Yes it's a changing world:
Citizen journalism slow to catch fire
Commentary: Is old media relevant? Plus, Google multiples
By Bambi Francisco, MarketWatch

Veteran news executives are probably feeling a bit like GM these days -- ancient, behind-the-times, cost-burdened and pressured to remain relevant in the era of the Internet, a medium that attracts at least 70 million people a day logging on for email, news and other content and activities.

Yahoo News is No. 1, with 24.6 million unique visitors in December, up 15% from a year ago, followed by AOL at No. 4, according to Nielsen//NetRatings. Google News stands at No.13 with 7.8 million unique visitors, up 22% from a year ago. Internet Broadcasting, which produces 70 television and news Web sites, shot up 29% in December, and ranks No. 5.

What mainstream news media fear is that while these Internet news hubs are attracting large audiences and advertising dollars, they're not spending the same type of money (if they're spending at all) on journalists, talent, producers, managers, editors, etc.

Google, which launched the beta version of its news service in the fall of 2002, has effectively automated many of the jobs of an editor. Yahoo's been aggregating content as well, though unlike Google, it's paid for the content in order to keep the audience on its site and sells advertising to cover the costs.

Want more, spend more

Still, it does seem clear that both Yahoo and Google want more than search-advertising dollars.

They're positioning themselves for a world where people spend as much time reading and watching news (and TV shows) on the Web as they do searching online.

Translation: Fees or branded advertising are becoming increasingly important.

When Google -- which relies virtually 100% on search dollars -- reports results after the close Tuesday, it will be interesting to hear what the company says about its plans to attract branded advertising dollars and how its relationship with Time Warner's AOL might help.

Google and Yahoo are approaching news content and video content with very different strategies. But both hope to tap into the pool of talent across the Internet in hopes a low-cost star might be born.

Google is trying to do so by enabling people to post their videos on its Google Video Store. Yahoo is doing so by incorporating blogs in its news searches and cultivating its own star. One example is Kevin Sites in the Hot Zone, who attracted 736,000 unique visitors in December. As Yahoo puts it, Kevin's product is "news reporting in the new millennium -- a nexus of backpack journalism, narrative story-telling techniques, and the Internet, designed to reach a global audience hungry for information."

The question is how does Yahoo build up talent on a shoestring?

In other words, when does Yahoo sacrifice some margin to get serious about being a new media company?

The people's news

Or, how does one rely on the audience to stay engaged in either watching and or participating in creating content? A site for the people by the people sounds great in theory. But it seems that individuals drawn to such "by-the-people" reporting aren't necessarily good in supporting roles or teamwork.

Consider Dan Gillmor, a writer at the San Jose Mercury News who left that job to start a grassroots news organization written by citizen journalists. He recently wrote about how his efforts failed. He said that "fewer citizens participated, they were less interested in collaboration with one another, and the response to our initiatives was underwhelming."

He's just one example of course.

Yet even the larger, populist news sites such as Pajamasmedia.com, Backfence.com, and Buzzmachine.com, aren't getting much traction. Backfence.com says it's local news written by you and your neighbors while Pajamasmedia is news written by anyone any time -- especially when they're in their pajamas. They received fewer than 360,000 unique visitors each in December, according to Nielsen//NetRatings.

The other question is advertising. How do user-generated or citizen journalist sites attract advertisers, especially if trust and credibility may be lacking in many of these sites?

Al Gore's Current, which is a television show that's predicted to have 50% of its content produced by viewers in the future, has some advertisers unnerved because the audience-generated content lacks credibility.

I'm sure it's still early for such democratic, bottoms-up endeavors. And, I don't doubt that in five years or a decade newspapers and TV news will be redefined and will have incorporated such audience participation features.

As Paul Saffo, a technology forecaster at the Institute for the Future, once said: "In a In a two-year period, less happens than we would have thought and in a 10-year period, more happens than we could ever imagined."

So, for now, traditional media isn't dead. But it definitely is becoming less relevant.

Programming note

On Tuesday, I'll be interviewing Neil Budde, general manager of Yahoo News, who was the founding editor and publisher of The Wall Street Journal Online edition, which is published by Dow Jones, the same publisher of this column.

What to do about Google stock?

Ultimately, what you pay for Google -- which reports after the close Tuesday -- depends on the multiple you're willing to pay and the return you think you might earn.

At the current price of $430, the market is likely expecting Google to earn $10 in 2006 and $13 a share in 2007. So, if by the end of 2006, a buyer is still willing to pay you 40 times the following year's projected earnings, then you'll be able to sell your Google stock to them for $520 a share. That's a 21% upside from $430.

If Google reports fourth-quarter sequential sales growth of 35%, then investors might believe Google can hit earnings of $14 or $15 a share in 2007. Applying a 40 multiple to $15 would mean Google could hit $600 by the end of this year. That's a 40% upside from $430.

If that's enough of a return for you, then it might be worth buying.

But if Google doesn't grow sales by 30% quarter-over-quarter, and margins deteriorate, then multiples might contract, meaning you won't find a buyer paying 40 times Google's '07 earnings next year, let alone 50 times, as some analysts have suggested. Moreover, it will be less likely that Google earns $13 a share in 2007, the high end of analysts' current expectations.

Currently, on average, analysts expect Google to earn somewhere between $10 and $10.50 in 2007.

If you pay a 40 times multiple for $10.50 a share in 2007, then Google's shares would be worth around $420 in a year, which is essentially zero return for the next 10 months or so.

But if Google were to report $10 a share in 2007, that would essentially indicates that Google's growth is slowing down. In that case, it's very unlikely that anyone would pay a multiple of 40. They might not even pay 35, or $350 a share.

That means if you buy it today at $430, you're looking at a downside of 19%.

But these are all optimistic assumptions. Google is expected to earn $6.06 a share for all of 2005, up from $2.64 in 2004. Let's say Google grows its earnings by a still rapid clip to "just" $9 a share by the end of 2007. Even at that rate, multiples would contract. That means Google might plunge to $315 a share, or a 27% drop.


Sound-off: Should news be written by the people?