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By Peter Kirwan |18 January 2010

A few months ago, Media Week sent a reporter to interview Paul Hayes, the executive in charge of advertising sales across the Times, the Sunday Times, the Sun and the News of the World.

In the resulting article, Hayes genuflected in the direction of paid content, noting that 456,000 Sun readers pay money to play Dream Team Fantasy Football.

Predictably, he was also bullish about the print editions of the Sun and the News Of The World, which had tuned in circulation increases of 0.23 percent and 0.54 percent respectively during the previous month.

“We are putting more money into editorial,” said Hayes, “and our circulations have gone up.”

In addition, News International’s top salesman noted how the cost of printing presses and delivery trucks generated “a voracious need for lots of cash” at News International. There was even talk of News International shedding its aggressive image and improving relations with advertisers.

Yet something was missing. Oddly, the interview published by Media Week failed to make a single mention of online advertising.

Perhaps there just wasn’t enough space to cover everything. Alternatively, perhaps this is just how things are at News International.

Coincidentally though, a survey released a few weeks later by the Institute of Practitioners in Advertising (IPA) suggested that digital advertising ranks far down the list of priorities at Wapping.

The IPA’s study asked 200 ad agency staff for their thoughts about the media outlets from which they buy online inventory. On almost every measure, News International emerged far down the rankings, lagging behind pure-plays such as Microsoft and ad networks, too.

Only one third of respondents agreed that dealing with News International had been a “good experience”. Fewer than 20 percent said that News International delivered “innovative, creative solutions”.

Four out of 10 respondents agreed that it was “easy” to contact the sales teams at Wapping. The rest, presumably, had experienced some difficulty in finding someone willing to sell them online advertising.

No doubt there are reasons for News International’s poor showing. A revamp of sales teams that kicked off in 2008, resulting in 100 job losses, might rank among them.

But it’s tempting to pursue another possibility. This is the notion that News Corporation itself — in the words of US media blogger Jeff Jarvis — “has given up on digital advertising”.

It’s hard to overstate the bitterness with which most news organisations look back on their decade-long experiment with online ad sales. At News Corporation, disenchantment seems to run particularly deep.

In a recent speech, Les Hinton, the former executive chairman of News International and now the chief executive of Dow Jones, poured scorn on the “harbingers of the new economy” who promised that free content would generate big advertising revenues.

Sarcastically, Hinton reeled off the mantras of the dot.com era: “Build it and they will come. Eyeballs and advertisers. Clicks and cash.” Then he paused for a moment before adding: “We’ve learned a lot since then.”

At the very top of News Corporation, Rupert Murdoch’s enthusiasm for paid content seems to be matched only by his impatience with digital advertising.

“There’s not enough advertising in the world to go around, to make all of the web sites profitable” he said in arecent interview with Sky News in Australia. “We’d rather have fewer people coming to our sites, but paying.”

Disappointment is universal: for most of Big Media, online display has been an end-to-end failure.

In recent years, a flood of inventory has depressed the prices that news organisations can charge for page impressions.

Awkwardly, some publishers have collaborated with this downward spiral. According to Rob Grimshaw, the publisher of FT.com, too many have “opted for the soft option” of allowing “three or four ad networks to sell their space”.

In the process, says Grimshaw, they surrender “40 to 60 percent” of the revenues generated by this inventory.

Grimshaw also argues that publishers have failed to invest enough in the analytics that would allow them to differentiate their audiences and charge a premium for them. “That audience becomes part of the undifferentiated vanilla mix out there on the web,” he says. The results, he argues, have been “toxic”.

Last year, the cost of employing commercial, editorial and admin staff at the Guardian and the Observer ran to £100m. And that’s before making allowances for the cost of office space, software, connectivity, taxi receipts and subsidised meals in the staff canteen.

According to an estimate generated by Guardian Media Group, the UK market for so-called “premium” display inventory sold by news organisations amounts to only £200m.

In a print-free future, that would be barely sufficient to support a couple of national newspapers.

But if the industry-wide disenchantment with online display advertising is understandable, it might also be unwise.

No-one knows yet how much revenue paywalls will generate. The need to sell advertising — even on paywalled sites — will persist.

Here and there, publishers such as CBS Interactive are starting to restrict the amount of inventory that gets re-sold by ad networks. A return to growth isn’t out of the question, either. Forrester, the analyst firm, predicts that the US market for online display advertising will more than double in size by 2013.

Turning £200m into £400m isn’t enough to save the news business. But neither is this the kind of money that anyone can afford to spurn.

The problem, as always for Big Media, involves an apparent inability to multi-task.

Five years ago, the industry was convinced that the future would be funded by advertising. Today, with equal passion, conventional wisdom demands that managers devote their attention to slinging paywalls across both the ordinary web and the mobile web.

The latter, in particular, intrigues publishers who suspect that handset users are more willing to pay for content than PC users.

Yet if you ask about mobile advertising rather than iPhone apps, the tone of conversation changes. Geolocation? Yes, it’s full of potential. M-commerce? No doubt it will come of age eventually. There’s a lot of work to be done, most publishers will admit.

But who will do that work? Worryingly for Big Media, the job will probably fall to Apple and Google, the two companies who seem likely to own the dominant mobile platforms of the future.

In recent months, both have acquired mobile ad networks. Big Media should interpret these deals as warning shots. But the warnings seem largely to have gone unheeded: above the din of a manic efforts to ship thousands of iPhone apps, no-one in Medialand appears to be listening.

URL Link to Wired:

http://www.wired.co.uk/news/archive/2010-01/18/has-digital-advertising-been-sent-to-sit-on-the-naughty-step-at-news-corporation.aspx