Internet Content Isn’t Profitable

Something is wrong. Everyone agrees that content is central to the success of a web site. Yet pure content/media companies are having a really difficult time making any profit. Those that do not have traditional offline publications are racking up huge losses. Many are going bankrupt.

Traditional publishers are losing less because the cost of content creation is spread out. But they are still losing money. Even The Wall Street Journal, which is in the almost unique position of having nearly 500,000 paying subscribers, is losing money.

“Internet media have millions of viewer-readers, but few of the players in the crowded field have figured out how to turn a profit. Competition for ad dollars is brutal,” the Los Angeles Times reported recently. APBnews.com filed for bankruptcy in July, having spent $33 million in less than two years. Salon and CBS have recently let staff go. Share prices of publicly quoted media companies have plummeted by almost 80 percent since last autumn. Something is wrong.

The Internet was also supposed to usher in a new form of content. This content was supposed to be instant, totally up to date, digging deep into the issues, getting to the real truth of the matter. It was to change the nature of political reporting, for example. Remember Matt Drudge, the guy who broke the Monica Lewinsky story? Go to his web site today. All it is is a set of links to traditional publishers!

What about the Republican and Democratic conventions? The Internet promised lots of things: chat, 360-degree views of what was happening, and loads and loads of information. But the response of the public has not exactly overwhelmed the web sites offering all this wonderful stuff. “The Democratic National Convention was all over the World Wide Web. But not much of the world watched,” USA Today reported.

The Internet offered such promise to publishers. The Economist put it succinctly in a recent editorial: “Until recently, the Internet was seen as the making of the media business in the 21st century. It was going to slash costs: Media products, unlike most retail goods, can be delivered directly down wires, so the Internet would eliminate the need for factories and distribution networks. It was going to boost revenues: Previously inaccessible markets would become reachable, and data collection would make advertising more valuable. And it was going to lower barriers to entry, generating a crop of healthy new companies.”

All the above should have meant a very profitable business model. The reasons why this has not happened include the following:

 

  1. An effective subscription model has not been devised for the Internet.
  2. People associate the Internet with free content.
  3. Low barriers to entry have meant a saturation of content providers.
  4. Staff and technology costs are very high for Internet publications.
  5. Providing quality “instant” news on an ongoing basis is very expensive.
  6. Distribution is also a form of advertising; it gets the product in front of the customer. Because a web site cannot distribute its product (except through email) and because there are so many brands fighting for the customer’s attention, marketing and advertising costs are very high.
  7. Expectations have been too high. There was almost a religious belief that if you got a great publication up and running, a revenue model would emerge.

Perhaps by examining these reasons individually, web publishers will begin to adjust their business model to eventually turn a profit.

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