Advertising doldrums: News orgs revenues dwindle as Facebook booms

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There was a clear method of monetization through advertising in the early days of journalism, back in the 1900’s when news outlets ruled mass communication and information. This notion is considerably less strong today with the inclusion of user-based social media and the competition its brings that directly affects advertising revenue.

In the 1900’s, print newspapers were great at making money because people were paying for content on the physical product, and advertisers were paying for the remaining space on the physical product (two strong streams of revenue).

Now, our world is full of sleek touch screens that serve as the hardware for all sorts of information. The product has changed. Humans don’t turn pages that much anymore when it comes to consuming news; instead, consumers hope the digital format acts fast with the pressing and clicking buttons. And reliance on print newspapers for other important reasons—to find a house to buy, for example—is not needed in the age of the internet when you have .com’s with simple-to-use categorization methods.

Newspaper advertising was at its peak in the 1990’s, via the graph below, bringing in $67 billion of revenue before digital advertising became legitimate after the ascension of the internet. Newspaper print advertising dropped to $16 billion in 2014, while the digital revenues of newspapers ($19.9 billion) total near the same amount. 

Like a print newspaper, computer and phone screens of the digital realm have space for advertising. So, it should come as no surprise that with less people paying for a physical product, news outlets have become more reliant on advertising revenue generated from the screens of phones and computers.

But people in general don’t get excited about digital advertising. Our quick-acting phones may be a factor in supplementing this obvious distaste for digital advertising, as numbers in 2016 show that over 80 million Americans were projected to use ad blockers that year, which cost digital media companies about $10 billion in revenue, according to EMarketer.

As difficult as it might be to utilize advertising revenue on a computer screen, it’s even more difficult to advertise on mobile phones because they’re smaller devices that make it easy for ads to take up the entire screen and seem pretty obnoxious.

Since news organizations’ advertising is driven by the amount of room available within the confines of a page, there is a limited ability to advertise, and advertising revenue can only generate so much monetary gain for news outlets.

After all, advertising is a business of ebbs and flows; if the economy is flourishing, revenues will most likely be higher. So when 2008-2009 hit, people thought that newspaper advertising revenues would see significant recovery when the economic downturn was over. That hasn’t happened, especially through digital means.

“While that digital ad pie is growing, the numbers show that news organizations are competing for an increasingly smaller share of those dollars,” wrote Kenneth Olmstead for the Pew Research Center.

A notable issue exists within the new digital framework we live in, contributing to news organizations’ “increasingly smaller share” of those digital advertising dollars. News outlets aren’t frequented to the same level as they once were, since more competition comes from blogs and social media, like Facebook and Twitter, which are driven by new media consumption habits.

Instantaneity and an abundance of content are indicative of what social media is, compared to traditional news media which usually needs some sort of verification from an editor that doesn’t make it instantaneous. And newspapers’ content is often professionally produced, so its output isn’t as plentiful as what’s generated from free-flowing social media.

The reality of this digital age can be summed up simply. As social tech giants continue to rise and have a wide base of consumers online, it’s clear the more engagement you have, the more potential exists for advertising.

“Ultimately advertising is about selling attention, and if most of that attention is focused on Google and Facebook, then naturally they can monetize it,” Balderton Capital venture partner Suranga Chandratillake told the FT.

According to The Guardian writer Roy Greenslade, Facebook’s net income increased 300% and its margins jumped from 26% to 37% in the first quarter of 2016.

“In effect, 90% of the increase in mobile revenue is going to Facebook and Google,” Greenslade wrote. “Combine this with agencies’ own income influencing advertising decisions, and the internet begins to resemble a monopoly based around algorithms rather than a supposedly neutral distribution platform.”

Facebook can move the right ads to the right audiences and better exhibits user engagement for ad agencies because the company holds about 98 data points per user. This function basically allows advertisers to target specific people with specific interests, leading to more effective ad placement. News organizations have failed to capitalize on social media’s new-age comprehension of behavioral economics.

The average media consumer’s focus shifting from news organizations to social media is also because destinations like Facebook feel so unique.

Social media is user-based, meaning anyone with access to the internet can build virtual communities and contribute to worldwide communication, and those who were once voiceless can have their perspective seen for its good and bad consequences. It’s an idea that feels like democracy, bringing power to the people in a sense, but also feels too open for slander at times. We can very simply broadcast ourselves to mass audiences, and the initial and constant gratification gained from this wide-spanning personal connection is present in millions of people.

Therefore, trying to compete with media companies that have such power over mass communication is, and will be, tough for news organizations. Facebook, for example, has media organizations working with them in such a way that Mark Zuckerberg’s company seems to be the one in control.

“When Facebook says it will prioritize video in News Feed, every publisher that can afford to do so builds a video team….Facebook is setting the rules, and news organizations are following,” WIRED staff writer Julia Greenburg wrote. “That’s concerning because the news industry is in a precarious way. Publishers have finite resources and limited time. Staff are overworked and underpaid.”

Online ads for news outlets have increasing revenue each year, so that’s not a problem. From 2009 to 2014, U.S. newspapers went from $2.74 billion in digital ad revenue to $3.5 billion, according to the graph below. A $1 billion increase in five years wouldn’t look bad if digital ads had been used by newspapers since the mid-1900’s. But that’s not the case, as the main source of advertising originated on the print newspaper, and in 2003, print ad revenue was $44.94 billion. In 2014, that number dwindled to $16.4 billion.

“Online advertising is looking more and more like a contest that publishers can’t win—not on a large scale, at least,” Slate’s Will Oremus wrote. “Advertising can help to cover some of their costs, but online ads alone won’t pay for big, serious, high-quality journalistic enterprises the way that print ads once did.”

In the early 2000’s, news organizations were optimistic by thinking that their revenue streams would work out. They weren’t able to forecast that fewer people direct their attention to digital ads, making them less reliable than print ads. By not having every news organization construct online paywalls 15 years ago, consumers now expect online news is there for reading, not ad viewing, while there are so many other entities on the fast-paced internet that can redirect one’s attention — a combination of realities that puts news sites in a conundrum.

Even though a lot of newspapers thought digital ad revenue was going to pay their bills so that they wouldn’t need an online paywall, there were some that went in a different direction, such as the Arkansas Democrat & Gazette. This paper allowed free access to the website, but only if the reader had subscribed to the newspaper.

“For the last 10 years we’ve remained steady in both daily and Sunday circulation, whereas other markets have seen 10-30 percent drops,” Conan Gallaty, director of the paper’s website, said.

The New York Times has adopted this method as well. But if many outlets were to do this, the value of print newspaper advertising could plummet because people are still going on their computer and viewing the news online, while the actual paper sits in front of their house collecting dust. The decline of print newspaper advertising would accelerate at an even faster rate, and many would argue there’s no point in trying to save it.

Another subscription-friendly site is the online publishing platform Medium, which thinks its future of revenue is rooted in subscriptions that are free of ads, costing around $5 a month and featuring exclusive content. Stratechery, run by one man, Ben Thompson, caters to lovers of tech and media and is $10 per month for a subscription. Similar to Medium, exclusive content exists by paying the monthly fee.

“Making advertising a secondary — though still vital — revenue source is the most important strategic goal for most news publishers,” Ken Doctor of Newsonomics said. “Reader revenue, if backed by sufficient high-quality content and good digital products, proves far more stable than advertising.”

The subscription fees might get people who don’t read a paper to still monetarily contribute for the news. After all, since the older demographic reads physical newspapers, there continues to be less and less print readers as they die off.

If subscription fees can’t get the job done for some of the medium-to-large media companies, then what’s the next step for their revenue? One method could be having a team of journalists do consulting and market analysis for clients that are willing to pay, considering the writing and analytical skills of experienced reporters covering certain beats are considered to be of high-quality.

New organizations could also step up their push for revenue by selling merchandise, striving for unique consumers goods like entertaining clothing. But there’s a strong belief that news organizations have to do a better job enticing people into their online community. Video is being used more often in producing news, but the interactions between the readers is still fairly basic with the use of a straightforward comments section. Building other initiatives into the experience of watching video and reading text may really help these news organizations.

There’s also a possibility that someone alters the composition and experience of the ads, and not the news content. It’s unknown how this would actually look, but attaching social meaning to the ads through reader voting and reactions could be along the right line of thinking.

Clearly, retaining reader engagement poses a challenge for news companies. And their current situation can only get worse — unless a group of forward thinkers hits the nail on the head with one or many solutions.

Fed eyeing interest rate hikes as U.S. economy gains more steam

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The United States’ economy continues to grow, and the possibility of a recession in the near future looks very slim. That’s a promising forecast for a country that had been rocked by economic collapse about a decade ago.

The question still remains; when the economy is booming, how do you prevent too much inflation that can stir markets for the worse?

The Federal Reserve aims to address this issue, keeping the booming economy in check by enlarging interest rates, as Goldman Sachs projected massive market swells and a strikingly low unemployment rate in 2018. Economists of Goldman Sachs also noted that there could be four Federal Reserve interest rates hikes in the next year, and that the United States unemployment rate, which hit 4.1 percent in October, could reach its lowest point since the 1960’s by the end of 2019.

“With robust growth momentum and no striking imbalances in the economy, near-term recession risk still looks fairly limited,” said Goldman’s chief economist Jan Hatzius, via CNBC. “But the strength is becoming ‘too much of a good thing’ and containing further overheating will become a more urgent priority in 2018 and beyond.”

The overall upswing of the United States economy is accompanied by a similar trend in overall global economic health, when viewed in terms of GDP growth. Germany, for example, displayed GDP growth of 3.3 percent in the third quarter, while the UK’s GDP grew 1.6 percent. Germany’s stock market index, Dax, is up 13 percent, per Express.

Marking the beginning of the United States’ recovery from the major 21st century recession at June 2009, the graph below details that the economy has been growing at a very similar rate for some time now.

But if this rate accelerates too much, over inflation is very possible, and therefore, like Hatzius said, the economy becomes ‘too much of a good thing.’ We witnessed the economy swell to unimaginable highs with risky subprime mortgages, a perfect example of an entity falsely fueling the economy while risk was wrongly assumed to be low.

Actually, a disinflationary trend—that is, a reduction in the rate of inflation—seemed to exist earlier in the year and was worrisome until the U.S. consumer prices, through the lens of core consumer price index (CPI), increased in October. Disinflationary trends lingering over longer periods of time concern Fed officials due to the potential to disrupt interest rate anticipations.

“The Fed has struggled this year in determining if the slowdown in core inflation has been due to a confluence of one-offs or more persistent disinflationary forces,” said Sarah House, an economist at Wells Fargo Securities, courtesy of Reuters. “The pickup clears the way for a December rate hike and supports the case for continued tightening in the year ahead.”

It seems to me like the Fed wants to appear more cautious than it has in the past, considering the financial struggles from ten years ago displayed a lack of governmental regulation as one of many undoings of the economy.

Climate change’s economic impact examined in new report

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Climate change is not a concept accepted by everyone and certainly, not by President Donald Trump. But according to a recent study from a team of researchers for The Lancet, years of inaction battling climate issues negatively affected the economy and will continue to do so.

Data points to a massive sum of money spent due to the devastation caused by major weather events, like hurricanes and wildfires. An increase in natural disasters has been directly associated with the deteriorating climate.

“Between 2000-2016, there has been a 46 percent increase in the number of weather-related disasters,” the report stated.“Economic losses linked to climate-related extreme weather events were estimated at $129 billion in 2016.”

 

Those numbers represent 2016, not the even wilder hurricane season in 2017, which saw the damage of Hurricane Harvey and Hurricane Irma, both record-breaking storms, likely costing more than $200 billion all together.

That price tag seems high, but it might be lower than it is officially tallied at, considering the cost of damage can continue to rise months following an event.  Below is a graph detailing the change in unemployment when Hurricane Katrina hit in 2005. Even by June 2006, while the New Orleans employment sum had regained some of its losses, it was not near its previous stable condition.

Therefore, if you assume that costly hurricanes will be prevalent over the next decade or so due to climate change worsened by fossil fuels, then the economy will continue to have problems. Extreme weather has cost the U.S. economy an average of $240 billion per year, and now that total seems to be on the low end for what the future holds.

Sir Robert Watson, coauthor and director at the U.K’s Tyndall Center for Climate Change Research, told National Geographic that natural disasters are not created by climate change, but noted the “intensity and frequency” of such occurrences have been made worse by hotter temperatures.

Obviously, fighting climate change to handle extreme weather starts with the knowledge that clean energy is necessary to adapt as soon and as quickly as possible.

But President Trump and EPA head Scott Pruitt don’t see a need for reducing risk, as the administration hopes to roll back Barack Obama’s standards on curbing carbon emissions in favor of coal production.

The coal industry, however, doesn’t seem like its making a comeback, which means it’s time to favor the environment by focusing on jobs created by renewable energy. These jobs are being created twice as fast as any other industry, via Quartz Media, and mainly include solar and wind installers. The solar industry itself generated roughly 260,000 jobs for Americans in 2016.

Eight of the 10 states where solar jobs grew the fastest voted for Trump in the 2016 presidential election, per CBS, and in Oklahoma, Alaska and Nebraska, solar energy workers grew by 100 percent from 2015 to 2016.

So it seems in four years, Trump won’t be able to single handedly destroy the environment. More people have come to understand the value of renewable energy, which is needed to slow climate change and protect our planet from volatile weather incidents.

Future of Vehicles Looks Electric

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It’s an idea that makes sense for many reasons, mostly notably because it doesn’t toy with our environment quite like gas does. But, as with most change that occurs in this world, the full-on switch to electric vehicles (EVs) continues to take some time.

Many believe that electric vehicles will overtake gas-powered ones in a matter of years. When will this be the case? In order to answer this question, you need to have a basic understanding of what owning and selling an EV requires right now. And this knowledge will give you a solid perspective of the pros and cons of the EV’s existence.

According to PBS.org, Robert Anderson, a Scottish inventor, was the first person recorded to make headway into creating an electric-powered vehicle from 1832-1839. In 1891, a chemist from Iowa named William Morrison built the first electrical automobile in the United States. So the notion of electric vehicles was born far before the emergence of modern technology we’ve come to know.

Early electric car (Source: Inside EVs)

Still, a column from Business Insider noted that about 34 million vehicles were sold over the past two years in the United States, and mostly all of them were fueled by gas. One of the biggest reasons why people see no need to shift from gas-powered to electric cars is due to the time length of charging a battery.

It takes a short matter of minutes to refuel a gas-powered engine, while most electric vehicles need to be powered overnight or take roughly an hour at a commercial station, via The New York Times. This reality contributes to an anxiety that if the car’s battery runs out, and you don’t have a charging station nearby, you can no longer travel.

The way to get rid of that fear is to think of EVs like ChargePoint chief executive Pasquale Romano.

“Electric vehicles are more like horses than gasoline cars,” Romano said, also via that NY Times piece. “You refuel them when you’re doing something else.”

The charging options for your electric vehicle are broken down into two levels. Level 1 charging means that it plugs into a typical house outlet. Using the Nissan Leaf as our primary example, it would take 22 hours for a full charge. But driving 40 miles per day, which is typical of the average American, would allow for around nine hours to completely recharge your battery for the next day, per PlugInAmerican.org.

The fact that electric cars are very functional within shorter distances enables them to be used by modern car-sharing technologies like Uber and Zipcar.

“Electric cars on their own may not add up to much,” David Eyton, head of technology at London-based oil giant BP Plc, said in an interview. “But when you add in car sharing, ride pooling, the numbers can get significantly greater.”

Since for many people time is money, you may want to explore other charging methods if a trip were longer, perhaps around 200 miles. The DC Fast Charger costs up about $100,000 and adds 40 miles per every 10 minutes — a dramatically reduced time from Level 1 charging. CleanTechnica.com notes the the cost of a Level 2 charging station ranges from $500-$1,000 — a manageable price— but is less powerful than the DC Fast Charger.

DC Fast Charger (Source: FleetCarma)

As one could gage, based on the lack of quick chargeable modes, current electric vehicles don’t have the capacity to make long road trips possible. Driving from Los Angeles to the lower edge of Colorado is about an 800-mile journey, and an electric vehicle would make that voyage difficult. This excursion is hard due to, not only the time it takes for charging the battery, but also the amount of charging stations available.

Charging stations aren’t readily available to everyone in the United States, as building this infrastructure is one of the challenges electric vehicle producers face. The U.S. Department of Energy recorded that there are 16,838 electric stations with 44,753 charging outlets in the country.  Looking at the map they provide as to where these stations are located, it’s clear and understandable that the east coast and west coasts of the United States are more densely populated than areas like Montana, the Dakotas, Nebraska, Nevada and Mexico. When these regions are rife with charging centers, you’d expect the demand for EVs would also be higher.

When one looks at how the demand of a good or product can increase, price/cost and quality become key factors in predicting demand. Quality seems to be directly correlated to overall cost. Typically, someone will pay less for a good or service they deem of lesser quality. The same applies for the reverse logic: someone will pay more for a good or service they deem of higher quality.

This idea brings into play the possibility that electric cars will, at some point in time, be considered more logical to buy than gas-driven cars, since EVs will be of similar or better quality than their counterparts and also cost less. A report from the Rocky Mountain Institute specified that there are 15 EV models under $30,000 with multiple models that have batteries lasting up to 200 miles. Cars with internal combustion engines can seem a bit more logical with these current numbers, especially if you’re traveling long distances.

But it’s worthy to say electric cars are on their way to becoming cheaper. A new report from Cowen & Co. details that electric cars will be cheaper than their gas partners by the early- to mid-2020s, due to falling battery prices and costs that traditional car makers will deal with to ensure their vehicles abide by fuel-efficiency standards. President Barack Obama enacted these standards in 2012 to strengthen the pull toward the cleaner energy of electric cars, and at the time, dissenters existed.

“The president tells voters that his regulations will save them thousands of dollars at the pump,” Republican presidential candidate Mitt Romney said in 2012, “but always forgets to mention that the savings will be wiped out by having to pay thousands of dollars more upfront for unproven technology that they may not even want.”

When the cheapness and functionality is clearly accelerating past gas-fueled cars, it will then be up to producers of EVs to make sure supply is on the right level to meet increased demand.

Right now, even though electric vehicles make up for 1 percent of total car sales, the sales of EVs have been growing. Forbes stated that EV sales increased by 36 percent in 2016 from 2015, and have went up at a yearly growth rate of 32 percent over the recent five years.

This rate is primed to grow more and more, as the world becomes more comfortable with phasing out vehicles with internal combustion engines. CNN listed the countries that were planning to completely rid their economies of gas-powered vehicles. France and Britain announced that they would ban sales of gasoline and diesel cars by 2040. India is aiming to get rid of them by 2030. And Norway wants new passenger cars and vans sold in 2025 to all be electric.

China is one of the leading pioneers in the development of vehicles using clean energy. By 2025, states The New York Times, Beijing hopes for one out of every five cars sold to utilize alternative fuel.

The issue facing EV manufacturers in the U.S. now, according to auto sales and information site Edmunds, is that once government subsidies for buyers run out, the market for EVs could crash. This line of thinking is partially based off how Georgia accounted for 17 percent of U.S. EV sales before it dropped to 2 percent after its $5,000 tax credit was eliminated. But states like California, spending $449 million over seven years on doling out these payments, are thinking of spending even more money, $3 billion according to the Los Angeles Times. This move could raise state deductions for EVs from around $2,500 to about $10,000, making a Chevrolet Bolt EV around the same price as a gas-fueled Honda Civic.

The incentives don’t end there, though, as energy company Ovo has devised a way to offset some of the electric cost applied when charging your vehicle at home.

“It provides an economic benefit for electric vehicle owners,” Ovo CEO Stephen Fitzpatrick said. “So they get more use of out of the vehicle that they’ve got parked in the driveway.

When rates for electricity are low during hours of overall less electricity use, the charger by Ovo will fill up the car’s battery. When the rates are higher, the battery would start charging someone’s home or sell the energy back to the grid. One could sell energy back to the grid for up to 25 cents at peak time, while electricity costs about 5 cents a kilowatt-hour during “off-peak” hours.

“In other words, the value of the electricity that’s stored in the battery goes up by a factor of five,” Fitzpatrick said.

Social Tech: Intangible Product and Unimaginable Scale

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One of the most amazing concepts about social media is that as a business, it operates at an unimaginable scale with what is essentially an intangible product. By “intangible product” I mean that a company like Snapchat, Twitter, Instagram or Facebook doesn’t actually have a product that uses traditional distribution methods since it’s online, and you can’t physically touch what arises from it (contrary to Amazon).

Thus, the use of servers end up becoming the company’s main cost if the product successfully scales to thousands, or in the best case, millions. 

One of the best examples of the one-of-a-kind scaling nature of social media is the rise of Instagram. It launched in October 2010, and within three months, had 1 million users. In February 2011, the company received $7 million in Series A funding from Benchmark Capital. About a year later in April 2012, Instagram was valued at $500 million after securing an even bigger round of funding, $50 million, from Sequoia Capital.

All Instagram allowed you to do was share photographs with your friends and other people you know. It doesn’t sound like anything revolutionary, but when it exists within a instantaneous medium, it ultimately changes how people communicate. So at first, even if the idea doesn’t seem world altering, its value is actually greater than one would expect. Similar to how the telephone and telegram revolutionized mass communication, new age companies like Instagram, Twitter and Facebook have certainly restyled the way in which people interact.

The real issue for these businesses is making legitimate revenue. Since their product isn’t actually built to sell, the main way they make money is through striking advertising deals. So in the early stages when these companies don’t have ads running, investors bet massive sums of money based on user growth. The logic is, once ads sell to a huge user base, the company will then be worth all those dollar bills.

According to TechCrunch, Snap Inc. was projected to amass near $1 billion in revenue in 2017, but through Q1, it notched only $149.6 million, and at the Q2 close, it hit $181.6 million. These numbers have steadily increased over the years, as you can see from the graph below of the 2015 quarterly revenues. From $4 million of revenue in Q1 to $33 million in Q4, the growth of revenue was obvious in 2015 because the user growth was still flying high.

Since user growth has slowed in 2017 for Snap, the revenues haven’t been going up at such quick of a rate. With this trend happening, it appears Snap is trying its best to convince advertisers to use the app, releasing an Ad Manager platform in June that helps to optimize ads for appearance on the app.

Fifty years ago, most of what I’m talking about in relation to technology didn’t exist. And people would’ve thought building a billion dollar company, while making little to no revenue, was impossible. But now, the ever increasing use of mobile technology has opened up a market for intangible products, whether or not the actual money being earned measures up to the product’s hype.

Housing Vacancy Rates

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The economic indicator of housing vacancies and homeownership delves into the overall status of homeowners and renters, particularly the vacant rates. Rental and homeowner vacancy rates are obtainable for U.S. regions, states and for the 75 largest Metropolitan Statistical Areas (MSAs), and information about geographies are accessible both quarterly and annually, according to census.gov.

The real question is, how do we decipher these rates in the short term (the past few years) and in the long term (a decade or longer)? What does an understanding of these rates tell us about housing issues in the United States?

As of July 27, 2017, the rental vacancy rate was 7.3 percent, and the homeowner vacancy rate was 1.5 percent. These numbers have noticeably improved (decreased) since 2010. In fact, from 1995 to 2017, the rental vacancy rate hit its highest number in 2010, a 10.23 percent average in all four quarters. The homeowner vacancy rate was usually around 1.5 percent over that time span, but it obviously rose when the U.S. economy entered a recession in late 2007 and spiked close to 3 percent.

Since 1995, the rental and homeowner vacancy rates are able to stay more or less intact even though the median asking rent has continuously increased, while the median asking sales price for vacant houses can increase and decrease in somewhat of a cyclical fashion, falling when the prices get too high and outweigh demand. Via information from the United States Census Bureau, the median asking sales prices for vacant units climbed up to around $200,000 but began a steep decline once the 2007 recession arrived.

After leveling out for a few years, the median asking sales price has begun the upward trend again and, measured at $177,200 in the second quarter of 2017, is on pace to eclipse $200,000. Rental and homeowner vacancy rates can continue to stay low, but if the numbers compiled on the graphs of recent years tell us something, it’s that troughs follow peaks, even if skyrocketing prices and lower unemployment rates make the economy seem like it’s booming.

Rental and homeowner vacancy rates help describe important characteristics which define value in a marketplace: supply and demand. If more and more people are buying and renting houses, you’d expect the vacancy rates to be lower. In this case, the supply of housing is getting less and less, and the demand for housing is likely higher. Therefore, rental and home sales prices should increase, making the housing market unkind to a significant portion of regular people.

“The irony of the modern housing market is that the places where we are seeing wage growth are places where people can’t live because they are too un-affordable,” said Nela Richardson, chief economist at real estate brokerage Redfin, per Forbes.

Now, economists must deal with the possibility of housing prices becoming overinflated, as they hope for the market to stay stable over the next decade or two.