Wednesday, May 19, 2010

Putting a Price on Words

Putting a Price on Words

Photograph by Reinhard Hunger. Set design by Sarah Illenberger.
The search terms displayed above were selected from a list of 8,000 collected by Experian Hitwise that drove traffic to news sites in the United States for the week ending April 24.

By ANDREW RICE
Published: May 10, 2010
Sign in to Recommend
Twitter
Sign In to E-Mail

Print


Reprints

Share
CloseLinkedinDiggFacebookMixxMySpaceYahoo! BuzzPermalink Last year, Sam Apple got the idea into his head that what the world needed was a new kind of newspaper. This was, to put it mildly, at odds with the consensus of the marketplace. At the time, several large media companies were in bankruptcy, others were trading at penny-stock levels and analysts were seriously asking whether some venerable publications — including this one — might soon cease to exist. The recession was only worsening a fundamental problem: the industry’s physical product, printed paper, was going the way of the rotary phone, and no one had yet figured out how to generate comparable revenues online. But Apple, a 34-year-old writer, wasn’t ready to give up on journalism as a profit-making enterprise. He began telling friends about his plans to start a Web publication called The Faster Times.

Reader Comments
Post a comment on the Media Decoder blog.

Enlarge This Image

Source: Milliman, estimated U.S. average 2010 health cost guidelines, billed charges per transplant
Enlarge This Image

Source: College Board
Enlarge This Image

Source: Daniel S. Hamermesh, University of Texas at Austin
Apple quit his part-time gig as director of interactive media for the Web site Nerve.com in New York and began recruiting. It wasn’t hard to find people eager to join. Employment in New York’s publishing sector shrank by a tenth last year, leaving behind a mass of glum, jobless writers. The good news, though, was that one of the very forces that was sapping industry profits — the Web’s demolition of barriers to entry — also made it quite simple and cheap for anyone to become a journalism entrepreneur. Using open-source software, which Apple hired programmers to customize, The Faster Times could get up and running for less than $20,000.

Before the site went live last summer, Apple and a group of editors held marathon meetings at a Brooklyn coffee shop with free wireless Internet. In one sense, The Faster Times was supposed to be a traditional publication, staffed by trained journalists covering a wide range of beats and guided by a coherent editorial mission. Where Apple’s model departed from convention, as a matter of necessity, was in the area of compensation. He couldn’t afford to offer salaries and benefits, or even flat freelance fees, so instead he promised contributors 75 percent of the revenues from all advertisements placed next to their articles. Payments would start small, but if The Faster Times prospered, as Apple hoped, so would its writers. He referred to the publication as a journalistic “collective,” but in truth it was a small experiment in capitalistic incentives: contributors would profit directly from their work, according to the market’s assessment of its value.

And therein lies the catch — for The Faster Times, for many similar start-ups and for the entire industry of media, old and new. No one seems to know how to value the product anymore. This isn’t a lament about declining standards of quality or the rude incursions of amateur bloggers. In fact, thanks to the Internet, people probably read more good journalism than ever. That’s precisely the problem: the sheer volume of words has overwhelmed a business model that was once based on scarcity and limited choice.

For many years, newspapers and magazines operated in fairly uniform fashion, supported by two streams of revenue. The consumers purchased the product, and businesses paid to reach them with advertisements. Recessions came and went, ad pages expanded and contracted, publications started and went under — but nothing disturbed the basic model. Online economics have changed both sides of the profit equation. “It’s dawning on people that the marketplace will no longer pay the freight,” says Ken Doctor, a former newspaper executive and the author of “Newsonomics: Twelve New Trends That Will Shape the News You Get.”

Early on, almost all print publications decided to offer free access to their online content, which over time cut into their print circulation. In theory, the industry should have been able to absorb the gradual loss of paying readers. Advertising always accounted for the vast majority of the publishers’ revenues — with newspapers, 80 percent was the rule of thumb — and because publications could reach vastly larger audiences online, it seemed reasonable to expect that they’d be able to make more money from ads. But instead, online ads sell at rates that are a fraction of those for print, for simple reasons of competition. “In a print world you had pretty much a limited amount of inventory — pages in a magazine,” says Domenic Venuto, managing director of the online marketing firm Razorfish. “In the online world, inventory has become infinite.”

“Maybe this is what success looks like,” says Nick Denton, speaking of his own business, Gawker Media — a popular and profitable network of Web sites covering technology, sports and celebrity news — as well as of disruptive ventures like Craigslist, the free site that has decimated classified advertising, once a lucrative source of income for newspapers. “You can have destroyed hundreds of millions of dollars, or billions of dollars, of revenue for other people,” Denton says, “but without capturing it all yourself.”

Yet for some — possibly foolhardy — reason, a lot of people still want to work in journalism, and even amid the depths of the recession, there have been stirrings of creativity. A multitude of younger, nimbler enterprises have popped up, unencumbered by the past and ready to try anything. History suggests that few of these ventures will ultimately survive: Web start-ups have a failure rate between 70 and 90 percent. But it’s quite possible that the experiments they’re staging are already producing the kind of innovations that make for new, sustainable business models.

The Faster Times went online last July, with a blast of publicity and a triumphant party in a Manhattan bookstore. The site had enlisted correspondents in 20 countries, and beats devoted to science, food, travel and the arts, in addition to goofier subjects, like time travel and jet packs. The whimsy aside, Sam Apple took his task seriously. “The crisis of American journalism,” he wrote in the mission statement, is “a financial crisis. Opinions posted on blogs are cheap. Great journalism is expensive.”

With any luck, he was about to discover it was also worth something.

You can’t call it a dot-com boom — there is not much capital, there are no parties with catered sushi and no one is expecting to get rich. But this generation of start-ups does share at least one trait with its 1990s predecessors: a conviction that they’re the vanguard of an unfolding revolution. One morning, as a March gale howled down Broadway, I visited the editors of the Web site True/Slant. Their loftlike office, in a vintage SoHo building, was bare, white and slightly chilly, as if designed to reflect the present ethic of austerity. With just five employees, True/Slant has built a significant audience since it started last year: about a million readers visit the site at least once a month, a number similar to the online following of The Village Voice or The Charlotte Observer. The site owes its modest but growing success to the work of more than 300 part-time contributors. It’s not so much a unified publication as a loosely connected commune of bloggers, who generate a continual stream of content with minimal editorial intervention. The company calls what it is doing “entrepreneurial journalism” and says it’s the future of the profession.

True/Slant is the creation of a lean, gray-bearded 57-year-old named Lewis Dvorkin. He began his career working at newspapers and magazines, and peppers his conversation with references to sainted editors of an earlier era. “I’m old enough to be a bit of a bridge from that world to whatever world we’re in today,” he told me. Dvorkin’s more recent and pertinent experience, however, came as a content-programming executive at AOL, where he played a role in creating the celebrity gossip site TMZ, which has since developed one of the largest audiences on the Web. A few years ago, he started toying with the idea that eventually led to True/Slant: could technology allow you to create a news organization without any of the familiar editorial hierarchies?

At True/Slant, Dvorkin told me, “you are the sole producer, creator, programmer of your content. That reduces — and this is key — the cost structure.” He started the site with a modest $3 million investment from Fuse Capital and Forbes Media, picking its name off a list of compound words that were made up by a Web developer. All of True/Slant’s writers are freelancers and are paid a pittance relative to the salaries offered at established media organizations. “Newsrooms today are high-cost, inefficient content-creation operations that will not be supported by advertising revenues in the digital world,” Dvorkin said. “It just won’t happen.”

Online, advertisers have immense power. Because it’s easy to track who is clicking what, they can aim with efficiency and typically pay according to the number of times their ads are actually viewed. Instead of sending word of its shoe sale to a million print newspaper subscribers, who may or may not be looking for shoes, a store can buy the page views of 50,000 people who are reading articles about fashion. Or the advertiser can place ads on heavily trafficked portal sites like Yahoo and AOL, both of which are currently expanding their production of original journalism. Or it can pay Google to insert its ads into search results. Or it can go to one of the large digital advertising networks that have arisen in recent years and buy unsold “remnant” page views at deep discounts. There is a lot less waste and a lot more choice, and the upshot is that advertising, which once produced robust margins for publishers, now sells for spare change online. Generally speaking, while some ad placements — like those on a site’s home page — go for a significant premium, pages of individual articles, if sold at the going rates, bring in between a penny and nickel each time a reader looks at one.

That’s not to say that it’s impossible to make money. If True/Slant can keep its production costs low and its traffic high, it can collect those pennies and nickels on a scale large enough to turn a profit. There are a couple of ways to do this as an online publisher. You can emphasize quality, producing a limited number of items in the hope that each will attract a great number of readers. Or a publisher can go for quantity, producing a lot of little things that add up in the aggregate. True/Slant’s low-cost newsroom churns out around 125 pieces of content a day.

Many companies practice this strategy at even higher volume. For instance, Examiner.com, owned by the billionaire Philip Anschutz, has a gigantic audience and a nationwide army of 36,000 localized contributors, or “examiners,” who produce articles on subjects like community news, lifestyle issues and pets, and are paid about 1 cent per page view. AOL is trying a similar “citizen journalism” approach on a site called Patch. Probably the most successful example is the Huffington Post, which employs 70 salaried editorial staff members and 6,000 uncompensated bloggers and recently pushed into the nation’s top 10 current-affairs Web sites, according to Nielsen Online, vaulting past sources like The Washington Post. The Huffington Post generates an average of 500 items a day, many of them aggregated content from other sources, and Examiner.com, more than 3,000.

Increasingly the online audience for these sites is coming in side doors, via links on blogs and social-networking Web sites like Facebook. Probably the most important tool for reaching large audiences, however, is Google. If you can climb to the top of the site’s search results, you’re certain to be rewarded with a huge number of clicks. Most publications these days try to harness the Google algorithm through an arcane process known as search-engine optimization. Some are more skilled at this than others. That’s why, as I write in mid-April, a search for the phrase “Eyjafjallajokull Volcano” brings up a Huffington Post photo slide show near the top of its results.

A handful of enterprising new sites, like Associated Content and Demand Media, are now turning the whole process around, generating content that is specifically designed to feed Google’s appetites. They don’t call what they do journalism or care about breaking news, but they say they’re generating huge advertising revenues, and their strategies are being closely watched. “We realized that there was this massive opportunity, that the economics of content and media distribution had shifted, and they had shifted permanently,” says Steven Kydd, who oversees original content production for Demand Media. The company claims to have raked in $200 million in revenue last year and is now reportedly talking to Goldman Sachs about underwriting an initial public offering.

Demand’s business model draws on the skills of thousands of freelance contributors, who pick the topics they address from an automated list of more than 200,000 written and video assignments culled from Internet search requests. The topics are mostly geared toward answering practical questions and are posted to low-profile Web sites like eHow, or to YouTube, with which Demand has a profit-sharing agreement. The company claims to have devised an algorithm that projects precisely how much advertising revenue each assignment will return. It says these mathematically generated ideas are 4.9 times as valuable as those devised by mere human brainstorming.

“Our editors absolutely love this, because they are able to sift through millions of potential titles, and they know that they are all good ideas,” Kydd says. And profitable ones — nothing is assigned unless the algorithm predicts it can cover the costs of production. Demand’s freelancers can make around $15 or $20 per item. “The funny part is, sometimes we’ll ask people who work, say, in newspapers or magazines, ‘How much did that article cost you?’ ” Kydd says. “They literally have no idea.”

That’s changing. Though journalists tend to shudder at Demand Media’s approach, mainstream publishers are starting to co-opt portions of its model. USA Today, for instance, has contracted Demand to supply the content for its Travel Tips Web page, while AOL recently started a Web site called Seed, edited by Saul Hansell, a former New York Times columnist, which generates story ideas from search data. More generally, there is a growing appreciation among those who practice journalism of the Internet’s capacity to tell them what readers want to know.

“For traditional journalists, this is a difficult concept for them to grasp, and one reason it’s difficult is because it’s scary — it’s scary to actually have that data in front of you,” Dvorkin said. “It’s scary to say, wow, this is the audience, and now all of a sudden I have to respond to the audience because this is what they’re interested in.”

Dvorkin and Coates Bateman, a former book editor who runs True/Slant’s daily content operations, showed me around the site’s “dashboard,” the back office of its virtual newsroom. There was a dial, like a digital speedometer, which showed the volume of page views on the site and a list of trending topics on Google and Twitter, topped by the confection of the moment, the teenage-pop sensation Justin Bieber. (Sure enough, within an hour or so, a Bieber-related True/Slant post appeared.) There was a list that ranked the most-viewed items and metrics that tracked how they got their traffic — maybe via a link from a popular blogger, or the recommendation tool Digg. Most eerily, there was a little algorithm-driven display that showed contributors what other people were saying about their work out in the blogosphere — eavesdropping, in real time.

True/Slant structures its compensation to give writers an incentive to hustle for readers’ attention. Contributors are paid a monthly retainer and scaled bonuses based on how many people read their articles. The money isn’t enough to live off — the entrepreneurial journalist has many gigs — but True/Slant is reasonably generous in comparison with, say, the Huffington Post, which pays its nonstaff bloggers nothing but esteem. Most writers make a few hundred dollars a month if they hit their traffic targets, and a few big names, like the professional controversialist Matt Taibbi, make quite a bit more. In fact, if you break it down, True/Slant pays its writers more than the amount of revenue their work generates at the current online advertising rates. Stripped down as it is, the start-up isn’t yet turning a profit, and it’s now in the process of raising a second round of venture capital.

I asked Bateman, as a matter of raw economics, how much an individual article is worth to True/Slant’s bottom line, on average. He told me he calculated it out: around $10.

Sam Apple and I were sitting in a hushed and crowded cafe, amid the soft glow of open laptops. “I thought at the beginning that if I could create a top-notch journalistic outlet, and if I could do that at a small fraction of the cost, maybe advertising could cover it,” he told me. The Faster Times was now eight months old, and Apple was wiser about online economics. The summer before, the site charged out of the gate with a 24-hour posting schedule, a large and enthusiastic staff and guest posts from famous writers like Gary Shteyngart. By the fall, it had acquired a monthly audience of around 200,000 readers, according to the tracking site Quantcast — small compared with the Huffington Post’s but a pretty impressive return on $20,000, in Apple’s opinion. But the revenues that were coming in from Google AdSense, the ad-placement service he was originally using, were so paltry that Apple wondered, when he gave writers their 75 percent share, whether he was actually driving them away.

“I have a friend who is a behavioral economist,” he said. “He says that if you pay people tiny amounts, it’s worse than not paying them at all.” The Faster Times’s first round of payments ranged from $5 to $75. Revenues have increased substantially since Apple switched to another ad service, but the writers’ shares still don’t amount to much. Whether it was because of that, or fickleness, or the attractions of better-paying opportunities, many of the original Faster Times contributors gradually drifted off. Apple was now trying to hatch ideas for alternate sources of revenue, to ease the site’s dependence on advertising. “I still feel like there’s a lot to try,” Apple told me. “We can kind of be a testing ground for the latest experiments.”

Many other publications, confronted with the painful math, have reached the same conclusion: the business needs alternate schemes of support. Some have adapted tried-and-true formulas. The Daily Beast is backed by a generous billionaire, Barry Diller; others are mimicking NPR’s nonprofit model; Politico makes the majority of its revenue from, of all things, advertising in an offshoot print newspaper. Most familiar of all, there’s the subscription route, which the online editions of The Wall Street Journal and The Financial Times have followed with success. The New York Times has announced that early next year it will institute a fee for frequent users of its site. Many analysts are doubtful that the subscription approach will work for everyone — surveys suggest that few consumers are willing to pay for news online. But some start-ups are experimenting with a variation on the idea, premium memberships, which give readers who sign up special access and perks. GlobalPost, an online publication for international news, is currently implementing such a program, offering subscribers the chance to participate in conference-call briefings by freelance correspondents stationed in more than 50 countries, and to vote on articles they’d like to see assigned.

One thing many of these new strategies have in common is a willingness to transgress time-honored barriers — for instance, by blurring the division between reporting and advertising. True/Slant offers to let advertisers use the same blogging tools that contributors do, to produce content that, while labeled, is blended into the rest of the site. Such marketing deals are central to the company’s plans for future revenue growth. “Everywhere I go the whole notion of enabling marketers to create content on a news platform is well received,” Lewis Dvorkin says. “It’s the way the world is moving.”

Not long ago, such an idea would have been considered heretical, and in many newsrooms, it still is. But clearly, attitudes are shifting. “Hopefully we’re breaking down the silliness of how church and state was historically implemented,” says Merrill Brown, a veteran media executive and investor who is currently building a network of local news sites. Once, most journalists took a posture of willful ignorance when it came to the economics of the industry: they never wanted to sully themselves by knowing the business. The recession has, through fear and necessity, made capitalists out of everyone.

The new journalistic entrepreneurs fall into two distinct categories. There are the proprietors, people like Charles M. Sennott, a foreign correspondent who took a Boston Globe buyout and became a founder and an executive editor of GlobalPost, or Alex Balk, Choire Sicha and David Cho, who were cut loose by Radar, a dying magazine, and decided to start the Awl, a smart and idiosyncratic commentary site. Then there are the small-scale entrepreneurs, the journalists who, having found themselves dislodged from a salaried way of living, are now scrambling to piece together a freelance income while building their personal brands. Since one group pays the other — or doesn’t, as the case may be — the two sides are engaged in a symbiotic dance around the issue of valuation. “I don’t think anybody has any idea of what anyone should be paid for a piece anymore,” Sicha says. “It’s more than $25, but less than a thousand . . . I think?” He added that, as of now, the Awl doesn’t pay much to anyone, including himself.

The question of how journalists should be paid is of intense interest to journalists, obviously, but it matters to readers too, in ways they may not realize. Structures of compensation affect the end product, especially when salaries or bonuses­ are tied to the pursuit of traffic, a model that many online start-ups follow. Established publications — some of which are instituting or contemplating similar schemes — are watching the experiment with curiosity and trepidation. Writers and editors know that click-driven Internet economics tend to reward lowbrow gimmickry. They have to decide whether to work around that or to embrace it as a fact of life.

One of the loudest proponents of the latter perspective is Henry Blodget, the editor in chief of Business Insider, a gossipy start-up. His talented staff breaks plenty of news and turns out the occasional high-prestige feature, but Blodget is unapologetic about mixing in a lot of eye candy and isn’t above illustrating articles about A.I.G.’s woes with unrelated photos of attractive women kissing. A former star stock analyst who was banned from the profession amid accusations of securities fraud — he paid $4 million to settle — he says he sees himself as a journalistic outsider, unencumbered by the weight of conventional wisdom. In March he wrote: “Perhaps it’s time to float a new theory: We’re already in the gutter. What we click on accurately reflects what we’re interested in, no matter how much we think and protest and hope to the contrary.” A few days afterward, Blodget engaged in an entertaining multiplatform spat over the issue with the Reuters columnist Felix Salmon, producing the calculation that, in order to earn back a $60,000 annual salary, an online journalist needs to generate a whopping 1.8 million page views a month.

Blodget takes a lot of flak for his iconoclasm, but the fact is, he’s only stating plainly what other editors think in private. If you don’t believe that, check out the list of the most popular posts on your favorite Web site sometime — sex, scandal and Sarah Palin always score high. Even publications that don’t go fishing for clicks discover that, inevitably, certain stories rise to the top. Charles Sennott told me that amid all of GlobalPost’s serious coverage of wars and earthquakes, two big hits during the site’s first year were a post titled, “Meet India’s First Porn Star,” and a slide show of Japanese cat outfits.

There is, of course, nothing wrong with giving readers what they secretly want every once in a while. The problem arises when you start producing articles solely for the id of the search engines, because some clicks are more valuable than others. This is the conclusion, at least, of Gawker Media’s Nick Denton, one of the first to pay writers according to their page views and now a high-profile skeptic of the practice. Denton built his company on the labor of freelance bloggers, but in the last year, he has moved to hiring them as full-time employees, with set salaries and bonuses­ tied to “unique visitors” — a metric that he says measures the writer’s ability to bring new readers into the fold. No sentimentalist, Denton says he changed the formula because he found that page-view incentives encouraged writers to deliver worthless rehashes rather than reporting and tabloid-style scoops — in other words, journalism.

“When we look at the numbers, it’s increasingly evident that the traditional blog post has become a complete commodity,” Denton says. When dueling algorithms compete to answer every human query, it turns out there’s value in telling people things they weren’t aware they didn’t know. To wit: Denton’s technology site Gizmodo recently bought a secret prototype iPhone that an Apple programmer lost in a bar and produced a post featuring pictures and the phone’s specs. Over two weeks, that item racked up nearly 10 million page views, an estimated 4.4 million of them from newcomers, bringing the site an enormous amount of attention (not the least of it from Apple’s lawyers and the police). Denton says his hope is that all the publicity attached to breaking big stories will translate into reader loyalty, brand equity and more lucrative advertising deals.

If that is the model of the future, then the new world could end up looking a lot like the old one, albeit with smaller newsrooms and new players. Politico replaces the Washington correspondent, TMZ is the gossip page and you can get coverage of your baseball team directly from MLB.com, which employs professional sportswriters. In cities like San Diego, New York and Washington, online start-ups are taking on metro news coverage, hoping to tap local ad markets. All of these publications have been hiring real, full-time employees — as have nontraditional providers like Yahoo, which is constructing a new political news site. Over the last few months, there has been a palpable uptick in both advertising and the journalism job market. The iPad, and its applications that restore magazines and newspapers to something like their traditional format, was greeted within the industry like the sight of a ship from a deserted island.

Still, it’s hard to foresee anything like a total restoration. Many publications are struggling to stay afloat, from storied titles like Newsweek, which was recently put up for sale, to scrappy start-ups like The Faster Times. One April evening, Sam Apple and nine top staff members of the publication gathered at the foreign editor’s place, a row house in Greenpoint, Brooklyn, to talk over their prospects. Apple presented what he believed to be the best route forward: introducing a membership program.

Readers could sign up to sponsor a favorite writer, at rates ranging from $12 to $120 a year. The writers would get 70 percent of the proceeds and in return would come up with customized benefits for their sponsors. Over beer and tortilla chips, the editors got to brainstorming. One contributor, a professor and translator of Nietzsche, had already offered to answer a philosophical question of the reader’s choice. The dating columnist volunteered to critique online matchmaking profiles. Apple said that he’d just signed up a new writer. “She’s a Sarah Lawrence grad, but also a dominatrix,” he said. “She’s going to be starting soon, writing about sex and power. So there’s real incentive possibilities.”

“Not to get too theoretical,” the managing editor, Olivia Scheck, interjected over the laughter, “but this is the problem that we keep coming to with this idea, which is that we want to be selling journalism, not sex.”

Apple mentioned, with some cheerful chagrin, that the site’s most popular article ever in terms of page views was a blog post titled, “Megan Fox Has Wacky Hot Chick Syndrome.” That wasn’t exactly the kind of impact he had in mind when he came up with the idea for a new type of newspaper. But he said he liked to think that maybe a handful of those starlet-Googlers had stuck around to read the dispatches­ from Egypt and Turkey, or the acclaimed travel section, or the theater critic — who, contrary to all expectations, turned out to be The Faster Times’s highest initial advertising earner.

Since I’ve been regularly reading The Faster Times, I’ve been most affected by a column called Financial Stress. Written by Kathryn Higgins, a single mother in Connecticut who is losing her house in foreclosure, it’s a heartbreaking chronicle of unimaginable choices, like whether to squat or to move into a bedbug-infested homeless shelter. She just e-mailed Apple out of the blue one day, asking to contribute. There are a lot of voices­ like that in the Faster Times, writers who ended up on the wrong side of this recession. Whatever happens in the future, Apple has accomplished something by giving them a place to set their experiences down in words, creating a record of this transitional moment. That’s the essence of journalism, but its value remains in the eye of the beholder.



Andrew Rice is a contributing writer and the author of a book about Uganda, “The Teeth May Smile but the Heart Does Not Forget.”

No comments: