In a culture where print ads show up on everything from eggs to pediatrician exam tables and video ad screens are in elevators and in the back seat of cabs, it's no surprise that Time Warner (NYSE:TWX.DL) has permitted advertising on the front cover of its flagship publication, Time. Small, one-line ads for Verizon (NYSE:VZ) appear on the bottom of the address label in a tiny grayed-out strip on Time this week for the first time and are scheduled to debut on the cover of Sports Illustrated soon.
According to the Pew Research State of the News Media 2014, news magazines account for only half of one percent of the total $63.6 billion news revenue market (chart below). More than half of news revenue – 63.2% – is generated by newspapers, which began ad placements on the front page on a wide scale beginning in the early 1990s.
Obviously this is not lost on Time, which is seeking to get in on this revenue stream. With revenue down by over half in the last decade, newspapers certainly adopted a front-page ad strategy to survive. Time posted flat revenues of $390 million in the first quarter and has the fight all print mediums face with growing online news competition. In contrast Google (NASDAQ: GOOG) – not classified as a news organization in the Pew study – offers news coverage and the platform that leads the way to many online news sites. Google dwarfs Time with $15.4 billion in first quarter gross revenue.
Curation challenges traditional journalism model
While the obvious reason for Time's decision would seem to be money, there is a much bigger story here.
The move signals yet another indication of the decline in the traditional independent journalism model. In an article titled "Why Curation Will Replace Mainstream Media," Cooper McGoodin, a public relations executive, writes: "Mainstream reporters mistakenly believe they are producing original and superior content, but increasingly they are merely curating ideas and sentiments that originate in the blogosphere."
The Macmillan online dictionary defines news curation as "the process of analyzing and sorting Web content and presenting it in a meaningful and organized way around a specific theme." There are a growing number of apps and other tools for curation. New York Times (NYSE:NYT) just had a nearly 100-page internal memo recently leaked to Internet sites that speaks extensively to the rising function of curation within news and journalism. The NYT memo states, "We can be both a daily newsletter and a library – offering news every day, as well as providing context, relevance and timeless works of journalism."
Journalists are under tremendous pressure to change with the times. For the first time the Pew study measured the number of full-time journalists at nearly 500 digital news outlets at 5,000. While the study says the vast amount of "original reporting" is still conducted by newspapers, the number of print journalism jobs declined by 6.4% in 2012 with another decline expected in 2013.
Gannett (NYSE:GCI) and the Tribune Co. (NYSE:TRCO), two companies that publish daily newspapers, have announced combined layoffs of 1,000 positions (not all in the newsroom). News magazines are feeling the same pinch. According to a recent Gallup poll, only 9% of adults get their news from print sources, with news magazines scoring the lowest. The Pew news study as early as 2010 listed online news as the primary source for 39% of adults. One of Time's biggest competitors, Newsweek, ended its paper publication in early 2013 in favor of an online edition only.
Ultimately, readers will decide
Change fostered by technology and economics always invites cultural shift. With two-thirds of total news revenue generated by advertising (Pew), Time's decision to open up the front page is predictable
The Verizon ad placements on the covers of Time and Sports Illustrated are tiny, just a toe-dip in the water at this point. But if the advertisers deem the cover expense successful and the ads don't put off subscribers, the news magazine cover ads are no doubt here to stay. Other news magazine titles will follow suit and the ads will no doubt get bigger. To what extent?
"No one wants to annoy the consumer," Bill Bean, director of trade insight at SAB Miller (NASDAQOTH: SBMRY), told the New York Times. "However, there are many annoying ads that sell products, and it's very difficult to tell what annoys one consumer and what pleases another."
Protecting 'The fourth estate'
The big picture question is, will the move to place ads on the cover of news magazines diminish public confidence in the mainstream news media?
According to a recent Gallup Poll, this confidence level hit an all-time low in 2012 and has just started to recover in 2013. The news media's success to act as the "fourth estate" – the watchdog over the Executive, Judicial and Legislative Branches of our democratic system of government – relies on its ability to act freely and independently.
If this can continue to be accomplished with a few cover ads, then the tradeoff is worth it. After all, no one thinks twice about an ad on the homepage of an online news site. However, what remains to be seen is, will Time and other news magazines (and sites) wear their journalism hat or their advertising hat when the day invariably comes there is negative news about a cover advertiser?
John Mitchell has no position in any stocks mentioned. The Motley Fool recommends Google (C shares). The Motley Fool owns shares of Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.