Why News Companies Can’t Get On Top Of Digital Advertising

A new study is making the rounds that suggests news companies are flubbing the digital ad game. The study offers fact morsels but also a larger story about the industry.

Digital Advertising and News,” released yesterday by the Pew Research Center’s Project for Excellence in Journalism, offers evidence that news companies are struggling to sell ads while also failing to leverage the ones they do sell.

Here are three key findings:

  • News sites have a comparatively high rate of in-house ads (they are filling unsold slots with ads touting their own brand)
  • Few legacy print customers are moving to digital (the client who bought a car ad on page C17 in Sunday’s paper is not also buying an online ad)
  • The online ads that news companies do sell are not very targeted (the ad content may be the same for a senior or a teenage viewer)

This last item is drawing particular attention. Pew, which studied ads from 22 news organizations, suggests companies are leaving money on the table by failing to use common technology to enhance their ads. Such technology is based on ‘cookies’ which use earlier page visits to serve relevant content — if someone has been looking at a series of ski sites, they should receive an ad for skiing when they visit a news site. Instead, they are often receiving generic ads for banks.

Is it a concern for consumer privacy that explains the lack of targeted ads? Probably not. The study shows that the ethics-obsessed New York Times (NYSE: NYT) was one of the three media companies that is making effective use of targeted ads (CNN and Yahoo (NSDQ: YHOO) News are the other).

Also, all the news sites are serving targeted ads at least indirectly. As Seamless digital ad marketer Sara Livingston suggested on Twitter this morning, the news sites host targeted ads whenever they rely on third party companies to sell excess ad space.

For another take on the results, here is what David Card at our sister site, GigaOM Pro has to say:

The study seems a little narrow. For one thing, it focused on home pages, and mostly on sites from traditional media companies. Yes, that’s where premium ads run, but it isn’t where re-targeting, for example, makes the most sense. And Pew seems disappointed that it found so many house ads when it’s possible that they’re a good use of inventory space, assuming the companies did some ad yield analysis.

In the bigger picture, the news sites’ struggles to figure out the digital ad market may reflect a basic competitive disadvantage: unlike technology companies, they were not raised on digital advertising.

“Google (NSDQ: GOOG), Facebook and other tech savvy companies have that embedded in the fabric of what they are,” says Amy Mitchell, Deputy Director of the Pew Project. She notes that these firms are built to sell digital ads while news companies must constantly develop and adapt new software just to keep up.

It’s true that Facebook has been a pageview fillip for the Washington Post (NYSE: WPO) and other papers that have jumped onto the social network’s open graph service. But the news companies are not receiving a share of Facebook revenues, and they probably never will.

One intriguing question for the long term is whether the cash-flush tech giants will ever consider purchasing a traditional news company. From an advertising standpoint, Washington Post-style content run on Facebook or Google style software would be a game changer.