News Media vs. Web aggregators: what deal can stop the race to the bottom?

In a recent post on Hitwise by Heather Hopkins, “Content Aggregation is King?,” the bind that existing news media is in is highlighted again:

“Aggregators are taking a larger piece of the pie but the size of the pie is growing with visits to content creators and all News and Media websites growing. The trouble is – creating all that content is expensive. It’s tough to justify the cost of content creation if those that sift and sort are gaining on those that create.”

If the current situation continues, both content creators and aggregators will lose out. The pool of content will shrink, and the aggregators will lose overall pages to place ads on (there will be an expansion of participatory media, but it will not replace the clear demand for general news displayed by the numbers of people visiting Yahoo News, for example). This will be a race to the bottom. What the post doesn’t do, and few people have, is to try and figure out what kind of business deal can avoid this result.

The deal between the a consortium of newspapers and Yahoo to outsource listings functions to Yahoo in return for a cut of revenue was predicated on the idea that there is a way to do some basic arbitrage on this situation, but even that doesn’t work over the longer term. News media simply can’t justify the cost of their content creation staffs, even if they get rid of the printing presses and costs of classifieds businesses. And they have yet to really deal with this (probably because they are still much larger than the aggregator sites even now).

Maybe, as the news media starts seriously shrinking the content pool, the aggregators will start to strike deals like Yahoo did, but more expansive and lucrative. Done right, such deals could raise all boats. For example, rather than aggregating traffic on one domain, Yahoo (or Google, etc.) could drive traffic to news media sites that federated their news with aggregated content from all over the Internet. A network of these sites, served by a single ad engine, could broaden the ad inventory far beyond what Yahoo would ever be able to support on its own and save some amount of a business model for content creators.

It may take a risk by someone on the scale of the 2001 AOL-Google deal, which similarly tied a content network to advertising engine. Marissa Meyer talked about it as “a very big bet, a revenue guarantee” to AOL:

“It caused a huge amount of controversy at the time because by some of the models that we had run, the deal was going to bankrupt Google. Like Jonathan Rosenberg actually got up on the table and jumped up and down about how much we shouldn’t do this deal because Google was going to go bankrupt. We had models, one said that we were going to go bankrupt, one which said we might break even… and one year into the deal what we saw was that by signing AOL and broadening the reach of our advertising network we attracted so many more advertisers, and RPMs (revenue per thousand pageviews) went up across the network and we outperformed our expectations by a factor of two, maybe even three times.”

The rest is history of course. Something like this may be a fantasy, but following the same course we’re on is going to be pretty grim for everyone.

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