1998-2008

Design Your Own Chart

Source: Borrell Associates, Inc.

But as local advertisers have become more comfortable with the Web, they increasingly are spending their money on these national sites and away from local news. In 2007, for instance, the share of local online ads spent on newspaper sites fell to 25%, down from 36% the year before. Meanwhile, the share of local ads going to pure play Internet sites such as Google jumped to 57% from 33% the year before.²⁴

Local Online Ad Share by Medium, 2008

Design Your Own Chart

Source: Borrell Associates, Inc.

Other Models

The most obvious question is if advertising, the foundation of the news industry for much of the last century, won’t work online, how much progress has the industry made in developing an alternative?

In 2008, our sense is very little. The industry has toyed with some other ownership models, particularly nonprofit ones. We discuss these in the New Ventures Section.

But existing news organizations by and large have little history innovating new economic alternatives. The industry has seen a host of opportunities slip over the last decade and a half. In 2008, it was preoccupied with the economic slowdown. Many, if not most, traditional news operations, professionals told us, operated at what has been described as a straight line model. If revenues declined by 10%, costs needed to be cut by 10%. That cost cutting, rather than invention, commanded everyone’s attention in the last year.

“Frankly, when I have been at meetings about innovation, what I have heard has mostly been hand wringing,” said one news executive at a private meeting with potential nonprofit funders.

In the end, the economics of the Web seemed to be moving even farther away from news in 2008, and the recession is only making that problem harder. It seems increasingly clear that news sites need to move further into search, but it is not clear they are succeeding, and the shift of local advertising to national portals may be especially ominous. The prospects of new technology, such as mobile and video, are promising, but the scale is not yet there, and there is no certainty that news will capture these either.

The solution, increasingly, seems to point to new models. But the innovations here seem small and experimental. There is, in short, a long way to go for news economics online, and abundant reasons for concern about whether it will ever happen.

Footnotes

1. “Internet Advertising Revenues in Q3 ’08 at Nearly $5.9 Billion,” Interactive Advertising Bureau, Nov. 20, 2008

2.“Internet Advertising Revenues in Q3 ’08 at Nearly $5.9 Billion,” press release, PricewaterhouseCoopers, November. 20, 2008

3. Gavin O'Malley, “Interactive Ad Spending Will Top Out in 2009: Report,” Online Media Daily, November 6, 2008

4. Gavin O'Malley, “Interactive Ad Spending Will Top Out in 2009: Report,” Online Media Daily, November 6, 2008

5. Gavin O'Malley, “Interactive Ad Spending Will Top Out in 2009: Report,” Online Media Daily, November 6, 2008

6. Veronis Suhler Stevenson, Communications Industry Forecast, 2008-2012

7. Data from TNS Media Intelligence, Top 25 Web Site Categories by Display Ad Revenue

8. This category includes 32 news websites with a national focus, including Yahoo! News, MSNBC.com, AOL News, and NYTimes.com. However, it does not include CNN, one of the most-visited news websites. Local news attracted up to 10% of online ad revenue in 2007 (up from 8% in 2006). The national news & current events category held steady with 9% of the revenue.

9. David Payne, “Doing the ugly math: without changes, news operations will suffer in digital times,” Media Week, November 10, 2008

10. “Communications Industry Forecast 2008-2012,”  Internet & Mobile Services, Veronis Suhler Stevenson, 2008

11. “eMarketer Revises Online Spending Predictions,” eMarketer, December 1, 2008

12. “2009 Outlook: Big Slowdown Begins for Local Advertising,” Borrell Associates, November 8, 2008

13. “2009 Outlook: Big Slowdown Begins for Local Advertising,” Borrell Associates, November 8, 2008

14. “2009 Outlook: Big Slowdown Begins for Local Advertising,” Borrell Associates, November 8, 2008

15. Michael Learmonth, “Online Ad Network Display Ad Rates Take a Dive,” Advertising Age, October 14, 2008. 

16. Douglas Quenqua, “Display Ad Prices Fell 50 Percent in Q4,” ClickZ, January 15, 2006

17. Joe Mandese, “Online Display Ad Prices Fall To Lowest Point This Year,” Online Media Daily, October 14, 2008

18. The early projection is from “February 2008: Search Marketing, the Behemoth Online Advertising Format,” eMarketer, accessed February 5, 2009. The revised projection is from “eMarketer Revises Online Spending Predictions,” eMarketer, December 1, 2008.

19. “Communications Industry Forecast 2008-2012,” Internet & Mobile Services, Veronis Suhler Stevenson, 2008   

20. “Communications Industry Forecast 2008-2012,” Internet & Mobile Services, Veronis Suhler Stevenson, 2008   

21. One worry among search advertisers is “click fraud,” in which they pay for hits to their ads that are not from legitimate consumers. One study found that the rate of click fraud fell slightly in 2008 but remained a serious problem The report, by Click Forensics, estimated that the rate of click fraud stayed basically at 16 percent of all clicks, industry-wide.  “The overall rate continues to dip, as advertisers continue to take more initiative [in monitoring click fraud] and as search engines are starting to take things a bit more seriously,” said Tom Cuthbert, president of Click Forensics, which provides services to monitor ad campaigns for click fraud. “That’s favorable, but 16 percent is still a very high number, still something to be concerned about.” Click fraud occurs when someone, often using automated software, causes clicks to be made on sponsored ads. Rivals may do this to drive up a competitor’s ad costs. More often, Web publishers who employ links by search companies such as Google or Yahoo do it in order to receive more income in revenue-sharing from the search companies. 

22. “Moving to Mobile,” Newspaper Association of America, press release, accessed October 10, 2008

23. “Communications Industry Forecast 2008-2012,”  Internet & Mobile Services, Veronis Suhler Stevenson, 2008

24. “What Local Media Websites Earn: 2008 Survey,” May 2008. Directories such as the Yellow Pages garnered 8% in 2007, broadcast TV got 7%, and radio and other print (such as local magazines), drew a combined 3%.

News Investment

By the Project for Excellence in Journalism

How did online newsrooms fare in the deepening recession of 2008?

Getting a firm grasp on newsgathering resources online is elusive. There are so many sites, and accounting for the time devoted to online vs. in legacy platforms is difficult.

The Project hopes that a new survey of online journalists produced as part of this report in conjunction with the Online News Association will help.

Still, there are some data that offer at least a broad sense of how they are doing.
For those companies better known for aggregation, such as Yahoo, the year saw investments in technology more than people.  For those more closely tied with older media, such as the website of the Los Angeles Times (latimes.com), whatever gains they made in resources came from more tightly integrating digital and print operations than from expansion.

The biggest area of development was seen in a handful of niche publications that popped up online, some started by journalists laid off or bought out from traditional newsrooms.

Rarely if anywhere in the online world did gains in employment match gains in readership. Instead, the path of resources devoted to journalism online in 2008 was mostly a matter of trying to manage, or in some cases salvage, long-term strategy amid financial hardship.

Online Newsroom Staffing: Aggregators

Among the most visited sites are those that aggregate news from others, or rely heavily on wire copy that they may edit. In 2008, these sites reflected a preference for new technology over new hires. 

Yahoo News, by some measures the most popular news site, uses human editors to make its aggregation decisions and it also has tried in fits and starts to do some limited original reporting.

In 2008, it did not add to its staff, either editors or reporters.  “Over all, the corporate situation is obviously tough, though we’re holding pretty steady investment,” Yahoo News senior product manager Peter Roybal said.¹

Part of that investment in 2008 was not in original reporting but in doing original things with content it aggregated: editing or combining content to produce new information for its audience. Much of this work was tied to the presidential election.

The site hosted a virtual debate among Democratic candidates for president, gathering tapes from interviews conducted by Charlie Rose and Bill Maher and inviting users to select the issues and candidates they wanted to hear from. It was called the Democratic Candidate Mashup. On the Republican side, it partnered with Politico to conduct a virtual interview with President Bush and permitted Yahoo users to submit questions. Yahoo also introduced a news blog of material aggregated by Yahoo editors.

Yahoo News also redesigned its site to take advantage in surging interest in political news. “We are in the midst of a very powerful news cycle,” said Scott Moore, Yahoo's senior vice president and head of U.S. audience. “There is a real sea change going on here.”²

AOL News, another aggregator, also sought to take advantage of the election with technological wizardry rather than shoe-leather reporting. It created a “widget” called the “Hot Seat” that users could add to their own websites. The Hot Seat  featured content from bloggers and other sites to “stimulate a dialogue between voters, pundits and politicians” (see Special Report on Citizen Media).

MSNBC.com, by some measures now Yahoo’s rival as a news destination, also leaned on technology over people. The site, a partnership between the cable network of the same name and Microsoft, represents something of a hybrid of aggregation, wire editing and original reporting (see the Online Audience Section). More than 200 people work there, including editors, reporters and producers. It is headquartered in Redmond, Wash., on the Microsoft campus, and has newsrooms in New York, London and Redmond.

The lion’s share of these people are editors managing or in some cases combining wire copy and producers assembling pages and content. Relatively few of MSNBC’s staff are engaged in actual reporting.

Here, too, in 2008, the newsroom innovations were largely technological rather than reportorial. MSNBC.com added new NewsWare tools to permit users to download news-focused screen savers and video games. One tool, called NewsScroller, gives users their own custom news ticker to display headlines updated throughout the day.

“We've coined a phrase, ‘news infusion,’ to capture the essence of what MSNBC.com is accomplishing with NewsWare,” said Catherine Captain, vice president for marketing at MSNBC.com, was quoted as saying in a company statement³ (see the Cable Digital Trends Section).

Digital tools present inexpensive opportunities for news organizations to boost audiences. Certain Web tools, like comments, RSS feeds and most-popular rankings can draw in readers and keep them engaged. Likewise, supplying user-generated “reporting” tools can give users more of a reason to come back to news sites with video and written posts of their own. 

The biggest online investment of the year came in the network’s coverage of the 2008 Summer Olympics. As sole U.S. carrier of the games, NBC worked to take full advantage of the capabilities of the Internet. This included the creation of a microsite, www.NBCOlympics.com, which provided over 2,000 hours of streaming video of events, highlights and replays.⁴  Viewers could, for example, visit the cycling area of the site to grab the latest news updates and watch videos.⁵

Record numbers of viewers visited its coverage online. At an average of 4.3 million unique visitors a day, NBC pulled in more than double the traffic of the 2006 Winter Olympics and 2004 Summer Olympics combined.⁶

NBC also used the website to test a comprehensive way of tracking viewership across television, online and mobile platforms. Networks have long had to piece together television audience numbers and online and mobile consumption with no overarching strategy for measuring how individuals divide their time. NBC used the Olympics website to test its Total Audience Measurement Index, or TAMi, which summarized users’ viewership across television channels, websites, mobile programming and video-on-demand.⁷

Online Newsroom Staffing: Legacy Operations

Data on the number of people employed online at legacy newsgatherers, those attached to print or television operations, are in short supply. Those trying to do such accounting, such as the American Society of Newspaper Editors, have found it difficult to sort out who is an online journalist and who is not. And trying to do so is becoming increasingly difficult, or perhaps even irrelevant, because of a continuing integration of online and offline staffs. But evidence suggests a shift of balance in favor of merged digital newsrooms even as overall payrolls were trimmed.

“Online wasn’t immune to cuts, but online was cut less in general than core newsrooms and core news operations,” Tom Davidson, the vice president for content at Tribune Interactive, told PEJ in an interview in October, before the company’s situation worsened and it filed for reorganization under bankruptcy protection.  “You feed resources to the growing part of your business and you cut resources to those aren’t growing anymore. Online tended to fare better.” ⁸

Some publications from larger organizations attempted create economic efficiency by merging online operations. In October, Condé Nast merged the online functions of two of its magazines, Portfolio and Wired, resulting in job losses in Portfolio’s digital operations.⁹ Similarly, Hearst Digital laid off workers as it merged its online and offline divisions.¹⁰

Mansueto Ventures, the publisher of Fast Company and Inc., took even more drastic action in early October. It shut down both digital divisions entirely, laying off 20 employees.¹¹ Their duties were absorbed by print magazine reporters and the websites continued.¹²

Elsewhere, there were signs of cutbacks. The Los Angeles Times website, for instance, lost some digital staff in 2008, but benefited from the increasing cooperation from print staffers who are reporting, editing and publishing for the website. “For us, the short answer is that investment is up, even though our Web budget is flat from a year ago,” latimes.com executive editor Meredith Artley said. 

In the case of latimes.com, the focus on the digital product paid off for the newspaper. In 2008, website revenues were nearly enough to cover the entire newspaper’s reporting payroll, Artley said.¹³ Despite that encouraging development, the future of the Times became even less certain when its owner, the Tribune Media Company, filed for bankruptcy protection in December.   

One of the clearest trends in newspaper newsrooms was the integration of the print and online operations. The integration came in two ways — bringing print and digital staffs together under one roof and training print staff to perform tasks involved in publishing to Web.

Integrating newsrooms not only saved money, but it also recognized a need to more efficiently produce content for a variety of platforms. “All newspaper websites are going through this right now. Maybe there is no magic recipe, but constant overcommunication is a huge key to success,” Artley of latimes.com, said.

Both national news organization and midtier newspapers embraced integration in 2008. The Washington Post, following the lead of the New York Times and the Los Angeles Times, brought online and offline staff operationally closer together. The ultimate goal is a more efficient way of publishing information in a variety of different digital formats.

A focus on integration is not limited to the big national news organizations. A 2007 PEJ-sponsored survey of newspaper editors found that the vast majority of newspaper editors (81%) consider the print newspaper and their Websites “part of the same product” rather than “different entities.”¹⁴

Percent of Newspapers Integrating Web and Print Operations, 2008

Percent of editors operating web and print as an "integrated editorial product"

Design Your Own Chart

Source: PEJ survey of newspaper editors, 2008

For the first time, a majority of newly hired journalists reported job duties that involved reporting for the Web, according to a 2007-2008 survey of journalism and mass communication graduates.¹⁵ Over 55% of bachelor’s degree recipients with jobs in communications reported that their jobs involved writing and editing for the Web. The figure had been 41.5% a year earlier and 22.6% as recently as 2004.

Percent of Journalism School Graduates in Web-Related Journalism Jobs

2004-2007

Design Your Own Chart

Source: The Cox Center at the University of Georgia, Annual Survey of Journalism & Mass Communication Graduates

Such integration was less true in television. There union rules can be an impediment, forbidding people from doing technical tasks. Culture may be a factor, too. But the notion that everyone is working across platforms has not developed in the same way in television.

Ending Print Editions

The year also marked the point when a few publications took the more highly anticipated step of cutting back on or entirely halting their legacy productions in favor of going online, from the Christian Science Monitor (which is shifting from a daily printed newspaper to one online plus a printed weekend magazine) among newspapers to U.S. News & World Report (which is shifting from weekly to monthly publication) in magazines. The key factor here is how much advertising revenue the print edition is earning. If print is not producing sufficient revenue, it may make more sense to grab the cost savings of eliminating print production.

Other newspapers also downsized their print operations to fewer days a week to save money on printing and distribution on low-revenue days. For example, Detroit’s major newspapers, too, cut home delivery to three days a week and beefed up their websites (see the discussion in the Newspapers Chapter).

And in television, particularly national outlets, one other trend appeared to continue in 2008: using citizens to supply video. In 2008 CNN, as part of an effort to integrate user-generated content both online and on-air, relaunched the beta version of its iReport program. First attempted in 2006, iReport was primarily a way to gather news for CNN.com and the cable channel. Users flooded the site with almost 10 times the content that CNN could use, and CNN suspended it in 2007 (see Citizen Media and Cable Digital Trends).

The new incarnation, iReport.com, more closely resembles YouTube. It is a website that allows users to share video, audio and photos with little interference from editors. The site sports the look, feel and openness of YouTube, as it exists as its own community. The only vetting CNN does is to remove objectionable content.¹⁶ Some of the content could appear on the news channel and website.

“The community will decide what the news is,” said Susan Grant, executive vice president of CNN News Services. “We are not going to discourage or encourage anything... iReport will be completely unvetted” ¹⁷ ( see Special Report on Citizen Media).

Other news organizations feature their own citizen-produced content sites. MSNBC’s FirstPerson invites users to upload video, photos or first-hand reports from breaking news events. The site has a button that says: “Are you on the scene? Send us your video.”

 ABC has a version called i-CAUGHT,” whose focus is less on breaking news and more about sharing personal content. Users can post videos in multiple categories, including politics, weather,” entertainment, fun and animals.

Legacy Sites Adopt Aggregation

Another trend, noted last year, accelerated in 2008: Newsgathering organizations continued to move toward aggregation and devoted more resources to organizing it for its audience.  In many cases this means including content from competing news organizations.¹⁸

Among the most visible examples of the trend was its adoption by NYTimes.com, the most widely read newspaper website. The site, which formerly limited itself almost entirely to stories generated by its namesake newspaper, announced in December 2008 a feature called Times Extra that steers readers to stories on the same topic appearing on competing websites.¹⁹ ” We would be remiss as a news organization if we didn’t develop this,” said Marc Frons, chief technology officer for digital operations at the newspaper. “People are coming to our website because they want to know what the Times thinks is newsworthy on any given day.”

Newspaper websites around the world have long included links to other news sites on their own home pages, but the Times is the first to feature them so prominently. ”The Internet offers so much stuff, that newspapers have in a sense been marginalized,” said newspaper analyst Ken Doctor. “If readers come to you to get a sense of that wider world, you’ll do better than by only pointing them to your own content.” ²⁰

Online Newsroom Staffing: Niche Publications
 
Some of the biggest expansions of news investment occurred at niche publications focused on specific topics.

Politico, a newspaper that was created with both online and print in mind, announced in September of 2008 the hiring of more than 100 people as it expanded its White House and congressional coverage.²¹

“Our goal is simple,” said Politico publisher Robert Allbritton in a statement. “We want to offer readers the fastest, smartest, most authoritative coverage of Washington in the nation, period.” 

The publication itself was only a month shy of 2 years old at the end of the year. Politico’s plans are not limited to delivering news on its Web site and in a print edition circulated around Washington. It also has plans to become a regular source of content for daily newspapers around the country. The news outlet covered the 2008 political conventions through a content-sharing arrangement with newspapers in St. Paul, Minnesota, and Denver, Colorado, where the conventions were held.

Another politically focused website,  HuffingtonPost.com, enjoyed strong traffic growth due to the election and was able to secure an additional $25 million from venture capital firm Oak Investment Partners to invest in its operation. How much of that will go to reporting is unclear.

A statement from HuffingtonPost.com said it would “invest in its technology and infrastructure, increase its in-house advertising capabilities, and continue to expand its content offerings — including a new investigative journalism initiative and a rollout of local versions of The HuffingtonPost  in select cities.” ²² What it has in mind, according to sources who have talked with HuffingtonPost, still appears to be relying heavily on citizen volunteers for content, under the supervision of news professionals.

But the investors behind this still appear to believe that advertising will be the revenue source for the future of news. Fred Harman, general partner at Oak Investment Partners, said, “Much of the news media business needs to be reassembled online around an ad-supported model and the timetable for this has been accelerated, not slowed, by this economic down cycle.”²³

AP Goes Mobile 

The Associated Press, the news cooperative founded by newspapers in the 19th century, made a major move towards a digital – and mobile – future.
The news service rolled out in May its mobile news network. It is the first product released by the AP’s Digital Cooperative, an initiative aimed at finding new digital outlets for news and information produced by AP members.

Using software developed by Verve Wireless, the network delivers news directly to smartphones, for now available on the two most popular, the iPhone and the BlackBerry.²⁴

The AP merges its content with that from a consortium of local news organizations so cellphone users can receive international, national and local news content 

As of early 2009 the content focused primarily on hard national and local news. The next offerings on tap for the network are locally focused:  movie reviews, listings and restaurant guides that the AP hopes will eventually form a coherent news and local resource hub for users.

Ultimately, Jeff Litvack, the AP’s global product development director, sees its value in local information. “It's truly our belief that people are looking to get their hometown news alongside their sports scores,” he said.²⁵

The mobile news network has so far been well received by both the public and news organizations that see partnerships as way to keep themselves alive in the future. In August, the first full month of service, it received more than 16 million page views. By September, the service had 948 news organizations signed up to provide content.²⁶  In November, the service had 35 million page views, according to Arthur Howe, the CEO of Verve Wireless. Verve provides the technical expertise to actually move electronic content online to the mobile web.²⁷  

The AP will not publicly confirm the project’s cost, but Litvack told MediaPost in July that the company invested millions to get the project up and running.²⁸

As of early 2009, revenues remained extremely small, though some partners have high hopes for the future. “Collectively,” said Howe, “our content and brands work better together.” Still, he says, mobile news and advertising is not going to be enough to save the industry as the struggle to monetize online news continues.²⁹ 

Part of the impetus for new projects at the AP stems from its struggles with news organizations that are members of the AP, a battle that led some of them to threaten to abandon the syndicate in 2008. Newspapers, in particular, complained about the costs of the service³⁰ (see discussion in Newspapers Chapter).

Footnotes

1. Peter Roybal interview with PEJ, Dec. 5, 2008.

2. Mike Shields, “Post-partisan reflection: surging pol sites looking beyond historic election year,” Media Week, Oct. 20, 2008

3. “MSNBC.com Launches NewsWare, Its Lab for News-Infused Digital Tools,” MSNBC.com press release, PrimeNewswire, May 5, 2008

4. Mike Shields, “NBC’s Victory Lap,” Media Week, August 25, 2008

5. Brian Stelter, “Web Audience for Games Soars for NBC and Yahoo,” August 25, 2008

6. Brian Stelter, “Web Audience for Games Soars for NBC and Yahoo,” August 25, 2008

7. Richard Sandomir, “Tracking the Olympics Audience Across the NBC Media Universe,” New York Times, July 7, 2008

8. Interview with Tom Davidson, October 24, 2008

9. Erik Sass, “Caught In Web: Magazines Cut Digital Staffs,” Media Post, November 12, 2008

10. “Publishing Mix and Match,” New Media Age, October 2, 2008

11. James Erik Abels, “Slowing Fast Company?” October 23, 2008

12. Erik Sass, “Caught In Web: Magazines Cut Digital Staffs,” Media Post, November 12, 2008

13. Interview with Meredith Artley, October 27, 2008

14. “The Changing Newspaper Newsroom,” The Pew Research Center’s Project for Excellence in Journalism, March 2008

15. Annual Survey of Journalism & Mass Communication Graduates, Grady College of Journalism & Mass Communication, University of Georgia, November 2008

16. Mike Shields, “CNN Launches iReport.com,” Editor & Publisher, February 13, 2008

17. Mike Shields, “CNN Launches iReport.com,” Editor & Publisher, February 13, 2008

18. PEJ Interview with Anthony Moor, November 18, 2008  

19. Grant Surridge ,  “New York Times takes bold steps with its web coverage,” Financial Post, Sunday, December 7, 2008

20. Grant Surridge, “Tackling the Loyalty Paradox,” December 8, 2008

21. Joe Strupp, “ ‘Politico’ Announces More Staff, Circulation, and Coverage,” Editor & Publisher, September 22, 2008 

22. “25 mi. infusion for HuffPo,” Adweek.com, Dec. 1, 2008

23. “25 mi. infusion for HuffPo,” Adweek.com, Dec. 1, 2008

24. Tanya Irwin, “AP Launches Mobile News Network App For BlackBerry,” Media Post’s Online Media Daily, October 21, 2008

25. Steve Smith, “Building A Mobile News Network,” Mobile Insider, July 10, 2008

26. “AP Mobile News Network Reaches 16 Million Page Views in First Full Month,” Business Wire, September 18, 2008

27. “Who Will Pay for the News?” Poynter Institute Conference, St. Petersburg, Fla., November 10-11, 2008

28. Steve Smith, “Building a Mobile News Network,” Media Post’s Mobile Insider, July 10, 2008

29. “Who Will Pay for the News?” Poynter Institute Conference, St. Petersburg, Fla., November 10-11, 2008

30. Steve Boris, “Ohio Newspapers Try to Break Away from the AP Cartel,” thefutureofnews.com, May 2, 2008

Ownership

By the Project for Excellence in Journalism

The Internet continued to be dominated in 2008 by large companies. Three of them in particular loom largest over the industry, but each of them — Google, AOL and Yahoo — was trying to maneuver, broaden or reposition itself during the year to either address immediate problems or anticipate ones that might be coming.

For Yahoo the problems were more immediate. It had a lot of traffic but was struggling to produce enough revenue. Google was trying to broaden its identity beyond search. Time Warner’s AOL was still trying to get beyond its identity as an Internet service provider and compete for online advertising and other emerging revenue.

Much of this played out in a dance of potential mergers and joint ventures, many of which did not materialize by the time the year was out, most of them involving Yahoo.

Beyond the three big companies, mergers and acquisitions in the online media and technology sector fell both in number and value in the first three quarters of the year, though it remained the busiest media sector for deal making.

Online News Media Ownership Trends

The vast majority of popular news sites continue to be owned by the richest media companies.

Of the 25 most-visited news websites, 22 were owned by the richest 100 media companies in 2008, based on an analysis of data from Advertising Age and Nielsen Online. 


Ownership of 25 Most Popular News Sites, 2008

Source: Advertising Age, ‘‘100 Leading Media Companies list’’; PEJ research
Note: The top 100 list is determined by domestic media revenues. The top 25 sites are based on Nielsen Online data for January-December 2008

Two of the five most popular websites in the U.S. — CNN and AOL News — are both owned by Time Warner, the largest media company in the world with revenues of $47 billion in 2008.

The 10 richest companies 28% of the most popular news sites.

Only three of the top 25 news sites were not owned by one of the largest 100 media companies. They were Huffington Post, a news and blog aggregation site; World Now.com, a consulting firm for local media companies, and the BBC, a government-owned news corporation based in Britain. 

Ownership of Top 25 Sites, 2008

Big companies dominate

Design Your Own Chart

Source: Advertising Age, ‘‘100 Leading Media Companies list’’; PEJ research Note: The top 100 list is determined by domestic media revenues. The top 25 sites are based on Nielsen Online data for January-December 2008

Mergers and Acquisitions

With a weakening economy, there was even less merger and acquisition activity that might have changed that lineup of companies. There were fewer deals, and the total value was less than 2007. Still, compared with other media sectors, online looked relatively healthy.

Through the first nine months of 2008, there were 218 online and media technology deals announced, a drop of 6 percent from the same period a year earlier. The total value of the deals, $7.8 billion, also fell, by 7%.²

The investment banking firm Jordan, Edmiston Group said the sector “remained healthy,” considering that the media market plunged $70 billion by value.³

Niche online content companies were among the most actively traded as “buyers continued to seek complementary add-ons,” according to the firm.⁴

One of the biggest deals was the purchase of CNET, the consumer technology information company, by CBS for $1.8 billion. This is discussed in more detail in the chapter on network news.

Among other notable sales were music-swapper Napster to Best Buy for $53 million and DailyCandy to Comcast for $125 million.

News Corp. sought to expand its mobile business by buying out its partner in Jamba, a company that sells ring tones and wallpaper for cellphones. News Corp. also reorganized its mobile-content operation and rebranded it the Fox Mobile Group.

“These changes will support accelerated growth and extend our global leadership in mobile content licensing, distribution and production,”  said Mauro Montanaro, CEO of the newly formed unit.⁵

The Big Three in News

When it comes to online news, the range of ownership is even narrower. Four Web sites stood out above all in 2008: Yahoo! News, CNN.com, MSNBC.com, and AOLNews.com.

For the purposes of this report, we want to offer a closer look on the corporate fortunes of the three that are Internet specific: Yahoo, Google and AOL. Each in 2008 tried to redefine what it does, often weighing the strengths of one of the other two.

Yahoo

Yahoo has long been a leader in attracting visitors and display ad revenue to its content-rich websites. By most measures, Yahoo News is the No. 1 destination for news online. Unlike Google, Yahoo’s aggregation is based on human editors, and its offerings are more tailored and, many analysts argue, more efficient.

But the company has struggled in recent years to maintain revenue growth, losing out to Google in search and others in new areas such as social networking.

In 2008, much of its attention, at least publicly, was focused on a storm of merger and acquisition negotiations designed to join forces with others that might remedy those problems.

The tale began in January, when Microsoft began an aggressive and frequently bitter struggle to acquire Yahoo. After much negotiating, the software giant in July offered an enhanced bid of $33 a share. Jerry Yang, Yahoo’s founder and then-CEO, rejected the offer. When the deal fell through Yahoo’s stock quickly dropped to slightly more than $10.⁶

With tension still high, Yahoo agreed in June to a more limited partnership with Google. The two companies announced a limited search/ advertising partnership in which Google would have delivered ads to some Yahoo search and content pages. Yahoo would gain much-needed revenue. Google would further expand its ad search business and prevent a future Yahoo-Microsoft merger that could threaten its search business.

Google, however, withdrew after the Justice Department told the companies that it would oppose the merger as a potential violation of antitrust laws. The two companies together control 90% of the U.S. search/advertising market.⁷  

In the aftermath, Yang gave up his post as CEO, but remained as the company’s “chief Yahoo,” a corporate strategy role.

Yahoo, according to published reports, turned to merger talks with AOL, which went on as late as December.

At the same time, Yahoo tried to strengthen its business in other ways, particularly in one of its long-standing areas of strength: display advertising.

The biggest move was the launch of a much-anticipated display advertising service called APT designed to make it easier for advertisers to find their desired audiences and to target ads based on the content of the site on which it appears.

One of the hopes for sellers is that the service will be able to generate a lot more volume at the much higher rate paid for targeted ads. In theory it could also allow outlets to sell the same space to multiple advertisers targeting different audiences.
The system rolled out first with a consortium of newspapers interested in the low-cost alternative to traditional methods of hand-selling ads.

The consortium was founded two years earlier as a way to connect advertisers with local newspapers on a common platform. In the earlier effort, the papers got display and classified advertising they would not ordinarily have gotten, and with lower transaction and production costs. In exchange, the papers provided news stories and other content to Yahoo, as well as advertising sold by their sales staffs. The papers also offered Yahoo searches on their websites, boosting Yahoo’s search-ad business, which is No. 2 to Google and losing market share.

With APT, the papers in the consortium get something more: the ability to better target their audience for advertisers. Newspapers, saddled with their own problems, were quick to see the appeal, and Yahoo  by the end of 2008 boasted 796 participating  newspapers. That meant that more than half of all the 1,450 newspapers in the United States were involved.

The whole notion of a newspaper consortium has a significance of its own separate from APT. The idea that newspapers could cooperate with each other in delivering advertising and content online has been widely talked about as key for the newspaper industry if it is to build revenue not just from advertising but other sources online as well, perhaps even subscriptions.

Meanwhile, AOL and Microsoft are attempting to create their own display advertising platforms. And Google paid $3.1 billion in 2007 for DoubleClick, another firm that specializes in display advertising. If APT succeeds, some analysts predicted, it might give Yahoo the financial boost it needs to stay independent .

Without it, there were signs that Yahoo’s dominance in display could slip. In June 2008, News Corp.’s MySpace reported heavier traffic to its social networking site than Yahoo’s portal websites, marking the first time this had happened. Website traffic is the coin of the realm for attracting display ads. Yahoo disputed the calculations, and other analysts pointed out that advertisers have been skeptical of the value of ads on social networking sites.⁸

That could change over time, as the popularity of MySpace, Facebook and similar networks soars, and advertisers become more experienced with them. As a result, Yahoo was considering its own social networking capabilities that could be built on its popular e-mail platform. One potential project is technology that would keep track of who Yahoo users e-mail the most, and push messages from those addresses to the top.

“'The idea is to ignite the social graph across all properties,”' Yahoo’s president, Susan L. Decker, said.⁹

Yahoo certainly faced plenty of pressure to do something to turn its business around. By the end of 2008, its stock had fallen below $14 for the first time in over five years. Revenues in the fourth quarter of 2008 were down 1% to $1.8 million. And the company’s 2008 net income was $424.3 million, 36% smaller than it was in 2007.

And Yahoo’s share of the search-advertising business continued to fall. In October 2008, 18% of all searches by Americans were made through Yahoo’s search engine. That compared to 22% during the same month a year earlier.¹⁰

The company also received something of a challenge managerially late in the year, when a top executive, Qi Lu, the executive vice president for engineering for the search and advertising technology group at Yahoo left to run Microsoft’s Internet operations. The recruitment confirmed Microsoft’s resolve to expand its online search and advertising business to compete with Yahoo, and eventually Google.¹¹

In January 2009, Carol Bartz the new CEO of Yahoo, inherited these challenges . A month later, Bartz announced a new streamlined management structure that eliminated layers of management, a move she said would allow the company to be “faster on its feet.” ¹²

Market Share of Internet Searches, 2008

Google, Yahoo and Microsoft

Design Your Own Chart

Source: Nielsen Online, comScore, Hitwise data analyzed by Search Engine Land

Google

Google grew in 2008, but more slowly than in previous years. The company remained committed to expanding its business beyond the arena of the Web it already dominates, search advertising. But facing slowing revenue gains, the company later in the year reined in spending on some ventures that proved to have less financial promise, and it suspended it famed program of allowing employs 20% of their time to work on their own projects.

The challenge looking ahead is anticipating how the economics of the Web will evolve beyond its core business, search, and to adapt to the new ways digital information delivery is changing.

Among the new products launched in 2008 were a cellphone operating system called Android, a platform for online bidding to sell television advertising and the completion of the acquisition of a major company in online display advertising. All that, as it also continued to search for ways to develop more revenue from the video sharing giant it had already acquired, YouTube.

Google’s golden egg is search advertising. It makes money from search in two ways:  allowing advertisers to place ads around Google search results and offering its search engine to other websites in exchange for a cut of the pay-per-click revenue. Google makes most of its revenue — 67% in the third quarter of 2008 — from searches conducted through its own websites.¹³

The key to its business model is market share. So many people use Google searches each day that it makes billions even though the revenue from each ad may be just pennies. 

The search business was good to Google again in 2008. The company’s share of search-engine traffic grew from 61% in January 2008 to 66% by year’s end.  Its nearest competitor, Yahoo, saw its share slip from 21% to 18% and third-place Microsoft went from 10% to 8%, according to Search Engine Land, a newsletter that follows the industry.¹⁴

Through the first nine months of 2008, Google’s revenue grew 35% to nearly $16.1 billion. Profits in the period grew to $3.8 billion, an increase of 36% compared to the same period a year earlier.

As of December, Google, after just 10 years, had a market value of $95 billion and 20,000 employees.

Even as its search business improves, Google has recognized the risk of putting all of its eggs in the search-business basket. As new arenas for search and other revenue open up, such as mobile applications, the company has already acknowledged the challenge of maintaining its growth rates. Not only does it have increasing competition in these new areas, but the business it increasingly controls, traditional online search, also is maturing.  ¹⁵

“While we are realistic about the poor state of the global economy, we will continue to manage Google for the long term, driving improvements to search and ads, while investing in future growth areas such as enterprise, mobile and display,” Google CEO Eric Schmidt said in October.¹⁶

Its release in 2008 of Android, an operating system for smartphones, was a potentially significant step toward establishing leadership in the emerging business of Internet use on mobile devices. Designed to compete with Apple’s iPhone and Research in Motion’s BlackBerry, the software can be downloaded and run on any smartphone for free.

Android anticipates what many expect to be the new frontier driving growth in mobile phones — applications. Consumers, the thinking goes, will not pick their cellphones based on the quality of the network, or even on the cellphones offered by companies. They will pick them based on the applications offered on each phone. The App Store offered by Apple is the breakthrough here. Android, in theory, will position Google to become a player there.

Through Android, users can browse the Internet, play music and videos, and, with a properly equipped phone, take and store photographs. The system is open-source, meaning other software companies are free to create applications, something that can add greatly to usage. Neither the iPhone nor BlackBerry operating systems are open-source. Those applications create a whole new universe for potential advertising.

“The online advertising giant has every intention of dominating your mobile-Web experience the same way it has the desktop Internet,” according to Fast Company magazine.¹⁷

As part of that strategy, Google expanded its emerging television ad selling business in 2008. It struck a deal in September to broker television ads on cable networks owned by General Electric’s NBC Universal. The deal allowed advertisers to bid online for ad time on NBC’s six networks, which included MSNBC and CNBC.¹⁸ A few weeks later, Bloomberg Television agreed to use the service, too. In May 2008, Google allowed advertisers using Google’s online ad buying service to also purchase advertising on television. The original deal had been limited to the Dish satellite television network.¹⁹

Google in March 2008 also completed the deal announced in 2007 to expand its position in the smaller market of online display advertising. The acquisition was Google’s $3.1 billion purchase of DoubleClick.

According to the New York Times, “DoubleClick, which was founded in 1996, provides display ads on Web sites like MySpace, the Wall Street Journal and America Online as well as software to help those sites maximize ad revenue. The company also helps ad buyers — advertisers and ad agencies — manage and measure the effectiveness of their rich media, search and other online ads.”²⁰

“Google really wants to get into the display advertising business in a big way, and they don’t have the relationships they need to make it happen,” Dave Morgan, then the chairman of Tacoda, an online advertising network, said at the time the transaction was announced. “But DoubleClick does. It gives them immediate access to those relationships.”²¹

Google received some good news in the lawsuit brought by Viacom against Google’s YouTube. Viacom sued YouTube on March 2007 for $1 billion, alleging that 160,000 of Viacom’s television clips had been uploaded to the site.²² But in August 2008, a California judge dismissed a similar copyright infringement case involving a viral video company. The judge ruled the video company “should not have to shoulder the entire burden of policing third-party copyrights on its Web site.”²³

The case was closely watched by Google. If it is forced to more closely police its users’ activity, it would add greatly to costs and decrease the free-wheeling nature of the postings that are the hallmark of YouTube.  (While YouTube is free, Google makes money from display ads on the site, selecting and displaying ads based on the content of the video a user selects. Advertiser fees are based on the number of views.)

Despite its willingness to experiment with new products, by the last half of 2008, Google began to scale back its expansive approach to new ventures. For years the company was committed to allowing its engineers to follow their product ideas, even if the revenue potential was not immediately apparent. It fit in with the goal of reducing the company’s reliance on search advertising, and the company’s revenue could pay for the experimentation.

But in December, with Google’s stock is trading at half its record value of $741.79 (hit in November 2007), Google CEO Eric Schmidt told the Wall Street Journal that the company would cut products “that haven’t really caught on.” He added that the policy of letting engineers pursue their own ideas would resume when the economy improves.²⁴

The company also eliminated 100 jobs from its recruitment office, reflecting a slowdown in its own hiring.²⁵ It also eliminated Print Ads, a service that sold print ads in more than 800 newspapers. The program was started in November 2006, and ended in January 2009.  Google said it did not generate enough revenue.

One question, going forward, is whether maturity and the recession change the culture at Google, making it more cautious, less free-wheeling, and if so, whether that enhances or inhibits the company’s ability to adapt to a changing industry.

AOL

AOL, the former dial-up Internet access company that has had its ups and downs since its founding in 1983, also added new businesses in 2008, but continued to struggle to redefine itself as a company that makes money on advertising rather than Internet access subscriptions.

In February 2008, AOL acquired buy.at, a company that helps match advertisers to online content producers. The company also provides marketing services for advertisers looking for content ripe for its ads. 

Two months later, AOL completed its $857 million acquisition of Bebo, a social networking site founded in Britain that specializes in the exchange of entertainment media among users.²⁶

In December, AOL announced a “re-launch” of Bebo as a integrated “social inbox” where users can aggregate all their email accounts, Twitter feeds and instant messages from competing social networking websites.

The deal had no shortage of critics, even after the changes were announced.
 “So far AOL's having a hard time proving doubters wrong,” Fortune blogger Nicholas Carlson wrote in December. “While Bebo is popular abroad, its 5.9 million US uniques in October were just a fraction of MySpace's 76 million and Facebook's 46 million.” ²⁷

AOL thought Bebo would form the centerpiece of its new People Networks business unit. Along with AIM, ICQ and AOL’s other community platforms, the unit said it had 80 million users worldwide.  As part of the strategy, AOL also acquired Socialthing!, a start-up that aggregates social feeds from sites like Digg, Twitter, and Flickr.

“AOL is now fully focused on growing our business in three key areas — our advertising network, publishing and people networks — by delivering relevant content and advertising across the Web, and we’re making great progress in each area,” Randy Falco, chairman and CEO of AOL, said.²⁸

Among other advertising businesses added by AOL were Advertising.com, which operates one of the largest third-party display ad networks; the behavioral-targeting leader Tacoda; Third Screen Media, which operates one of the largest mobile media networks; the market-leading video ad serving platform Lightningcast; Quigo, which offers advertisers the ability to target ads based on the content of Web pages; and ADTECH’s global ad-serving platform.²⁹

AOL also continued to struggle with the transition from a subscription-based revenue model to an advertising-based one. Since 2006, when AOL made the shift, advertising revenue has failed to offset declines in subscriptions, which are rapidly being supplanted by broadband service providers that offer faster Internet viewing over high-speed phone, cable and wireless systems.

AOL’s revenue in 2008 declined to $4.2 billion, down 20% compared to 2007. Subscription revenue dropped 31% while advertising revenue decreased 1%.³⁰

In January, the company announced it was cutting its workforce by 10%, or 700 employees.³¹

The financial results fueled speculation that AOL might be sold by its corporate parent, Time Warner, the media conglomerate with interests in movie making, publishing, cable television and other industries. When the two companies merged in 2001, many observers considered it an acquisition of Time Warner by AOL. That was not to be. AOL chairman Steve Case has left and Time Warner executives are firmly in charge. In 2008, AOL provided slightly more than one-fifth of Time Warner’s revenue.

White Spaces and Increased Internet Accessibility

In 2008, the federal government approved a new form of broadband wireless Internet service that could open up the Internet to new service providers and make it more accessible to remote areas of the United States.

This came in the approval in November by the Federal Communications Commission of a plan to allow the use of so-called “white spaces” for wireless broadband. White spaces are the unused frequencies between television channels, which can penetrate walls and travel longer distances than current broadband wireless services.³² They were to become available as television broadcasters worked to completion of a mandatory switch to digital transmission in mid-2009. (For more on White Spaces, see Local TV Economics and Network TV Economics).

Companies like Google, Microsoft, Dell, Motorola and others want to use white spaces to provide high-speed wireless service to specially adapted mobile devices and laptops, desktops and other devices. These companies were joined by civil rights groups and rural organizations that think opening the channels could make the Internet more accessible in rural areas.

“The applications of this spectrum are nearly limitless,” Dell chief executive Michael Dell said. “There will be more expansive Internet access available in all communities, urban and rural, with laptop computers and other wireless devices.”³³

It is expected to provide consumers with a greater range and speed than Wi-Fi while costing less. It could also mean new and improved household entertainment equipment such as DVD players and TVs that chat wirelessly through walls, remote controls that are never out of range and hand-held devices that receive high-definition video signals, said Jake Ward, spokesman for the Wireless Innovation Alliance, which includes many technology companies and others that back the use of white spaces.³⁴

The technology could become available for consumer use as early as 2010, depending on how swiftly Internet providers and device manufacturers adapt.

The FCC planned to auction the white spaces with one key string attached: licensed white space Internet providers would be required to offer some free wireless broadband service.

Net Neutrality

Supporters of net neutrality won some key victories in 2008 that should keep the Internet equally open to voices small and large, at least conceptually.

In simple terms, net neutrality is the idea that those who provide Internet service should not provide more favorable terms to some content providers than others.  It is the framework that has existed for years, whereby Internet service providers grant the same terms to all content providers, whether they are one of the largest media companies or an ordinary citizen.

The result is that users are able to access Yahoo News easily and at the same speed as they can access a community blog. 

Some supporters of net neutrality want the concept codified into law. They argue that without legislation, a differentiated pricing arrangement would emerge that could be unfair to certain content producers. The fear is that smaller, noncommercial sites 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 users. Without net neutrality, they contend, the big will just get bigger.

Those lobbying for net neutrality include a broad coalition of corporate Web companies, including Google, Amazon.com and eBay, along with a number of consumer rights groups, many bloggers and several conservative religious organizations. In December, an article in the Wall Street Journal noted that a proposal by Google to speed up service to its users would have Internet service providers use Google servers in their networks.

That was seen by some as a violation of the principle. It would, the article said, “create a fast lane for its own content.” ³⁵ Google insists its commitment to net neutrality and that it is only investing in an improved “content delivery network” for some of its content.³⁶

On the other side of the net neutrality debate are those who oppose legal restrictions on the Web. They argue that the Web should be left free of regulation. This is necessary, they say, to attract investment to expand the Internet’s capacity. 

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.³⁷ Internet service providers argue that they need a freer hand to regulate bandwidth because Internet-hungry consumers are gobbling it up faster than they can supply it. Absent some system for controlling how bandwidth is used – or a massive investment in new infrastructure in cables -- providers say they simply cannot afford to stay in business.

In an important decision for supporters of neutrality, the FCC ruled in August 2008 that Comcast violated federal policy by slowing Web access to users of applications that require significant amounts of bandwidth and which are often used to illegally download movies and music.

Comcast is appealing the FCC ruling.

Despite industry objections, President Barack Obama’s election seemed likely to solidify support for net neutrality. As a senator he co-sponsored legislation backing net neutrality. ³⁸ And during the election campaign, Obama said he supported the principle of net neutrality “because once providers start to privilege some applications or Web sites over others, then the smaller voices get squeezed out, and we all lose.” ³⁹

On Web site, the campaign argued that “a key reason the Internet has been such a success is because it is the most open network in history. It needs to stay that way. Barack Obama strongly supports the principle of network neutrality to preserve the benefits of open competition on the Internet.” ⁴⁰

Footnotes

1. NBC Universal is owned by General Electric Corp.

2. “Third Quarter 2008 M&A Overview,” Jordan, Edmiston Group, press release, Oct. 1, 2008

3. “M&A Shift and Transformation Acceleration,” Jordan, Edmiston Group. press release, January 6, 2009

4. “Third Quarter 2008 M&A Overview,” Jordan, Edmiston Group, press release, Oct. 1, 2008

5. Georg Szalai, “Fox Mobile face-lift,” Hollywood Reporter, Oct. 20, 2008

6. Jason Mick, "Yahoo-Microsoft Retrospect: Refusal Cost Yahoo Shareholders $24.4," Daily Tech, November 13, 2008

7. Jessica E. Vascellaro and Nick Wingfield, “Google Ditches Ad Pact with Yahoo,” Wall Street Journal, November 6, 2008

8. “MySpace overtakes Yahoo in display ad views: reports,” Reuters, Sept. 1, 2008. Viewed on MarketingWeb

9. Stephanie Clifford, “Yahoo Tries to Move Past Takeover Status,” New York Times, June 5, 2008

10. “Google Nears 72% of U.S. Searches in October, 2008,” Hitwise. Press release, Nov. 13, 2008

11. “Microsoft Fills Post with Yahoo Veteran,” Wall Street Journal, December 5, 2008

12. Erick Schonfeld, “Yahoo’s Bartz Cleans Up House,” Tech Crunch, February 26, 2008

13. Juan Carlos Perez, “Google Commits to Long-Term Goals after Q3 Revenue Rise,” IDG News Service/Miami Bureau, October 16, 2008

14. These figures represent the average of share data from three ratings agencies: Hitwise, comScore and Nielsen

15. Google SEC Filing, 10-Q for the quarter ending September 30, 2008

16. “Google Announced third quarter 2008 results,” Google press release, Oct. 16, 2008

17. Robert Scoble, “Scobleizer: Google’s Plan for Mobile Domination,” Fast Company, December 2008

18. Jessica E. Vascellaro and Vishesh Kumar, “Google To Broker TV Ads for NBC,” Wall Street Journal, September 9, 2008

19. Erick Schonfeld, “TV, Meet the Web. Google Analytics Starts Measuring TV Ads,” Washington Post, June 6, 2008

20. Louise Story and Miguel Helft, “Google Buys DoubleClick for $3.1 Billion,” New York Times, April 14, 2007

21. Louise Story and Miguel Helft, “Google Buys DoubleClick for $3.1 Billion,” New York Times, April 14, 2007

22. “Viacom Files Federal Copyright Infringement Complaint Against YouTube and Google,” Viacom press release, March 13, 2007

23. “Copyright Case May Aid Google,” New York Post, August 29, 2008

24. Jessica E. Vascellaro and Scott Morrison, “Google Gears Down for Tougher Times,” Wall Street Journal, December 3, 2008

25. Google,  “Changes to Recruiting,” press release, January 14, 2009

26. Time Warner SEC filing, August 6, 2008

27. Nicholas Carson, “AOL ‘Relaunches’ Its $850 Million Social Network, Bebo,” Silicon Valley Insider, December 10, 2008.

28. “AOL Completes Acquisition of Global Social Media Network Bebo,” Bebo Press Release, May 19, 2008

29. Larry Dignan, “AOL ad revenue continues to slide,” News.cnet.com, February 4, 2009

30. Larry Dignan, “AOL ad revenue continues to slide,” News.cnet.com, February 4, 2009

31. Leena Rao, “AOL Axing 700 Employees,” Techcrunch.com, Jan. 28, 2009

32. “Google Urges Washington Action on White Spaces,” Wall Street Journal, September 2008

33. David Ho, “FCC Vote Opens Door to a Bigger Wireless Web,” Austin American-Statesman, December 8, 2008

34. David Ho, “FCC Vote Opens Door to a Bigger Wireless Web,” Austin American-Statesman, December 8, 2008

35. Vishesh Kumar and Christopher Rhoads, “Google Wants Its Own Fast Track on the Web,” December 15, 2008

36. Scott Gilbertson, “Google Blasts WSJ, Still ‘Committed’ to Net Neutrality,” Wired Magazine, December 15, 2008

37. Chloe Albanesius, “AOL Yahoo Tieup Sparks Net Neutrality Worries,” PC Magazine, March 11, 2008

38. Internet Freedom Preservation Act, S. 215, 110th Congress (introduced January 9, 2007), available at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:s215is.txt.pdf (accessed February 11, 2009)

39. Obama for America, “Science Technology and Innovation for a New Generation, http://www.barackobama.com/issues/technology

40. Obama for America, “Science Technology and Innovation for a New Generation, http://www.barackobama.com/issues/technology