Web Booms in East Europe, but Not News

By Marius Dragomir Businessweek

Internet usage and advertising are soaring in the former communist east, but online journalism isn't making money—a threat to the media industry

Ten or so years ago, when a Prague journalist disgruntled with the pressures from editors and owners he was grappling with exulted in a Czech pub over the freedom and infinite possibilities the Internet would bring, he was condescendingly told by many of his friends to come back to earth. Who could imagine that advertisers would pump their money into a platform accessed by such a limited audience back when television could freeze millions of Czech eyeballs for hours in front of Titanic or a football match?

A decade later, across the region, web sites are mushrooming, the online population is booming, and advertising euros are pouring into the Internet, helping counteract the general downturn in ad spending. But how much journalism are people consuming? Sadly, not much.

GENERATION OF GENERALISTS

The rise of the Internet, I've heard many academic voices claim, means that traditional media outlets can't profit online because they are too stubborn to get rid of their old potpourri content model. In the past, such scholars argue, newspapers threw in a bit of everything in their struggle for revenue: news articles and features alongside weather forecasts, sports, crosswords, classifieds, and naked women. This is not the way to go in today's world where specialization is gaining ground, they say.

Totally agreed. There is an increasing appetite for Internet magazines covering niche topics ranging from transportation to retail to cement manufacturing, as well as for targeted paid content demanded by all kinds of professions and groups. But general interest news still has to be free of charge and come packaged with a hodgepodge of other content to appeal to readers. At least, that's how the public at large consumes Internet content in Eastern Europe.

Overwhelmingly, generalist portals such as Seznam.cz in the Czech Republic or dir.bg in Bulgaria dominate online preferences across Eastern Europe, according to a fresh study by researchers at Warsaw-based online researcher Gemius and the Interactive Advertising Bureau (IAB) Europe. Such web sites usually offer a Yahoo (YHOO)-like online diet that consists of links to organizations and retailers, web-based email services, search functions, and an aggregation of news stories picked up from all kinds of sources.

Alarmingly for the media industry, the Gemius and IAB survey – which covered 12 countries in the region – also indicated that on average, only one or two established media outlets appear among the 10 most popular web sites in each country.

Furthermore, in countries like Estonia, Hungary, and Latvia, news sites run solely by established media are completely missing from the top 10. Slovakia and the Czech Republic have healthier online media environments. In Slovakia, the web sites of the daily newspapers SME, Pravda, and Novy cas, and of the country's largest commercial TV station Markiza (CETV), all rank among the 10 most visited web sites.

In the neighboring Czech Republic, idnes.cz, operated by Mlada fronta Dnes, the largest-circulation serious daily, and Novinky.cz, a joint venture of the daily newspaper Pravo and the Seznam portal, are among the 10 most visited sites. The two attract a combined monthly total of over 5.5 million users, which is more than half the Czech population.

The potential audience for mainstream media sites is also high elsewhere. For instance, the site gazeta.pl in Poland, a portal linked with the major daily newspaper Gazeta Wyborcza, clocks about 7.5 million monthly users.

Aside from portals, the other main category of massively-trafficked sites in the region is social networks. In every country in the study, at least one social networking site appears among the most visited web sites nationally, with Poland's find-a-classmate site nasza-klasa.pl leading at 9.2 million monthly users.

OLDIES BUT GOLDIES

Despite the dramatic growth in Internet penetration and online advertising over the past decade, Eastern Europe still lags behind its western peers. Last year, only five Eastern European countries – the Baltic states, the Czech Republic, and Slovenia – exceeded 50 percent Internet penetration. Ukraine was at the bottom of the heap, with only 18 percent of households online, according to the IAB. The same is true for online advertising spending in the region, which ranges in annual figures from a mere 2 euros per user in Ukraine to a more decent 24 euros per user in the Czech Republic.

The east also does poorly in terms of broadband access. On average, only about 15 percent of the population in Eastern Europe has a broadband connection. The lowest numbers are in Bulgaria and Croatia, where fewer than 10 broadband connections are available for every 100 inhabitants, far below the EU average of 22.5 percent, as measured by the European Competitive Telecommunications Association.

However, recent years' sustained growth of Internet use heralds rosy days for the online market in Eastern Europe. Since 2007, the Internet penetration in the region has grown by an average of 32 percent a year, much of it broadband, according to the International Telecommunication Union (ITU). At the same time, online advertising spending has been growing in the past two years at annual rates of over 50 percent. In 2009, some 15 percent of all ad money in tech-friendly Estonia went to the Internet; elsewhere, though, the figure is still under 10 percent.

The online audience is also growing more mature and wealthy. Youth up to 24 years of age still account for the largest share of Internet users in the region, but their share is constantly declining, while rates are rising for those who grew up in the 1990s and are now entering their prime earning years.

We have good indications of what the future will bring to the Internet in Eastern Europe, but it's still difficult to say what it will mean for online journalism. What is clear is that the next five or so years will be a crucial period for the online media to win readers. This means investment. Without it, in several years, the Internet in most of the region might turn into a news-free web