This has become dogma in the news business. And it's not wrong, exactly. Online advertising revenue really has failed to pay the bills in most traditional news organizations.
But it's a mistake to treat this as an eternal economic law. Low advertising revenues aren't a sign that news content is inherently low-value. Rather, it's a reflection of intense competition in the news market. And why is there so much competition? Because despite hand-wringing about the decline of the news business, consumers have access to more news than ever.
Imagine a world where there was only one news organization in the world. Obviously, this news organization would be extremely profitable. Not only would it get 100 percent of the advertising revenue, but its monopoly status would let it demand a high price per advertising impression.
But as more news organizations entered the market, the former monopolist's revenues would decline for two reasons. Most obviously, it would have fewer eyeballs to sell to advertisers, as some readers shifted to competing news outlets. Even worse, the competition among advertisers would push down advertising rates.
That double whammy means that the profitability of the news business is highly sensitive to how competitive it is. Late-20th-century newspapers were extremely profitable because they had a lot of readers and the ability to charge a lot for each impression. Today, it's hard to make a profit in Internet news because there are so many news organizations competing for advertising dollars, reducing each publication's traffic share and pushing down the amount outlets can charge for each impression.
That's terrible for those of us who are in the news business, since we have to work harder to make ends meet. But it has a silver lining: the unprofitability of the news business is a self-correcting problem. If new online ventures fail to take up the slack left by declining newspapers and magazines, as pessimists have long predicted, then the remaining news outlets will become more profitable. That will stimulate additional news gathering.
In other words, the low profitability of the news business is a positive sign for consumers, no matter how much we producers might grumble about it. News is unprofitable because there's so much of it being produced.