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Weekly Column

Stop the Presses!: How Pay-Per-Click Is Killing the Traditional Publishing Industry

Status: [CLOSED]
By Robert X. Cringely
bob@cringely.com

I began my writing career 38 years ago in the last days of hot type. I know how to operate a Linotype machine, and still carry small scars from molten lead used to make each stick of type. If these words mean little or nothing to you, they prove just how much of a dinosaur I am. In the history of printing, there was wooden type, then Gutenberg's movable type, then Linotype and the rotary press, then offset, then today's digital printing. That puts me squarely in the middle of the entire history of printing, equally close to Quark Express and to a man in animal skins drawing with charcoal on a cave wall. That gives me some historical perspective, and I am here to say that much of print publishing as we have come to understand it is doomed. I would include this thought in next week's 2006 predictions column except that it will take more than a single year to happen. But to me the end is obvious and near.

And it has nothing at all to do with the technology of printing. It isn't the rising cost of paper, the toxicity of ink, or the increasing ease with which people read from electronic devices that is driving this effect. This has nothing to do with handheld computers, eBooks, or electronic paper. Nor is it the widely decried decline in reading. What's killing the printed word is advertising.

For every form of publishing other than books, advertising makes the accounts balance. Unless your product is Consumer Reports, you as a publisher need ad revenue to keep the system running. Subscription fees alone aren't enough to support most magazines and newspapers. In fact, most publishers will gladly pay the entire cost of a subscription in marketing expenses alone just to gain another subscriber. That's because to a publisher, a subscriber is really just a reader of ads. Sell enough ads and you'll make a lot of money.

Then along came Google and pay-per-click and everything began to change.

We are still in the early days of this effect, so some people may claim it doesn't exist at all, but I say they are wrong. Further, I say that the effect is logarithmic and will lead to profound changes in the publishing industry in only a few years.

Look at Google's AdWords and Yahoo's Overture, now called Yahoo Search Marketing, both of which are booming and represented between them about $6.8 billion in advertising sales in 2004 and close to $10 billion in 2005. Where did all those ad dollars come from? Some came from the Internet, itself, in the form of advertisers switching their campaigns from banner ads to pay-per-click. But most of those pay-per-click dollars were actually new to the Internet, having been stolen from TV and traditional print publishing. Say $7 billion of it was stolen from TV and print. That alone is hardly enough to cripple the U.S. TV ad industry, with $47 billion in 2004 revenue, or the U.S. newspaper ad industry, with $48 billion in 2004 sales, but both of those sectors are smaller than they were pre-9/11, and only slightly bigger than they were in 2003 despite the end of a recession.

The biggest effect can be seen in traditional markets that have the greatest concentration of Internet users, which is to say computer magazines -- a dismal category. Remember the days when PC Magazine was 300-plus pages, looked like a telephone directory, and did product comparisons of 100 laser printers at a time? Those were the days. Today, PC Magazine is half the size it used to be or less, as is nearly every other computer publication. Blame the Microsoft monopoly, blame 9/11, blame the economy, but the real culprits are online users and online advertising, which is to say Google, Yahoo, and pay-per-click.

What happens this week for computer publications will happen next week for other types of consumer magazines and the week after that for newspapers. According to Forrester Research, online advertising totals only about five percent of the $400 billion spent on advertising of all types each year in the U.S., yet online consumption takes 30 percent of the media consumption time in most households. This is an interesting statistic that is generally interpreted to mean that the online ad market will eventually grow to $120 billion.

I don't think so.

If this was the case, it would be a simple matter for print publishers to abandon paper and continue to grow as all-electronic media, but it doesn't work that way.

Here's a part of the problem that has been for the most part missed by media and business analysts: A website is not really an electronic magazine. It can contain all the stories of its print equivalent, but IT CAN'T CARRY AS MANY ADS.

For magazines to qualify in the U.S. for shipping by Second Class Mail, they must have a measured advertising-to-editorial space ratio of no greater than 75 percent. Second Class Mail is the difference between life and death for a print magazine, and to qualify for it, they carefully manage that ad-to-edit ratio so that just slightly less than three times as much space is taken for ads as for stories.

Now compare this to the edit-to-ad ratio for most web pages. The densest web page will have one banner ad at the top, eight to 10 Google ads down the right side, and maybe another Google ad or two at the bottom. That sounds like a lot, but on a strict real estate basis, it is very hard to exceed an ad-to-edit ratio of 50 percent, and most web pages have three times as much editorial content as ad space -- the exact reciprocal of the experience with paper publications.

While this may not seem like a critical point, it is one, because it means that there is no way a print publisher can switch to all on-line without shrinking in just about every respect. Revenue drops because of fewer ads. You can make some of that up by simply producing more pages of content, but there is a limit to that effect. Ultimately, production and editorial standards falter under smaller budgets and what was once glamorous becomes just another job.

Even if 30 percent of our media time is still spent online, this budget effect means that the maximum size of the Internet ad market will still be smaller than the current market for print ads. So instead of growing to $120 billion, something on the order of $60 billion is more likely. That's a lot of money and a huge success for pay-per-click, but it will inevitably put a lot of people like me out of work in the long run.

But wait, there's more!

Back in 1994, I proposed to my employer at the time that we start a strictly online publication to cover just Microsoft. We called the e-magazine MicroSquish and took it so far as to make a dummy issue and do some very interesting market research. The World Wide Web was only a couple years old at the time, and I was unconvinced that it presented a suitable delivery platform in an era of dial-up Internet accounts and 2400 bps modems. So MicroSquish was conceived as a downloadable publication to be distributed in the new PDF format. It looked just like a print magazine, right down to the 75 percent ad-edit ratio. And just to be cool, we built into the technology the ability to report back data from readers. We could not only track who read each issue, but how many times it was read and which parts. We figured this data of who read what and in what order would be very useful to advertisers and ad agencies. But we were wrong.

Ad agencies 12 to 13 years ago didn't want to know whether or not their ads had actually been read, they told us. This was simply because if an advertiser discovered that few, if any, people were actually reading their modem ad on page 113, they might just pull the ad and save their money. The entire ability to sell an ad-edit ratio of 75 percent was based on this deliberate ignorance. Ad agencies and publications alike knew that many -- even most -- advertising dollars were simply wasted, but it wasn't in their interest to admit that, so they didn't.

Contrast this to pay-per-click, which is brutally honest, where every successful ad has efficacy and advertisers have a pretty darned good idea what they are getting for their money. This reality is precisely why magazines, newspapers, and television are losing revenue to pay-per-click. It is a trend that is likely to continue, and can only result in a degradation of production standards on the print side to match the reduced revenue potential of the online business, where BS gives way to measurable, though impoverished, results.

It is not a pretty picture. More pay-per-click means more online content but ultimately less money for producing that content. Print publications fade from sight or continue primarily as art forms, rather than businesses. It will take another decade to happen, but happen it will.

And none of this is intentional. This isn't Google or Yahoo or any other company setting-out to destroy an industry. It is simple Darwinian evolution that will ultimately make many print publications as obsolete as I already am.

This is not to say, though, that Google doesn't have some GRAND PLAN, which I believe they do, but that's what I'll explain in excruciating detail the week after next, following my 2006 predictions column next week.

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