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* PBS | I, Cringely . December 29, 2005 - Stop the Presses!
*
The original Cringely frog
mascot, circa 1998.

DECEMBER 29, 2005
STOP THE PRESSES!
HOW PAY-PER-CLICK IS KILLING THE TRADITIONAL PUBLISHING INDUSTRY
By Robert X. Cringely

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.