Posted by: structureofnews | October 21, 2010

Privacy, Profits – and Efficiency

A posting at the New York Times’ Opinionator site by Robert Wright lays out an interesting take on the privacy debate – in effect, looking at it through the lens of journalism’s (current) business model.  It’s hard to say how serious he is about the ideas he raises, and how much of it is with a tongue in his cheek, but it’s a nice framing of some of the issues. But the holy grail he – and others – are hoping for?  Well, that’s a different story.

The willingness of advertisers to spend the money that sustains journalists has always depended on having information about the reader. Fifty years ago the information came in this form: “This reader is somewhere in the New York Times demographic — probably pretty affluent, probably well educated, probably lives in New York — and is the kind of person who reads the Business section.”

But now, he points out:

…the idea of a coherent demographic has broken down. Most people who read Slate’s content aren’t regular readers in the sense of going to its home page every day and perusing its table of contents. Lots of them are just link followers; they’re referred to specific Slate articles from, well, God knows where.

And so he makes the case that, if there was less privacy, at least in general terms, and more information about a user’s interests and online behaviors available to advertisers, ad rates would jump – because advertising would be more targeted and hence more valuable to advertisers.   And we could all live – if not happily ever after, at least more happily that we’re living now.  In fact, his complaints aren’t about the loss of privacy – it’s about how Google doesn’t do a good job packaging and selling the information they already have, and the lack of a strong rival to them that can force ad prices higher.

So journalists, to keep hope alive, need for Google to have a viable rival — a company that vacuums up lots of personal data and then bids against Google for ad space on Web sites.

It’s certainly true that a lot of what what ails the business of journalism is the upheaval in advertising – the migration to other competitors, the loss of monopoly power, and low online ad rates, among other things.  (There’s other issues, of course, but let’s stick to advertising here.)

So would higher online ad rates – in effect, because of more targeted ads based on better information – help journalists and media companies?  Well, in the short run, it wouldn’t hurt us.  I like higher ad rates almost as much as I like higher salaries.

But online ad rates aren’t low simply because there’s a glut of capacity (or inventory) or because advertisers don’t know enough about us – although those are two reasons.   Ad rates are low also because the market is more efficient; in the old days, as the saying goes, advertisers wasted half their money – they just didn’t know which half.   And publishers happily pocketed the money.  Increasing advertising efficiency – whether through better information, or only paying when pages are viewed/downloaded, or whatever – means advertisers don’t waste as much any more.  And that’s a problem for us, because big newsrooms, to put it crudely, were built on the back of wasted advertising dollars.

This is all very simplistic, of course; and actual behavior does differ, sometimes significantly, from theoretical constructs such as these.

But more broadly, it’s probably unlikely that online advertising is going to be our savior – or at least the savior of newsrooms as we know them.   The numbers will be smaller, and advertiser (and user) behavior will likely be very different.   And there will have to be other revenue streams.  From different products.  And ultimately, very different newsrooms.

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