Mar 18, 2013 · 4 minutes

Four things jump out from the Pew Research Center’s just-released “State of the News Media 2013” report. None of them are particularly good news for anyone in news publishing but they all point to a clear and easy-to-understand trend: Ads alone just ain’t going to cut it anymore; it’s officially time to be experimenting with paid content models; and the product itself – news – is increasingly being commoditized.

Google and Facebook are sucking up all the digital advertising oxygen

While the likes of Business Insider CEO Henry Blodget point to rising digital advertising revenues as cause for optimism among digital publishers, a close look at where those dollars are actually going is not so encouraging. Sadly for publishers, most digital ad spend is going to Google and Facebook (Twitter will no doubt soon join that top tier), and those two companies are also hogging the newly opened up mobile display ad opportunities. Six companies already account for 72 percent market share of mobile display ads, Pew notes, and none of them produce news. News publications are also losing local digital advertising.

Says Pew, “improved geo-targeting is allowing many national advertisers to turn to Google, Facebook and other large networks to buy ads that once might have gone to local news media. At the same time, Google and Facebook are also moving directly into local ad sales. Google is now the ad leader in search, display and mobile.” The takeaway for new and aspiring publishers: Don’t expect ads to keep you afloat.

Sponsored content is up sharply

The Atlantic, Forbes, BuzzFeed, and Gawker are all embracing sponsored content as a way to branch out beyond display ads. Okay, sometimes they call it “native advertising” (BuzzFeed) or “content-driven commerce” (Gawker) – and no-one wants to call it advertorial – but it all amounts to the same thing: a brand slapped on to special content that wouldn’t otherwise be produced.

At PandoDaily, we’ve got a twist on the model, creating series of stories based on editorially selected themes that sponsors then choose to back. All these efforts are in some part a response to the declining value of online display ads, and particularly banners, which are hopefully on their deathbed. Expect to see more such sponsored content – the category is going gangbusters, with Time, Hearst, and Conde Nast all building formats to run native ads.“Though it remains small in dollars, the category’s growth rate is second only to that of video,” Pew says. “Sponsorship ads rose 38.9 percent, to $1.56 billion; that followed a jump of 56.1 percent in 2011.”

Experiments with paid content reached a turning point in 2012

In 2012, people figured out that the New York Times’ porous paywall was actually a success, Andrew Sullivan showed that a community-supported site might be possible, raising more than $500,000 in a matter of weeks (just today, though, he has announced that he is tightening his paywall), and Marco Arment’s The Magazine became profitable in its first month, without selling ads of any kind. Just today, the first details about the Washington Post’s proposed paywall emerged. Katherine Weymouth, the Post’s publisher, said: “We’ve watched our peers in the industry, and we think the metered model is the best way to keep our reach while asking our readers to help pay for the quality journalism we are known for.”

Meanwhile, 450 of the US’s 1,380 daily newspapers have started or announced plans for some kind of paid content subscription or paywall plan, says Pew, in many cases opting for a New York Times-esque metered model, which allows a certain number of free visits before asking readers to pony up. “With digital ad revenue growing at an anemic 3 percent a year in the newspaper industry, digital subscriptions are seen as an increasingly vital component of any new business model for journalism – though, in most cases, they fall far short of actually replacing the revenue lost in advertising.” Expect to see a lot more action and experimentation in 2013.

News is being commoditized even more

Consider this sentence from Pew: “A growing list of media outlets, such as Forbes magazine, use technology by a company called Narrative Science to produce content by way of algorithm, no human reporting necessary.” This was only one sentence from Pew’s report, but it is a portentous one. Narrative Science automatically creates stories out of raw data that would otherwise have been written by human hands. More robots producing news means fewer humans needed for the task.

This year, it was Forbes, but it can’t be long until other publications – sports and business ones, especially – realize that an algorithm is cheaper than an actual reporter. That’s when news stories become commodities: easy to produce, easy to replicate, easy to distribute. Combine those factors with the decline of digital ad dollars and newsroom layoffs, and it’s no wonder that we are seeing a crisis in journalism. As Pew remarks, “This adds up to a news industry that is more undermanned and unprepared to uncover stories, dig deep into emerging ones or to question information put into its hands.”

[Image courtesy Jurgen Appelo]