Tuesday, June 01, 2010

Yahoo signals major challenge to newspapers

Yahoo appears to be getting ready to produce local websites filled with original content that could compete with newspapers, posing a particular challenge to the hundreds of publishers who now sell advertising for the powerful portal.

The apparent intention to target the sweet spot for publishers was signaled last month when Yahoo announced plans to buy Associated Content for $100-ish million to gain access to some 380,000 individuals who are willing to write articles, take pictures and produce videos for rates starting at $2 per effort. The deal is scheduled to close later this year.

Insiders here in Silicon Valley say the odds are strong that a good number of those content producers will be deployed to cover local news in the hope of assembling ever-larger audiences for the premium-priced advertising that Yahoo sells via the rich user database it has amassed over the years.

Assuming the fare produced by Associated Content is sufficiently respectable to attract and retain substantial audiences, then Yahoo’s ability to deliver targeted ads – combined with its overwhelming market presence on the web – will give it significant advantages against the incumbent newspapers operating in most markets.

This could make Yahoo the most formidable single competitor yet to take on newspapers. Here’s why:

As one of the largest and oldest portals on the web, Yahoo knows at least a little something about almost everyone who ever has gone on line. In fact, it knows lots more than a little something about most of us. Using that information, Yahoo can target advertising not only to a person’s location but also to her demonstrated online behavior.

Publishers know the extent of Yahoo’s power only too well, inasmuch as some 800 of them partnered with the company through the Newspaper Consortium in the last few years to sell targeted advertising that enabled them to charge as much as $15 per thousand page views for banner ads that, absent targeting, might have gone for maybe a buck or two per thousand.

The concept is described below in a YouTube video posted by the Peoria Journal Star, one of the affiliates of the consortium.

To date, the publishers who took full advantage of Yahoo’s targeted audience data were able to generate handsome improvements in their online sales. Yahoo, in turn, benefited not only by having access to abundant ad inventory on high-traffic local websites but also by leveraging the thousands of well-connected ad sales people fielded by the hundreds of participating publishers.

The nature of this mutually beneficial relationship could change – not necessarily for the better for newspapers – if Yahoo starts running local news sites of its own.

After mustering the Associated Content crew to produce local stories at far lower cost than any newspaper, Yahoo can use its vast reach on the web to point users to its own websites. As one of the five largest destinations on the web, Yahoo’s traffic of some 70 billion page views a month is more than 100 times greater than of NYTimes.Com, the busiest newspaper website of all.

Here’s how a major foray by Yahoo into local-news could put members of the Newspaper Consortium in a pickle:

If publishers let their reps sell advertising for Yahoo’s local sites, the newspapers potentially can tap into a welcome new revenue stream for themselves. In so doing, however, the publishers face the danger that a great deal of the traffic now attracted to their own sites could be diverted to Yahoo, instead.

With digital media being the future for local newspaper franchises, strengthening Yahoo’s hand as a competitor for online and mobile local news would be strategically suicidal for newspapers.

Even if publishers decide their short-term economic interest requires them to continue selling ads for Yahoo, the nature of this relationship could be strained, if not changed. With Yahoo having the power to produce and promote local sites on its own, the balance of power in the current, reasonably symmetrical partnership will shift to Yahoo.

Where will that put consortium members? Will Yahoo demand a larger revenue share from publishers in exchange for access to its targeted audience data? Or will Yahoo simply terminate the relationship with publishers so it can engage alternate sales agents to pursue the local news business?

Assuming Yahoo and the publishers find a basis for sustaining their partnership, newspapers in the consortium will be in the position of being deeply beholden to the portal for the technology necessary to remain competitive in the increasingly important realm of targeted advertising.

Publishers in the consortium conceded too much when they elected a few years back to outsource the development of this sort of strategically decisive technology to Yahoo instead of getting together – as they could have done – to build it themselves. Now, those decisions may come back to bite them.

Newspapers that are not members of the consortium could be even worse off than those who partnered with Yahoo. In the event of a competitive thrust by Yahoo into their markets, they could be dangerously ill prepared and frighteningly over-matched.

13 Comments:

OpenID adshouts said...

The notion that all content wants to be free and the notion that the only way to monetize content is with ad impressions and clicks is a big problem for newspapers. These notions continue to be fueled by the leading advertising agencies in the digital space. As long as everyone continues to play along and support these 800 pound gorillas then online newspapers and digital media outlets will continue to suffer.

These 380,000 individuals who are willing to write articles, take pictures and produce videos for rates starting at $2 per effort could make a lot more money producing and monetizing content on their own.

8:21 AM  
OpenID B said...

People ascribe value to information, depending upon how important it is to them. It seems likely that news that affects a person more directly will be more valuable.

If this is true, then "hyperlocal" news is more valuable. Would people be willing to pay $1 or 3/month for news about whatever is happening locally?

The days are--thankfully--gone where an news editor makes a decision about which news is important. Now it is up to the individual to define her own interests and go get it.

If people want intelligently-written, in-depth articles, they aren't going to look to some person writing a $2 per 100-word article to deliver that. Fluff pieces, yes. Will the fluff model be sustainable? Well, people want crap airline service that nickels and dimes them to death. Maybe the $2 fluff articles will be the future.

8:46 AM  
Blogger Moraller said...

Did Yahoo! just invent the local blog? I can see the value of aggregating the information into easy to find buckets. If they can get a critical mass of people to work for them it might be something.

1:42 PM  
Blogger Trixie Belden said...

quadrantONE, which is owned as a joint venture between Tribune Co., NYTimes Co., Gannett and Hearst, actually does have proprietary targeting technology that they use for national advertisers; it has all the bells and whistles of the Yahoo platform, including the use of 3rd party data for explicit targeting if advertisers want it. However, they don't touch local - my understanding is that that's so they're not in competition with the local sales forces. It would be pretty easy for the participating sites (there are over 500) to decide to use quadrantONE technology instead of another - BUT, the integration hassles are not minimal to change ad servers in any situation. Look how long it took for the Consortium to convert its publishers onto the APT platform - years! and they're still not done...

6:02 PM  
Blogger Planet Santa Barbara said...

Yahoo can only hope to compete in larger cities. They will never be able to keep up with what editors are paid to do - keep their peeps focused on investigative reporting. Additionally, yahoo wont be abe to get credentials for their news writers in local venues. And lastly, who in their right mind would bother to do anything for two bucks?

6:34 PM  
Blogger Bruce Wood said...

I don't believe Associated Content, as it is currently written, is the dinosaur killer you fear it is. These writers are seeking "evergreen" type stories (or they should be if they want to earn any money).

Hyper local news is rarely going to generate huge numbers of page views, which is how the money is paid out to these writers. I couldn't find anything about my community, except some ads they served up. I didn't find a thing that would make me want to return or that I couldn't find easier somewhere else.

They might be a threat to a metro paper (as if they didn't have enough problems) but how will they generate enough local news about the city I live in for $2-$15 per story? If that is the going rate, I should be able to hire a lot more reporters. (plus, we already have community portals in our area and they aren't making any money).

6:41 PM  
Blogger Stephen said...

So does this mean that in order to be a serious local news reporter I'll have to be willing to accept $2 an article? What should be interesting is what they expect reporters to be doing for that kind of pay.

If 250-word blog-style news nuggets are what they mostly want, with a full length article of substance once a day or every couple of days, then sign me up now. I'm just thinking about the pile of stuff I've got sitting on my desk that I can't get to...

From a reader stand-point, actual news, done blog style and centralized in a place people already go is a huuuuuge hit waiting to happen. Or maybe I just see a career opportunity here.

7:07 PM  
Blogger Brian said...

This is a logical extension of Yahoo's so-called "Project Rushmore". There's a lot of value in their plan for delivering news to a real-time audience.

That being said, I can't see partnering with Yahoo! as being any worse than contending with certain newspaper union elements that are balking at any incremental changes to the way work product is generated. Whatever crazy thing Yahoo has in mind, I have to believe newspapers are more chagrined by the union's willingness to see the business burn to the ground before they give up an inch.

8:47 PM  
Blogger Gordon Borrell said...

So much hand-wringing over local news on the web! I'm wondering why everyone seems obsessed over something that more than 80% of the adult population doesn't even read on the Web (Scarborough Research) and advertisers aren't supporting very much. Do you realize that Internet users are 35%more likely to go to the Web to look up a business listing than they are to look for local news? As a former newspaper reporter and editor, I'm sorry to have to tell you that while you are engaging in all this handwringing about the news, the newspaper industry is losing a more valuable content franchise: local advertising. Every newspaper digital manager should have a sign on his/her desk that reads, "It's the advertising, stupid!"

5:19 AM  
Blogger Dave said...

You'll get what you pay for. $2? Fools.

5:29 AM  
Blogger Michael Sommermeyer said...

Content that has value will attract readers. If the content is thinly-veiled hyper-local store openings then it will fail to attract an audience. Newspapers would be wise to find ways to return to investigative and humanistic pieces and provide content people will be drawn to for emotion and education. Charge for the full story, if you need to for your online edition, but return to thought-provoking content. Run away from the idea that you must only fill space. Abandon the TV news model of 75-word stories. Monetize and promote that your journalists are educated and smart; because much of what I see looks like someone was paid $2 to produce it.

9:46 AM  
Blogger Peter Ibsen said...

It may be true that newspapers could/should have made their own advertising consortium way back and built their own technology platform. However, this is mostly a "national advertising argument"; i.e. build a giant network which is interesting to large national advertisers.

But these days, local online advertising is growing like crazy and this space is heavily under served. Local newspapers can seize this opportunity by building a Local ad network serving ads on any local site they can get their hands on - it is too narrow just to serve ads alongside the newspapers own content (and act as a sales rep for Yahoo).

In the process, a detailed knowledge base about the consumers in the community will be built. This will enable highly targeted ad products which can be sold to local advertisers at a premium. The revenue is not shared with anybody. The data about the consumers (which is the real value) stays with the newspaper and are not given away to Yahoo for free. And a significant larger portion of the advertising dollars stays in the community.

The solution is already on the market - its a matter of execution. I agree with Gordon Borrell - the fight is about the local ad space.

9:21 PM  
Blogger Chris Treadaway said...

An effective SMB ad solution is more than technology -- it's tools, training, sales empowerment, customization, etc. Local media also needs to understand that the SMB segment is another that will be eroded significantly without fast action.

Fortunately, events of the last 18 months have certainly accelerated urgency at a lot of media families.

7:31 AM  

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