CPM Rates Drop, Will Pay Walls Rise Again?

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.