The on-line media sector is in disarray. In the wake of failed revenue models and the NASDAQ Stock Market crash, powerful incumbents such as Disney, Dow Jones, and NBC (the National Broadcasting Company) have been struggling alongside attackers such as the investment adviser TheStreet.com and the on-line magazine Salon.com to generate returns on the billions of dollars invested in them. New investments are being curtailed, and the temptation to abandon the World Wide Web is great.

The lesson to be drawn is that off-line business models—founded mainly on interruption-based advertising and subscriptions—don’t work for incumbent media companies in the on-line world. On-line audiences largely ignore advertising and rarely pay subscriptions, because a free substitute is usually only a click away. So what are incumbents to do?

They should be patient: all new media models take time to achieve success. Meanwhile, they should look carefully at their properties and sustain, even reinvent, those that will respond best to promising new business models. Eventually—in a broadband world—traditional interruption-based advertising might bring better rewards. More promising in the near term, though, is an emerging advertising model known as contextual advertising, which targets the consumer who plans to make a particular purchase and...