Yahoo’s new business model appears to be taking shape, following the surprise announcement that the NASDAQ-listed search and mobile App tech-giant has employed a group of well-known and high-profile journalists and editors to staff its own news portal.

For Yahoo, it is a move into quality mobile content with a news focus, in an attempt to win the mobile advertising market. The question is: will it work?

The key hire is the award-winning and sometimes controversial Katie Couric, who will leave her prime time role at the American ABC network to join Yahoo.

According to Yahoo, Couric will be its “global anchor”, hosting a monthly interview program on the portal and across several mobile applications.

But why would a second-ranked search engine and internet portal want to buy into news and serious journalism at a time when the industry appears to be tanking financially?

The investment in Katie Couric and senior reporters from The New York Times signals that Yahoo wants to move into Web TV and mobile video content in an effort to take on the the giants of American network and cable television, and perhaps even Netflix, which is rumoured to also be looking at an Australian launch next year.

In recent months Yahoo, which is valued at around US$35 billion, has made a series of takeovers, mainly of internet start-ups like the micro-blogging site Tumblr.

But analysts think that it is still figuring out how to turn a profit from these acquisitions. Tellingly, Yahoo’s share of online advertising (about 7%) is still behind Facebook (8%).

Marissa Mayer, formerly of Google, has been tasked with finding a new business model – as a content generation – for Yahoo, a task at which her predecessors both tried and failed. EPA/Walter Bieri

Recruiting Couric to be the new face of Yahoo’s news operation is a signature move by relatively new CEO Marissa Mayer. It is a calculated – though risky and expensive – play to get a stock market bounce for the company and attract eyeballs to the mobile platforms, which in turn should attract advertisers.

In recent statements Mayer has said the company’s future is in mobile delivery.

However, mobile is on “the right path” to be on according to Mayer, rather than an instant boost to advertising revenues. Digital plays take a while to turn from money sinks into profit centres. Tech company analysts tend to agree that the asking price for online and mobile advertising will remain low, even though the number of eyeballs is steadily increasing.

Making money from content is the digital dilemma

The question of how profits can be made from online and mobile news or news-like content has several answers, but none is yet a proven winner.

A recent American news start up NSFW Corp, which billed itself as “The Economist written by the Daily Show”, has this week closed its print edition and folded its digital business into another company, which is, itself, still reliant on angel investors from Silicon Valley.

And here lies the dilemma for the big global brands like Yahoo and The Daily Mail, or local start-ups like The New Daily, particularly those with a focus on serious journalism. NSFW Corp attempted to combine serious news content with hip and ironic twists, but that hasn’t worked out and perhaps the market for serious journalism is not where we think it should be.

On top of that uncertainty, the process for monetising the digital click-stream, whether on the desktop or via mobile devices, is still a large known unknown.

Television still dominates the global advertising market, while print advertising is in decline. On the other side of the ledger, digital revenues are not yet strong enough to support a reliable profit stream. NSFW Corp was offering a niche product and it was behind a paywall; not quite the same as ad-supported content, but another example of trial and serious error when it comes to financially-modelling new news.

Yahoo has a model that relies on volume-selling online and mobile advertising, but at a fraction of the price that print or broadcasting can command. The difficulty is that when you do this, the slice of total revenue you take from the cake has to be substantially bigger than your rivals if you are to survive and make a profit.

So far, no one has come up with a content formula that stacks the eyeballs high enough to satisfy all comers; with or without a paywall. The booking agents currently have the upper hand in setting prices for online advertising.

Mayer has signalled that delivering what she believes will be premium video content, created by Couric and her team, will give the advertisers more “real estate” in which to book their clients' adverts.

There’s no doubt that Marissa Mayer is a smart CEO, with a strong track record (she was formerly at Google). Yahoo’s investors seem to back her judgment and her sense that the expanding giant of the digital economy will eventually make money from its investment in Couric and news content. However, it is not a given that her vision will succeed.

The author

Martin Hirst

Associate Professor Journalism & Media at Deakin University

This article was republished with permission from The Conversation