The irrational imitation of the online news industry
All across Europe, journalistic online startups are launching, aiming to produce and disseminate news in new ways. In our brave new world, the nimble startups of tomorrow were supposed to be overtaking the lumbering dinosaurs of yesterday online. But nearly all of these startups, even the most impressive and innovative sites, are struggling to survive because they face structural and strategic challenges that are not always recognized upfront. To succeed, European journalistic startups need to recognize these challenges, move beyond simply imitating others and find their own paths ahead.
The structural challenges for European journalistic startups have to do with the competition they face in content and advertising.
Startups are trying to establish themselves in a market for online news that is dominated by legacy media like newspapers and broadcasters. New journalistic ventures, such as Netzeitung, Rue89 and Il Post, are competing not only with other startups but also with the popular online offerings of news organizations like Spiegel, Le Monde and La Reppublica. These incumbents, and others like them, have built their digital strategy around their well-known brands and content from their existing newsrooms. They fund them with profits from their (generally declining) offline operations. Together with a handful of aggregators and portals, such legacy players dominate online news provision in most European countries.
As European news startups compete with established news media on the content side, they are also trying to carve out a position in a market for online advertising. That market is already dominated by U.S.-based giants like Google (and increasingly Facebook). A few large players attract most of the advertising, while innumerable smaller websites with display advertising keep down rates (so-called CPMs, cost per thousand impressions), eroding the value of the audience that each journalistic venture manages to attract.
Those are the structural challenges. The strategic challenges, meanwhile, concern the tendency toward irrational imitation. Startups across Europe need to break with two kinds of imitation in particular to develop sustainable funding models for the future.
On the one hand, many startups imitate what has been the dominant model for online news for the last 20 years. They produce content, make it available to users for free and try to cover costs by placing advertisements on their site. This doesn’t work. News that is free at the point of consumption has worked for broadcast television, radio and for-free newspapers for decades. But because of the structural challenges of online advertising outlined above, the model is not working on the Internet. Most sites operating on this basis are operating at a loss, and have done so for years. It is not clear that the dynamics of online news and online advertising are likely to change anytime soon, so to launch a site based on this model expecting to break even is a clear case of irrational imitation – doing the same thing, hoping for a different outcome.
On the other hand, many startups imitate what they perceive to be successful online news ventures operating elsewhere. A colleague and I have conducted research on this across Europe, and the most often evoked sites are U.S.-based, like the Huffington Post, Politico and Gawker. At first glance, this seems sensible. Surely ambitious startups should model themselves on established market leaders?
There are, however, two problems here. First, the context European startups operate in is different from the one some of their American counterparts have succeeded in. Even the largest European countries have no more than a quarter of the population of the United States (and, to boot, advertising spend per capita is often only about half of America’s). A venture that can find a profitable niche for itself in a country with more than 310 million inhabitants will have a harder time breaking even in a country like Germany with 82 million people (let alone my native Denmark with 5.5 million). Second, the market leaders themselves are expanding across the world. Launching a site that would be, in effect, “the Huffington Post of country X” may have seemed like a promising idea in the spring of 2011. But by the spring of 2012, a certain Arianna Huffington had had the same idea and had announced the launch of HuffPo-branded sites in Canada, the UK, France, Italy and Germany. What is the distinct value of the local imitator then?
From the point of view of an individual journalistic online startup, the structural challenges outlined above are, for the time being, simply facts of life. Newspapers and broadcasters, together with existing aggregators and portals, dominate online news provision. Google and other U.S.-based giants dominate online advertising, while millions of smaller sites keep the value of each unique visitor and pageview low. That’s the way it is, and though it may change, startups themselves can’t do much about it.
What they can do, however, is put an end to the irrational imitation and develop strategies designed to build more diverse business models, ones focused on producing relevant and distinct editorial products that set them apart from their existing competitors. Advertising-supported online news production did not work for Netzeitung in Germany (which in 2009 shut down its newsroom after nine years of consecutive losses), did not work for Rue89 in France (impressive and innovative as it was, the site never broke even and was bought by the weekly newsmagazine Le Nouvel Observateur in 2011), and is not working for Il Post (widely considered one of the most promising startups in Italy, the site generated revenues of just 35,000 euros in its first year of operation, resulting in an operating loss of more than 150,000 euros out of a total budget of little more than 200,000 euros). Why should we expect it to work for other startups when all these widely praised ventures, and many more besides, failed to pull it off?
Startups hoping to break even need to stop imitating the (non-existing) online advertising model and build a much wider set of revenue streams, potentially including – to take examples from the current European startup scene – digital subscriptions, donations, consultancy services, live events, event planning and e-commerce. (In the case of the German site the European and some of the European editions of the Huffington Post, advertorials are also part of the mix.) They also need to stop imitating the dominant kinds of content, format and forms of dissemination favored by incumbents and the models of the (few) American success stories. Startups can’t beat the top newspapers and broadcasters, let alone Google and Facebook, at their own online game. To succeed, they need to find their own way.
PHOTO: Anne Sinclair (R), editorial director of the French version of the Huffington Post, the U.S. news and opinion website, and Arianna Huffington, president and editor-in-chief of the Huffington Post Media Group, attend a news conference for the launching of ”Le Huffington Post” in Paris, January 23, 2012. REUTERS/Charles Platiau