Page 142 - Critical Political Economy of the Media

Political economy of the Internet 121

The Internet and advertising
The founders of Google, Larry Page and Sergey Brin, believed that good search
engines would allow consumers to find what they wanted without the need for
advertising. Rejecting advertising finance as late as 1998, they argued that it
would make search engines ‘inherently biased towards the advertisers and away
from the needs of consumers’ (cited in Pariser 2011: 31). The path to Internet
advertising was neither smooth, assured nor uncontested, but with the commer-
cialisation of the web in the 1990s, broadband-enabled rich media advertising,
and the growth of website, search and social media advertising, Internet advertising
grew faster than all other sectors.
Mass media products such as a general newspaper combine a diverse range of
editorial content and information with display and classified advertising. One
major break with the past is that content is now distributed in an unbundled
way. Digitalisation has facilitated the disaggregation of content, so that specialist,
targeted, customised content can be pushed at or pulled together by users. This
challenges the manner in which content services are provided and creates
advantages for those supplying content in valued packages and forms. The
supply of disaggregated content to high-value users, such as business executives,
can also divert advertising revenue away from more traditional aggregated
sources. In the US classified advertising has migrated from newspapers to sites
like Craigslist, with pages for housing and cars, formerly staples of local newspaper
advertising revenue. In the US Internet advertising overtook newspapers in 2010
(Curran et al. 2012: 20), while the newspaper industry’s share of Internet
advertising fell to 10 per cent in 2011 (McChesney 2013: 185); in the UK the
Internet’s share of classified ad expenditure rose from 2 per cent to 44.5 per cent
between 2000 and 2008 (Office of Fair Trading 2009). Such disaggregation is
key to the crisis in some traditional media such as newspapers and FTA com-
mercial television, whose business model relies on creating audiences to sell to
advertising. In addition the production and distribution of physical goods to
disseminate content is an expensive and increasingly uncompetitive way to create
audiences (Cooper 2011: 335). These disruptions have certainly created conditions
for market entrants. However, political-economic analysis has also helped to
explain why barriers to market entry have been higher than advocates of digital
abundance acknowledged.
The Internet lowers some costs of production and distribution. Accordingly it
lowers the barriers to market entry. However, in media sectors such as news
production and audiovisual production, content production costs remain high. In
newspaper production paper, print and distribution takes an average one-third of
costs and these are reduced enormously by the ability to aggregate audiences
online. Yet the other two-thirds of costs remain, in particular the labour costs to
produce high-quality news coverage. This is borne out by the cost breakdown of one
major US newspaper chain, Knight Ridder, which follows a very similar pattern
(Hindman 2009). The main characteristics of mass media industries – high initial