TV News in a Postmodern World

Understanding the Yahoo! Consortium

by Terry Heaton
The Daily Yahoo!The travails of the newspaper industry in the age of the Internet are well-documented, and few would argue that these are dangerous times for those who've made their living via the printing press. What happens to the print industry is of vital importance to broadcasters, because the essential business disruption is the same.

Craigslist, eBay, Monster.com and other online commerce sites almost overnight yanked the lucrative profit center known as "classifieds" from the grasp of newspapers. The auto industry discovered that most people no longer use the paper to look for a car, and now the real estate industry is following suit. With big ad categories like these shrinking, newspapers' ability to manage the bottom line through revenue is severely diminished. Layoffs and deep budget cuts have ensued, and the very existence of the modern-era keepers of the fourth estate is in jeopardy.

Now, it appears there are even problems for newspapers online. A new study by the Joan Shorenstein Center on the Press, Politics and Public Policy at Harvard University examined traffic patterns at 160 news-based websites over a one-year period and found growth at big national web brands and trouble for local newspapers.

The Web particularly threatens daily newspapers. They were among the first to post news on the Internet but their initial advantage has all but disappeared in the face of increased competition from electronic media and non-traditional providers. The Internet is also a larger threat to local news organizations than those with national reputations. Because it reduces the influence of geography on people’s choice of a news source, the Internet inherently favors "brand names"—those relatively few news organizations that readily come to mind by Americans everywhere when they seek news on the Internet.

The study says that large-city newspaper sites are "poor cousins to their brand-name counterparts" and that mid-sized-city newspaper sites are attracting "substantially fewer unique visitors in April 2007 than they did in April 2006." The sites of small-city dailies also are not growing.

The study goes on to note that there still exists an opportunity for local newspapers, but this is wishful thinking as long as the industry refuses to address the real problem — that its basic business model is flawed in an era of distributed media.

Newspaper Next logoLike many industries facing extinction through disruptive innovations, the newspaper industry has studied its predicament from within, trying desperately to save a business model that simply cannot be saved. Two years ago, the American Press Institute and a task force of executives from major newspaper companies hired disruptive innovation expert Clayton Christensen and created the ambitious Newspaper Next project.

The project has produced mixed results, at best, and suffers from what I view as an attempt to find right brain solutions through left brain processes, a difficult proposition to say the least. It may be a case of too little, too late anyway, because it hasn't even slowed the juggernaut that's driving the disruption.

Yahoo! logoThe industry's next strategy is much more interesting, because it attempts to actually enter the disruption. It's called the Yahoo! Newspaper Consortium, a complex partnership between internet giant Yahoo! and 19 publishing companies representing nearly 400 daily newspapers reaching a total circulation of more than 21 million readers. The deal is so big and involves so many web properties that it's easy to get lost in the details.

But that's where the devil is, as the old saying goes, and that's where we need to be looking. And when I look, I come away with the conclusion that the newspaper companies get something, but Yahoo! gets more. The gamble that the industry is making is that their piece will be sufficient to justify what they're giving to Yahoo!, and on that question may rest the future of the industry as a whole. It's a gamble, because Yahoo! is actually a competitor, so it is a very big question indeed.

At first, it looks like a simple traffic play, and that's certainly a part of it. By making links to their content available on Yahoo! pages, the newspapers are hoping that more people will come to their sites, thereby boosting the number of eyeballs that the papers can sell to advertisers. Television online network IBS has been doing the same thing for years, and there's no doubt the practice increases traffic, although the stations involved know (but don't publicly admit) that most of this increase comes from outside the market. Local advertisers don't care about outside eyeballs.

The newspaper consortium promises this and more, because one of the advantages of playing in Yahoo!'s slice of the web is that it can deliver more LOCAL eyeballs, and this is at the heart of the whole arrangement. Yahoo! claims it "cumes" around 70% of the users in local markets, whereas the local newspaper site cumes around 30%. "Cume" is a media word referring to the cumulative audience reach of a property over a preset period of time.

The ability of the newspaper consortium members to find those other users and serve them ads is what this deal is really all about.

In order to accomplish that, the newspaper members must replace their existing ad-serving software with that owned and operated by Yahoo! — highly sophisticated, behavioral and contextual software that is beyond that which the newspaper companies presently own or use. By putting all of these newspaper websites on Yahoo!'s ad software, the local media companies will have the ability to do things they could only dream of doing without it. All revenue deals are shared, so it is a true partnership.

Beyond the content arrangement, the deal has four basic components, as outlined by Rafat Ali in PaidContent.org:

  • Graphic ads: The newspapers and their advertisers will use Yahoo’s ad-serving, targeting and inventory management...it creates the newspaper industry’s "most comprehensive and integrated online advertising network."
  • Ad sales: Yahoo will be able to sell inventory for the newspapers to national advertisers while consortium members can sell Yahoo’s local online inventory to local advertisers.
  • Content distribution: Newspaper content will be "fully integrated within local news modules" delivered across various Yahoo verticals. The release says "this strategic partnership paves the way for mobile distribution of newspaper content."
  • Paid search: The newspapers will integrate Yahoo’s paid search across their sites and will offer a custom toolbar.
So let's look at this first from Yahoo!'s perspective. They get:
  • to expand their classifieds (hotjobs.com) to 400 new sites.
  • "feet on the street" in all these markets to sell inventory at a premium that is now just remnant or not sold at all.
  • to move their paid search to the most popular information sites in most markets.
  • to expand their reach for national advertisers by 400 sites.
  • local content to beef up their local offerings.
  • to sell local advertising in the midst of other people's local content.
  • to market a mobile application that includes local.
While revenues are shared, this is still "found money" for Yahoo!, who has to do nothing except manage the technology. The labor is all provided by the newspaper companies, who are providing Yahoo! with an enormous sales force. One assumes that, sooner or later, the business cards of this sales force will bear the Yahoo! brand.

So now, let's see what the newspapers get:

  • association with the Yahoo! brand.
  • increased traffic to their websites, potentially even local eyeballs.
  • the potential to serve ads to more local web users via Yahoo! properties and pages.
  • a share of the revenue gained by Yahoo! in the deal.
  • unified search and classifieds platforms.
I don't mean to suggest that any of these gains are insignificant. I just believe that if you weigh each side, Yahoo! comes out on top. The question is will the consortium members' share of the revenue split be sufficient to create a positive ROI for them? Sales labor is labor, and that is an expense. There may be upfront labor costs for Yahoo!, but the ongoing expense is with the newspapers.

But let's go back to the original assumption that's driving this arrangement — that Yahoo! cumes a significantly higher percentage of local users than do any of the newspaper websites. Even if we assume that this is completely true and that all of these users are in places where they can be served advertising by the newspaper partners, 70% is not 100%,

Moreover, a cume has arguable significance in an ad world where precision is the competitive advantage. Newspapers probably like the word, because its offline counterpart is circulation. It offers a sense of familiarity. However, television has been selling against circulation for many decades, because ratings and demos are much more precise. Besides, a TV station cumes nearly all of the market in a week (or at least, that's the way it used to be).

A cume is simply a measure of reach. Let's say that a user passes through one Yahoo! page only once during the designated cume period. That user is counted as part of the cume, but that user is basically irrelevant as a real advertising target, because in the world of mass marketing, frequency is as important as reach. All of the big web measurement companies have switched their focus from page views (another pure reach metric) to time spent on sites, because they view this as a better measure of the new Holy Grail of mass marketing — engagement.

Thus, all of these properties are betting their future on being a part of Yahoo!'s slice of the local web, not the local web as a whole, and revenues they earn within that universe are shared with its keeper.

The newspaper industry likely views this as a good deal, because at least they're doing something. It's hard to argue with that, and it's way too early to tell if this is ultimately a good thing for them or not.

I don't like it, because I view Yahoo! as a wolf in sheep's clothing. Internet pureplay companies want LOCAL revenues, because that's where revenue is growing. Local media companies used to be able to fish in the local pond with little competition, but now there are hundreds of new nets pushing us this way and that. This is the business reality that we all face, broadcast or print.

By marrying themselves to Yahoo!, consortium members are not only accepting these new revenue nets, they're actually dipping Yahoo!'s into the pond for them and turning up the volume — with respect to Ross Perot — on the sucking sound of its draining. I don't see how this is good business for local media companies.

Besides, there is a better way to accomplish everything the Yahoo! deal provides and more, and that's the creation of local networks and a local ad network that serves both the business-to-business and business-to-consumer markets. The real nut of Media 2.0 for local media companies is the enabling of commerce, not the serving of advertising, because everyone with a website is technically a media company in the new world. It's more work up front, but the payoff is significantly greater.

Scale for behavioral targeting isn't the only way to make money when you've organized the local web, but we won't learn (or profit from) new revenue streams unless we're the ones running the network in the first place.

We simply must accept the reality that being a part of a network isn't as profitable as running the whole thing. Being a network node is a losing proposition these days, because we're all networked (what I call "pixels on a page"). The only real value that can be created is to run the network and let the nodes work for you. This is what Yahoo! is doing with the newspapers.

One day, a smart media company will be selling ads to what used to be his or her competitor, because those former competitors will want to reach the nodes on the network the company serves. This is a long way from what exists today, but it surely is a more prosperous vision than tying one's future to a single web brand, regardless of how big that brand may be. It's certainly true that involvement in the Yahoo! Newspaper Consortium doesn't prohibit a local paper from pursuing other options, but with eyes and resources focused on one, it's pretty hard to pay attention to others.

Finally, the Yahoo! Newspaper Consortium ignores the reality that is Google, and this may be its biggest weakness. Yahoo! is, of course, hoping that its affiliation with all these papers helps it in its struggle to "beat" its competitor, but these two companies have opposite approaches to nearly everything. Yahoo! is all about bringing the network to them; Google is all about bringing itself to the network. Which company has been having problems with business and investors?

We can't learn from Google while we're playing the Yahoo! game, and that's a significant opportunity for any media company who is not a part of the Yahoo! Newspaper Consortium.