This is the first in a series of columns on new business models for news and other media. You’ll be able to find other stories in the series by clicking on the Business Models tag.
One of the toughest ways to support a digital news operation is via advertising. Over my years working in advertising, helping many and talking to many others, I’ve learned a number of key lessons.
The ones below focus mainly on lean startups with small staffs but hold true for larger sites as well.
1. Ad Networks Alone Won’t Work
For news properties, there’s a brutal equation: Good content, even when aggregated or curated from elsewhere, requires people to produce it. The amount those people need to be paid is usually more than the content they produce can attract from ad networks.
The math is simple. High-paying networks — ones that require content in high-value niches such as health or technology — typically pay publishers $1.50 or less per thousand ads shown (referred to as a $1.50 eCPM, or effective cost per thousand).
That means that if your site is loaded with eight ads per page, you’ll get $12 per 1,000 pages on average. You’d have to generate about 350,000 pageviews per month to earn $50,000 per year — perhaps enough to support one person working full-time from a not very expensive home and doing everything.
General interest news gets less money, a 50-cent eCPM or less, meaning you have to generate three times as much traffic to get the same revenue. (I’ve put a Google Doc spreadsheet here to show my calculations.)
Note: There are “supply side platforms,” auction exchanges and other tools, all of which can boost revenues. But I have found the equation to be basically as above for smaller sites. I’d be happy to entertain any SSPs or networks that want to let me test them.
2. Sell Your Own Ads
If you can’t generate the traffic to make a profit via network ads alone, another option is to sell your own ads. But there’s another difficult equation: Selling is time-consuming, and every hour is one not working on the site and its content.
Competent digital media salespeople with modest experience can command base salaries of $60,000 and above. Even if they’re part-time, which is not optimal, the compensation requires that much more revenue.
Servicing clients takes still more time and is a different set of skills that, again, is difficult and expensive to hire.
So, is there a solution? There can be.
3. Keep it Simple
Advertisers contact Brodbeck via a form, and email him the ads. Unsold spots go to an ad network. Brodbeck doesn’t spend time selling, he said. People in the community hear about him and his site, and his ads are “well-priced and effective.” His pricing is simple: $400 per month for the home page, $300 per month for one-eighth share of voice of the story banners.
With 15 home page spots — all the same size and all in the right column — that’s $6,000 per month if he sells them all, which is not uncommon. Selling half the banners on stories (gets another $1,200. Assuming a 50-cent CPM for the network ads, and internal traffic data he shared with me, he’ll get another $185 or so from those for a total of about $7,400 per month. (The calculations and traffic are on the Google doc.)
What he makes is respectable for a solo operator, but not a fortune — which leads to another part of the equation:
4. Control Expenses
It surprises me how often lectures, speeches and courses for so-called entrepreneurial journalists focus on how to bring in revenue without focusing on costs, which always exist. Controlling them is a key way to remain profitable.
Brodbeck told me his main expenses are his apartment, another $300 per month for server space, and a freelancer he has to hire, “probably my biggest expense,” when he’s out of town for things like the Street Fight gathering.
5. Seize Opportunities to Sell
To support the business you have to treat it as a business, and that can mean doing some things you may not learn in the purest journalism courses.
David Pachter, the CEO of marketing company LocalVox, told me at the Street Fight Summit of one client who runs a neighborhood site with about 20,000 unique visitors per month. The client constantly visits local businesses to find out what they’re up to, and “has a chance to sell them ads, but he’s an editorial guy,” Pachter said, shrugging.
I’m not advocating strong-arming clients into buying ads in exchange for good coverage, or polluting the editorial stream with puff pieces. Entrepreneurs in small operations, though, do have to be comfortable wearing multiple hats and finessing the need to cover some of the same outfits that might help pay the bills.
It’s been done since well before the digital era. Former Wall Street Journal publisher Gordon Crovitz told a small group recently of working as chief of a Far East Economic Review bureau, writing articles one moment and selling ads to clients the next.
We’ll deal more with the need to tear down walls between editorial and sales in an upcoming column.
6. Create Ad-Friendly Content
Why do you think newspapers have separate sections for real estate, cars, electronics, movies and health? Here’s a hint: It’s not because the journalistic imperatives required it.
If you create content that advertisers like that’s also supported by high-paying ads, that money can help fund other parts of the operation. You may be able to create special sections, advertorials, and formats that advertisers like.
Again, I’m not an advocate of letting the desire for revenue overtake core editorial principles. But if you can serve your community and make advertisers happy, you’ll have a better business.
Up Next: Alternative Revenue Streams
If you’re looking to support a local news website through advertising, there may be more good news. Ezra Kucharz, president of CBS Local Digital Media, said at the summit that the share of digital advertising controlled by local media is expected to rise to 24 percent in 2014 from 17 percent this year.
Still, ads are, of course, not the only way to make money from content.
In an upcoming column, I’ll cover alternative and often-innovative revenue streams I’ve seen in action and implemented that are helping support news operations.
An award-winning former managing editor at ABCNews.com and an MBA (with honors), Dorian Benkoil handles marketing and sales strategies for MediaShift, and is the business columnist for the site. He is SVP at Teeming Media, a strategic media consultancy focused on attracting, engaging, and activating communities through digital media. He tweets at @dbenk and you can Circle him on Google+.Related