Let's pause and look at trends that have emerged over the last few years: How will they affect the digital newsmedia industry? First, we’ll try and list a few undisputed facts. Then we'll drift towards conclusions bordering the uncharted territory of predictions. It’s worth the risk.

The web fuel problem. The internet economic engine isn’t firing on all cylinders. For online news, that's an understatement. The primary source of income, advertising, has proven itself unable to sustain ambitious journalism. There might be exceptions here and there, a few news organizations have found their way to profitability, but they flourish in niche beats. For example, Politico, which covers Washington DC's arcana -- but it relies on hybrid model (web and print).

Others benefits from a powerful mothership such as New York Times Digital's DealBook on finance: with a 2.5 to 3m unique visitors a month, this eight journalists operation could break even if it were granted a separate P&L. (DealBook also brings intangible but highly valuable status to the NYT in its fight against the Wall Street Journal.) But these are specialized products.

Observers mention the Huffington Post, with its presumed 10m UV/month, as the prototype for a popular internet news success. To me, the HuffPo is not a journalistic product per se. Taking third party content, the HuffPo builds a clever participatory mash-up, with a focus on juicy stuff. The whole thing is staged it in such a way (splashy editing, pictures, headlines) that it triggers loads of prattling — and page views. Fine. But this is not hardcore journalism.

As we speak, a 50-100 people newsroom stands no chance of living by advertising alone.
This state of affairs won't change anytime soon. Last year, US ad spending fell by 9% and we know the recovery will take a while. As the CEO of Zenith Optimedia (Publicis Group) said last week in Paris: "In terms of revenue, 2012 will be like 2006". This even though he predicts the money invested on the internet will keep progressing and will end up coinciding with the time people spend online.


That's fact #1: don't count on advertising. At least not in full ad-supported mode, not for a while.





Audience concentration. Worldwide traffic on social networks has doubled in one year. If we go back to December 2007, it grew threefold since then.

On major markets, there is no sign of saturation. Actually, quite the contrary: in the US, the growth is 43% in just two years. This growth partly organic, with Facebook now beyond the 400m members mark. But time spent is increasing as well. On Facebook, it now reaches almost 6 hours a month, six times more than its nearest competitor MySpace, and two more hours than just a year ago.

In the meantime, the time spent on clever utilitarian sites such as free classifieds is still growing in less-mature markets. In France, Le Bon Coin (see our story Learning from free Classifieds) is still growing at a triple digit rate and serving about 4.5 billion page views a month, with users viewing 30 or 40 pages for each visit. Worldwide, an increasing number of people rely on LinkedIn for job-hunting, as scores of large companies use it for recruitment (read this piece in Fortune).

Each time I travel to the United States, I see thirty-somethings glued to an increasingly dominant triple-windows setup: Facebook for social interaction, Craigslist for daily dealings, and Hulu for catch-up TV viewing. (Add a couple of news aggregators from Google and others and you get the whole picture). That was in case you still wondered why time spent on newspapers has gone down, from 42 minutes a month in 2006 to 32 minutes now (these are US figures, to large extent applicable elsewhere).

That's Fact #2: the audience is flocking to social nets, and to a narrow group of useful/entertaining sites, at the expense of newsmedia.

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Platform shift.
Mobile web browsing is growing fast. Within a year, based on handset replacement patterns, smartphones will outstrip basic phones in the most solvent markets. And that is a good news. Because we know reader engagement is excellent, and because the exploding mobile application market will keep boosting engagement as apps keep getting better. Steve Jobs said last week that iPhone readers spend about 30 minutes a day on apps; that's why he's plunging into application-based advertising (as opposed to web-based ad which, anyway, is already captured by Google). And given the 50 apps estimated to be loaded on each iPhone, this focus on mobile apps might be a very smart move on Apple’s behalf (see Jobs' keynote speech for details, go directly to the 44 minutes mark).

No doubt the iPad will benefit from this trend: Apple will build on its 64% mobile browsing share provided by the iPhone (vs. 19% for Android, 9% for Blackberry and 8% for others). But the 85m iPhone/iPod Touch installed base won't mutate overnight into a comparable market for the iPad. The new Apple device, because of its screen size and usage patterns, will have its own, specific advertising market role.

That's fact #3: money will massively shift to mobile whether on smartphones or Lean-Back Devices (LBDs – please note that term) such as the iPad. This is where time spent and attention belong.


Data collection & gatekeepers.
This one itches a little bit. Five companies have the intellectual firepower and the infrastructure to collect, manage, analyze and, in the end, monetize the massive amount of data generated by online usage. These players are: Google, Microsoft, Amazon, Yahoo and Apple. They are likely to become the modern internet’s true gatekeepers. That's why they so jealously keep our data close to their vest. Beyond a bare minimum of contractual statistics, the publisher selling books on Amazon, or the game developer sending his work to the App Store doesn't get any information. All the truly relevant data are kept secret. That is a big problem. Apple and Amazon are taking advantage of the appalling inability of contents providers – media outlets, publishing companies – to speak with one voice (aside from the permanent background whining noise).

That's Fact #4: a tiny group of gatekeepers will own a powerful combination of devices, operating systems, data gathering/data mining, advanced search (along with associated features such as maps, geolocalization, directories, recommendation engines) and transactional platforms.


Conclusions


These trends will power a major evolution of the internet we thought we knew.

- The migration towards mobile apps systems will accelerate the deployment of paywalls erected around what used to be the free web (in both meanings of “free”). Probably good news for revenue streams.

- Big media companies will go for a triple-play system with one fee (subscription or pay-per-view) giving access to web, mobile and LBDs such as tablets (or, who knows, Android and Apple TVs). In these hybrid models, digital will definitely dominate print, and paid-for will regain a large share (depending on the ability of advertising to reinvent itself, and on the economic conditions that set spending).

- Pure players: some will join the mobile or the LBD fray with a mix of paid-for and ad-supported contents; others will be able to aggregate advertising revenue. Many will try and band together, hoping to improve their monetization potential. A small number of strong and independent voices will remain.

- More broadly, the free, flourishing, sometimes chaotic internet might progressively wither. The formidable diversity we enjoy today might leave the way to a more questionable "information" stream such as: endless and pointless "debates", with more shouting than arguments; sloppy forms of citizen journalism (the good one will be hosted elsewhere); or sponsored blogging. To see what's looming read this remarkable column by David Carr about Demand Media.

- This new and orderly internet, kept disciplined by a small group of gatekeepers and their surrogates, will breed its own toxins in the form of excessive control, political correctness (Left and Right), selling out to business interests or their lobbies. Regulators — antitrust bodies, communications watchdogs – will have a greater role to play than ever, but they'll have to acquire the funding and the tech savvy needed to keep up with the immense power of gatekeepers.

Granted, I might sound overly pessimistic here. In fact, I'm convinced the system will eventually balance itself between commercial order and a necessary chaos. Mainly because the crowd also masters the digital toolkit. Still, bear with me: some big planets are about to align, don't you think?

frederic.filloux@mondaynote.com


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