For Internet media’s true believers, nothing is harder to swallow than the demise of the advertising-based business model. Despite brutal evidence to the contrary—World Wide Web sites are now lucky to earn $3.50 per thousand page views—the faithful still cling to the hope that some new technology or user trend will prove the ad-based model workable after all.
The latest evidence of misplaced optimism is the widespread conviction that broadband will attract enough viewers to Web sites and generate enough page views to make the CPM-based model1 profitable. Alas, it just won’t happen. Even the on-line entertainment sector, which stands to benefit more than any other media sector from the adoption of broadband, won’t see sufficient increases in ad revenue to cover production costs. Moreover, variable costs such as marketing and streaming will rise with the number of users. A few businesses built around ad sales—those with inherently low content, marketing, or delivery costs or with a strong attraction for hard-to-reach niche consumers—may be able to make it. But the implications for the rest of the Internet media sector are clear: forget about supporting yourselves with advertising revenues.
Despite these grim tidings, the widespread adoption of broadband may...