March 18, 2009

Online Revenue Woes

End of 2007
Fall of 2008

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–> 48%—Percentage drop
in online display ad rates in 2008

Given the economic problems besetting traditional media outlets, the need to find significant revenue streams online is becoming a more pressing priority. Online ad revenue for all websites did in fact increase in 2008. But according to the Interactive Advertising Bureau, the rate of growth slowed—up 14% in the first nine months of 2008 compared with the same period in 2007. And analysts expected that number to drop in the final quarter of 2008.

One particularly worrisome area of online revenue is display advertising, the kind of advertising on which news sites are most dependent. A report from the media research firm Borrell Associates predicts online display ad revenue will actually decline in 2009—a development that will exacerbate problems in monetizing web journalism.

One telltale sign is what has happened to display rates online. According to PubMatic, an ad consulting firm, the rate charged to advertisers—measured as the cost of reaching 1,000 website users—plunged from 50 cents in late 2007 to 26 cents in the fall of 2008.  The Poynter Institute’s Rick Edmonds cites both an oversupply of online space as well as the economic crisis as contributing factors in this display deflation.

For more about the economics of online news, read the Online chapter of PEJ’s annual report on the health of the journalism industry, the State of the News Media 2009.