Will social media kill the newsroom?

As traditional media organisations look to subscription revenue as a saviour, social media sites are shifting away from subscriptions in favour of data-rich advertising, according to Gartner's latest social media revenue forecast.

The analyst group is predicting total social media revenue will reach $16.9 billion in 2012, up a massive 43 per cent on 2011, with advertising driving the majority of revenue. Meanwhile, revenue from subscriptions is expected to total just $278 million as social sites move toward lower subscription fees and shift focus to other revenue sources.

So what do social media leaders know that mainstream media groups don't?

Keeping the newsroom alive

Making money from subscriptions is might be difficult, but some companies are making it work. The subscriptions story is a positive one at the New York Times, which last week posted a 12 per cent increase in paid digital subscriptions in its second quarter. Just a year or so since launch digital subscriptions have tipped over 500,000.

“The growth in paid digital subscriptions benefited from our decision to move the gate on NYTimes.com from 20 to 10 free articles a month, and from a host of marketing and product initiatives that we have been rolling out this year,” says The New York Times Company CEO Arthur Sulzberger.

While advertising revenues at the Times continued to fall, including a four per cent drop for digital advertising to $76.7 million, circulation revenue grew by 11 per cent in the news group, with total circulation revenue of $233 million in the quarter.

The Times doesn't split out circulation revenue sources, but in June Business Spectator commentator Stephen Bartholomeusz estimated around $115 million a year in paid subscriptions.

But unless the Times can stem the bleeding from falling print and digital advertising revenue, it will be a long way to sustain its newsroom, which Business Insider estimates costs $200 million a year. For the moment the Times is still playing a game of reducing costs to cope with declining advertising revenue.

Meanwhile, marketers are continuing to increase their marketing budgets for social media over the next five years, thanks largely to the targeted advertising opportunities on offer.

According to Gartner, social media sites will continue to become more innovative in developing new ad products, and ramp up ad sales efforts with new sales offices and activities designed to get international brands on board.

The shrinking advertising pie

It's clear that social media sites will also be eating into the mainstream media's advertising pie as they continue to attract viewers with user-generated content that comes at a fraction of the cost of original content developed by a newsroom full of journalists.

Social media groups are also expected to benefit from local merchants looking to sell products and services via social media sites, says Gartner, opening up opportunities for commission revenue.

This could be the answer to Facebook's mobile advertising problem, as more merchants embrace mobile applications rich with location-based spending data. If Facebook could find a way to track every online purchase, the same way Apple does, it could crack mobile revenue without resorting to clunky, and in most cases unwanted, mobile advertisements.

Probably the biggest lesson social media can offer the mainstream media is how it delivers social advertising. When Facebook posted its inaugural quarterly result last week, chief Mark Zuckerberg discussed his vision for a social platform that can be integrated in to many sectors.

“We can imagine a day where you buy a car and by logging in to the car's computer with Facebook you can…have it immediately light up with music, addresses, restaurants and stores and other destinations targeted specifically for you based on your friends and your interests.”

Zuckerberg says social dynamics are starting to transform industries, such as music, where recommendations and friend sharing are driving music consumption. The same can be said for media as social sharing becomes more popular, and yet the media sector spends very little time talking about the role of social for driving revenue.

Setting sight on targeted advertising

Targeted advertising is the obvious starting point and yet this is only in its infancy in the media sector.

Earlier this month Twitter launched targeted Tweets, a service pitched at major brands that allows them to market to people based on location, and device. And, as is the case with Google ads, advertisers only pay when consumers engage with their ads.

For Facebook, Twitter, Google and LinkedIn the vast majority of revenue is coming from advertising, and Gartner believes it's likely to stay that way for the next five years, with social media leaders ramping up their offering and heavily targeting major brands.

That can only be bad news for mainstream media players hoping for a resurgence in digital advertising, or at the very least, a soft landing while they work out their paywall strategy.