Scrooge-Like Advertisers Will Destroy the Online News Business; Can Arianna Huffington Save It?

(MoneyWatch)  Advertisers are most of the way through their campaign to destroy the newspaper business by moving their ad budgets to the web, but did you know that they're now trying to destroy the web news business as well? They might get their way unless Arianna Huffington succeeds in saving the industry's bacon.

That's the depressing conclusion* from Adweek's report on the Interactive Advertising Bureau conference held recently in Carlsbad, Calif., where the industry discussed how web ad networks, and the exchanges where online ads are sold, are driving down prices by treating all web sites as commodities. Tolman Geffs, co-president of the Jordan Edmiston Group, said:

That means advertisers are purchasing audiences, rather than buying ads on a site-by-site basis. Geffs estimated that 80 percent of display inventory is sold directly, but by next year that figure will dip to 70 percent.

"Direct" sales are when a publisher sells space on their site directly to an advertiser. Many publishers have hooked up with online ad exchanges, where advertisers can buy massive aggregated lumps of Web eyeballs at a single price, like stocks or pork bellies. All those ad-serving companies, exchanges and data suppliers interloping in the transaction have had this unfortunate effect:

An online ad buy generating a $5 CPM may result in just $1 going to the publisher that sold it, according to his data.

Don't worry. Arianna Huffington and her minions are fighting back! Eric Hippeau, CEO of The Huffington Post said that he got sick of getting only 40 cents on the dollar from indirect sales, so he hired an old-fashioned sales force to go to advertisers directly:

Now only 15 percent of ad sales on HuffPo are via networks.

He wants that to sink to zero, if possible. It will be an uphill struggle. Online ad exchanges have a history of driving prices to the lowest level possible. More of them are coming online, and they're going to include online video, Ad Age reports:

Adap.tv, Gannet, Demand Media Publicis Groupe's Vivaki and Omnicom Group's OMG Digital all doing online ad exchanges for video.

It all begs a question: If advertisers are unwilling to pay anything but peanuts to the news business, where does America expect to get its news from in the future? There's one bright spot for editors and reporters. Demand for web advertising is up, if ValueClick (VCLK)'s Q4 2009 earnings report is any indicator. Media sales there grew to $40 million from $34 million in the last three months of the year, the company reported.

*Disclosure: I'm in the web news business. Duh. Image by Flickr user basegrinder, CC.