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Summary:

I recently Googled the term “falling cpm,” and the top link was a story with the headline: “CPM Rates Drop as More Sites Seek Ads.” Expecting that the story had been published in the last few months, I was surprised to see that the publication date […]

I recently Googled the term “falling cpm,” and the top link was a story with the headline: “CPM Rates Drop as More Sites Seek Ads.” Expecting that the story had been published in the last few months, I was surprised to see that the publication date was in fact Feb. 7, 2000 — a month and three days before the Nasdaq posted its bubbly, dot-com high.

Now, I’m not going to rehash another rant about a second Internet bubble. But I do think it’s notable that, after eight years, during which time the online ad market has matured substantially (and the technology behind it has advanced dramatically), the underlying dynamics in the market are in broad outlines the same as they were an entire economic cycle ago. Advertisers are pushing more ad dollars online, but the number of sites to house them are growing even faster.


And so there is more and more discussion this month that CPM rates are falling. (There remain optimistic exceptions, however.) The relatively balmy climate of Web 2.0 means more sites are looking for ad revenue just as mainstream advertisers are contemplating cuts in their ad budgets. Michael Learmoth at Silicon Alley Insider recently interviewed Digitas exec Carl Fremont, who spelled it out:

What is happening is there is a glut of impressions on the market. I believe what’s going to happen is there will be more inventory flooding the market as a growing number of publishers move away from the the subscriber model to an ad-supported model. You are going to see much more inventory on the market.”

This would be especially bad news for newspapers hoping to find more ad revenue by migrating from print to the Internet. In fact, considering we’re heading for rocky economic waters, it’s just not very good news in the near term for anyone hoping to make a profit by publishing content online.

Back in the early part of this decade, some of the more successful news and content sites charged readers for subscriptions. But most of them have since torn down their walls. The last holdouts to move to a free model — the Economist and the New York Times premium columns — did so just as ad rates overall were about to fall. In fact, that very migration to free has added to the glut now threatening publishers.

Which leads me to wonder whether we’re going to start to see online publishers try to erect some of those old walls again. Rupert Murdoch was expected to tear down the subscription wall at the Wall Street Journal, but he revealed something quite different at Davos today.

“We are going to greatly expand and improve the free part of the Wall Street Journal online, but there will still be a strong offering…The really special things will still be a subscription service, and, sorry to tell you, probably more expensive.”

Others will be tempted to follow Murdoch’s lead here. I’m not saying it’s a good thing — I doubt very much it will work as more than a stopgap fix. But the worse the overall economy gets, the more executives of companies making a buck from online ads will be pressured to do something — anything — to revive revenues.

That means a) cutting costs that are often already near the bone, b) getting very creative about finding new revenue streams or c) putting up pay walls. For some, paid subscriptions may be the easiest lever to pull.

By Kevin Kelleher

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  1. I run a paid subscription niche database for the venture capital and technology startup industries. I give the low value information away, but charge for the higher value information that is hard to duplicate elsewhere. Glad Rupert is coming around to my way of doing business…!

  2. This is great news for advertisers. And there is tremendous arbitrage opportunity right now. Publishers will have to allow better targeting and tracking to command higher prices. But that will still leave the RON slots dirt cheep.

  3. Hank Williams Friday, January 25, 2008

    Indeed. This is the tip of the iceberg of what I am calling the automated economy. Its a far broader issue than just CPM rates. I blogged about the idea this morning. It is essentially, that everything is becoming more efficient and lower cost. Not just attention (ad rates) but at some point in the future, energy, hard goods etc. We are already experiencing the effects of hyper efficiency caused by software and technology. I am curious if people think this will effect underlying economic theory.

  4. I think this dance between CPM rates and pay walls will continue until pay sites come up with a way to sell their subscriptions. Paid membership sites are an industry unto themselves, but they don’t work together. We have the plan that will change the industry. OnScribe packages paid membership sites and offers them as a bundle to the consumers. Cable TV for the paid membership industry.

    The CPM/Pay wall dance will continue until someone breaks out.

  5. Is There Enough Advertising To Support Free? on PSFK Friday, January 25, 2008

    [...] CPM Rates Drop, Will Pay Walls Rise Again? – GigaOM Fred WIlson’s Blog [...]

  6. CPM Rates Drop: Publishers Panic? – eXtra For Every Publisher Monday, January 28, 2008

    [...] GigaOM Bookmark: If you enjoyed this article, please Subscribe via RSS and don’t forget to Monetize Your [...]

  7. Jeremy Goodrich Monday, January 28, 2008

    We’ve been running the same program (adsense) and gaining market share (this month, we’ll have about 1.4 million uniques) and while I read “falling CPMs” in a lot of places, we’ve yet to see that happen.

    In fact, the opposite has occured for us, desipite more recurring traffic, Google Adsense program policies changing, etc. So I think it’s a case by case basis.

    If you’re a publisher with a larger & growing audience, especially US traffic, you’ll continue to command similar if not higher CPM rates.

  8. The reason Jeremy Goodrich hasn’t seen falling CPMs is they don’t exist. What’s actually going to happen is just the opposite, at least among news media companies. CPMs will rise as demand for online advertising continues to increase and publishers realize they’re leaving money on the table.

  9. 5 predictions for the Digital Media Industry in 2009 « methememe Sunday, February 1, 2009

    [...] a few things are obvious to me. Firstly, online advertising rates are under immense pressure. Like Kevin Kellerher over at GigaOm said last year – I tend to agree that a return to pay subscription / walled garden sites is still [...]

  10. Tycoons of the Day : The Return of the Pay Wall Monday, July 6, 2009

    [...] and demand: The real reason newspapers haven't made money with online ads isn't Google; it's the glut of Web pages hosting ads, which have multiplied faster than ad dollars. And the same may happen with subscription dollars. [...]

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