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If the media are to survive, they must outwit Facebook and Google

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The traditional news media are victims of a form of Stockholm Syndrome, says US media futurist Amy Webb: they blame Facebook and Google for stealing their ad revenue, yet they continue to rely heavily on those platforms to deliver their audiences.

Webb, the chief executive and founder of the Washington DC-based Future Today Institute, used the image of the codependent relationship a captive forms with his or her captor to underline the urgency of the challenge for the sector to reinvent itself.

There’s a lingering sense of doom pervading the news business and it stems from the fact that print newspaper revenue is declining rapidly. An estimated 80c in every new dollar of online advertising is scooped up by Facebook and Google, which sell adverts around the news stories that appear in the social media newsfeeds and internet search results of millions of New Zealanders.

Our two biggest media companies, NZME and Fairfax, saw their now-scuttled merger bid as a last chance to join forces against the tech giants. Denied that opportunity, they now seem adrift, with no compelling Plan B other than, in Fairfax’s case, cutting its New Zealand assets loose.

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But the answer, says Webb, is to fight back using innovation as the weapon of choice.

“I’ve often wondered what might happen if news organisations wrote a bit of code to prevent URLs from their websites being shared on Facebook. Technologically, it’s feasible,” she says.

“When I’ve mentioned this to newsroom managers in the past, they’ve balked at the idea, arguing that it would decimate traffic to their websites, and it would in the very short term. However, as I’ve modelled that scenario out, a collective action like that has a high probability of decreasing our time spent on Facebook and increasing time spent with news sites.”

Indeed, there is evidence that traditional publishers’ early enthusiasm for actively pushing their stories to social media is waning. Last month, the Guardian pulled out of Facebook’s Instant Articles initiative and Apple News. The UK newspaper said it had “run extensive trials on Facebook Instant Articles and Apple News to assess how they fit with our editorial and commercial objectives”.

“Having evaluated these trials, we have decided to stop publishing in those formats on both platforms.”

Amy Webb.

Free-content challenge

If media companies collaborate in fighting back, says Webb, they might be able to tackle the two fundamental issues facing their business: consumers’ addiction to free content and the outmoded methods of news production and distribution.

“News itself cannot be monetised,” argues Webb. “There will always be too much free content available elsewhere.

“Instead, news organisations should focus on the future of the experience. For example, some people might gladly pay for a product that aggregates certain kinds of content, or a premium service that offers real-time, highly personalised notifications.”

On the distribution front, she says media firms need to think like the tech companies that are eating their lunch and consider the myriad ways consumers will access news in the future. These include so-called haptic alerts, which use the sense of touch; augmented-reality information layers rather than simple headlines; and all of the voice architecture being worked on within the field of artificial intelligence.

The Spotify-for-news model, bundling content from a range of news sources into one premium subscription, may succeed in the way the popular music service and the Netflix video platform have.

A 2014 survey of more than 400 New Zealand news consumers by Victoria University researcher Alex Clark found that people are willing to pay for online news if it is in a format that suits them. Clark found that 18- to 30-year-olds, a group largely written off by media outlets as freeloaders, were twice as likely as the average consumer to buy a global package of news.

“People have multiple trusted online sources, so hate the thought of paying for each site or news item individually,” he says.

“If news from several publishers is bundled together, then the proportion of people willing to pay increases dramatically.”

Competitive tensions have largely prevented news providers going all-in on shared premium services, though magazine publishers have teamed up to offer unlimited monthly subscriptions via platforms such as Texture, which bundles together 200 titles.

Getting closer to consumers that news outlets don’t have a billing relationship with is essential. Mobile phone and broadband providers seem to offer an attractive route, though Fairfax’s own broadband play, Stuff Fibre, offers little to encourage take-up of its news products.

Innovation requires investment in new business models and technology, which a cash-strapped industry finds hard to justify. But investing collectively in distribution platforms and individually in content is the only way the media can win back advertising share, says the chief executive of the Interactive Advertising Bureau of New Zealand, Adrian Pickstock.

“Local media need to understand how to differentiate themselves from the social and search giants. That comes down to quality of content,” he says.

“The temptation to take the clickbait route is huge, but they should not do that. They need to provide the Rolls-Royce of content for the local market. It will require investment. Retreating from a funding perspective would be a mistake.”

Although the declining of the merger proposal prevents the scale of collaboration the two media companies wanted, Pickstock says there is still plenty of scope for them to work more closely together.

He points to the success of the Kiwi Premium Advertising Exchange (KPEX), a joint effort between Fairfax Media, NZME, TVNZ and MediaWorks set up in 2015 to sell so-called programmatic advertisements, which match advertisers’ inventory with target audiences available across those media websites using clever software, in real-time, with advertisers bidding for the available space.

“It’s going very well and has given local advertisers a platform to work from, which in turn gives them a sense of security about the treatment of their brand by media outlets. It’s a step in the right direction.”

Most of the $890 million spent on interactive advertising locally last year probably went overseas, but Pickstock sees scope to claw some of that back through providing higher-quality content and trusted outlets to place ads with. He says his members are more interested in quality than quantity.

Interactive Advertising Bureau CEO Adrian Pickstock.

Brand trust

The importance of trust shouldn’t be underestimated, particularly for high-end brands. Google-owned YouTube saw an exodus of big-name advertisers in March when they discovered that their adverts were running alongside videos from terrorists and far-right hate groups.

Facebook admitted last year that it had been overstating key measures of video-ad viewership on its platform by about 80%. Ad scams have hit other international programmatic ad networks available here.

“The likes of Facebook and Google are working very hard to correct these things,” says Pickstock. “As long as the perception of trust and quality of audience prevails, local media have an opportunity, but they have to move fast.”

They also need to do a better job of sifting through the large amounts of data their users generate to provide metrics and insights to advertisers, something Google and Facebook are the masters of.

Naturally, Pickstock, as an ad industry representative, sees digital advertising rather than paywalls as key to the future sustainability of the industry. Digital ad revenue is growing quickly for news outlets – 24% for NZME last year and 21% for Fairfax New Zealand in the first six months of its financial year. Both companies are in the black, but projected declines in print ad and subscription revenue are unsustainable unless they can quickly claim more of the digital-ad pie.

For Julia Cage, a French economist and author of Saving the Media: Capital, Crowdfunding and Democracy, advertising simply isn’t the answer. “I don’t see any future for news companies that persist in providing their news for free, vainly expecting a future increase in advertising revenues,” says Cage, assistant professor of economics at the Paris Institute of Political Studies.

“To be more precise: I think some parasitic news organisations will survive on advertising, but just copying and pasting news produced by others online, not financing a newsroom and original news production.”

The paywalls need to go up, says Cage, pointing to the improving fortunes of French newspapers Le Monde and Le Figaro that have paywalled their websites.

“While we still observe a decrease in the news-stand sales, there is an increasing number of online subscribers, like what is happening with the New York Times,” she says.

The Times gained 308,000 digital subscribers in the first three months of this year – a record number of additions attributed in part to Donald Trump’s presidency. But it, too, faces a sharp decline in print advertising, which meant revenue was up only 5% overall for the quarter.

“On the contrary, the newspapers like Libération that took much more time to introduce a paywall are struggling,” says Cage.

The French have a reputation for taking on the tech giants. Facebook was last week fined €150 million ($240 million) by France’s privacy watchdog for violating the country’s data-protection rules. The social network also worked overtime to stamp out fake news stories in the run-up to the presidential election in May, fearing a continuation of the backlash that followed Trump’s election win.

Cage argues that the entire structure of media ownership needs to change so that the companies are run as not-for-profit foundations and given favourable tax status. She dubs these nonprofit media organisations (NMOs). “My bet, based on the success of the paywalls introduced by a number of publications, is that citizens will be willing to pay for high-quality, unique information,” she says.

“Moreover, if citizens also become shareholders of these foundations, this will increase their trust in the news provided, and so their willingness to pay,” says Cage, who is the wife of Thomas Piketty, the economist and author of best-seller Capital in the Twenty-First Century, which calls for state intervention to reform capitalism to tackle inequality and save democracy.

Julia Cage.

High-profile critics

The economist couple may be on the same page, but the NMO plan has high-profile critics. “Good f---ing luck with that,” wrote Columbia University journalism professor and new-media commentator Jeff Jarvis on his Medium blog. “Who would donate money to such an endowment with no promise of a return on the ‘investment’? No one.”

And isn’t the Guardian owned by a not-for-profit trust – and still expected to burn through £90 million this year? Cage insists the paywall is the future.

“The reason the Guardian is losing money is not because the Guardian is a foundation; it is because the Guardian is providing its news for free,” she says.

Massey University media studies lecturer Peter Thompson recently described Google and Facebook as a “parasitic threat to our news media” and suggested a levy on advertising on these platforms to force them to support the news ecosystem they thrive on. Australian senator Nick Xenophon has launched an inquiry into the effectiveness of consumer and competition laws in dealing with the “market power and practices of search engines, social media aggregators and content aggregators, and their impact on the Australian media landscape”.

But the National Government has shown little appetite for levies on the giants or, on the other hand, tax breaks for media companies. More likely is a modest increase in funding for public-interest journalism through the likes of New Zealand on Air, or a top-up or even increase of RNZ’s funding, which was being tipped by some media pundits for this week’s Budget as the Listener went to print.

Those measures are unlikely to fix the problems in the commercial media’s faltering business models. The major players now face the need to rescue themselves from the decisions they made nearly 20 years ago: in the early days of the internet, news was made freely accessible online and banner ads were expected to be the cash cow that print ads had been for more than a century.

It’s hard to know what Facebook makes of its role in all this. Its executives rarely appear here in public; instead, carefully worded blog posts are issued under the name of founder Mark Zuckerberg, who is preoccupied with combating fake news.

A few token efforts have been made to fund journalism initiatives, but nothing that would appear to materially improve the news industry’s ability to generate advertising revenue itself.

Facebook non-response

Several questions for this article were put to Facebook: Will it eventually have to employ journalists and produce news itself if traditional news publishers fail because of the digital onslaught? How long can Facebook expect to keep paying so little tax globally, let alone locally? How vulnerable are social media and search engine giants to a global backlash of the kind foreshadowed in the Economist in May, in which the data owned by the biggest online companies was likened to the oil wealth of the 19th-century US robber barons? In short, attractive as their low-taxed, free-content business model must be, how long can it really last?

Facebook’s bland response, issued through an Auckland PR company, is barely worth printing. “We’re making a concerted effort and investment to be sure we’re the kind of player and the kind of partner to journalism that we should be,” a nameless spokesperson was quoted as saying. “We want to support meaningful connections and informed communities on Facebook.” Banking around US$10 billion in profit in 2016, Facebook seems content to sustain its own fabulously successful business model for as long as possible.

For Amy Webb, this is a potentially defining moment for the news industry. The road back to sustainability will be difficult and risky, but needs to be taken if the news sector is to reclaim its destiny.

“It’s time that the industry comes to the realisation that the future of news really is up to journalists.”

This article is an extract from the June 3, 2017 cover story 'Grave New World' in the New Zealand Listener - on sale now.

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