AI and Digital Giants Pressure News Outlets as Revenue Streams Dry Up
Translated & summarized from Globes by baba
News organizations are facing an existential threat from AI, with internal Microsoft and OpenAI documents revealing concerns about "unprecedented theft of human labor" for AI training. This crisis has led to Israeli ad-tech company OpenWeb filing for bankruptcy protection due to a NIS 60 million debt. The broader trend sees revenue drying up for news sites as users migrate to social media and AI platforms, impacting companies like Taboola and Teads-Outbrain, which have seen billions in investor capital evaporate. This shift, termed "Zero-click conversion," means users get answers directly from AI without visiting news sites, severely impacting advertising revenue.
The story in 6 lines · by baba
- News organizations face an existential threat from AI, with internal documents revealing concerns about "unprecedented theft of human labor" for AI training.
- Israeli ad-tech company OpenWeb filed for bankruptcy protection due to a NIS 60 million debt, with a court appointing a temporary trustee.
- Revenue for news and content sites is drying up as users migrate to social media and AI platforms like ChatGPT.
- Companies like Taboola and Teads-Outbrain have seen billions in investor capital evaporate due to these industry shifts.
- The phenomenon of "Zero-click conversion" means users receive answers directly from AI without visiting news sites, impacting advertising revenue.
- Microsoft's advertising arm terminated its contract with OpenWeb over alleged user redirection violations, costing $8.6 million.
News organizations are facing an existential threat from rapidly improving AI technologies, according to internal discussions between OpenAI and Microsoft. Brent Hecht, a senior figure at Microsoft, described the use of news content to train AI models as an "unprecedented scale of theft of human labor, perhaps the largest in history." News executives are now using these statements to argue that tech giants knowingly exploited their content for AI training.
The crisis has reached Israel's legal system, with Israeli ad-tech company OpenWeb filing for bankruptcy protection due to a NIS 60 million debt. The Tel Aviv District Court appointed Ehud Gindes as temporary trustee to attempt to rehabilitate or sell the company's assets. OpenWeb, once valued at over $1 billion, has seen its investment of over $400 million by major investors put at immediate risk.
OpenWeb's struggles highlight a broader trend: the drying up of revenue for news and content sites, primarily from advertising. Users are migrating from traditional news sites to social media and AI platforms like Instagram, TikTok, Gemini, and ChatGPT, which offer personalized and concise content experiences. Advertisers are drawn to these AI-rich environments for more targeted product placement.
This shift is also impacting other Israeli tech companies like Taboola and Outbrain (now Teads), which specialize in content recommendations and have seen billions in investor capital evaporate since going public. Their revenue models, like OpenWeb's, rely on ad revenue sharing from content sites. OpenWeb's financial projections show a dramatic drop in expected revenue and a shift from profit to a significant loss, with minimal cash reserves and substantial debts.
Microsoft's advertising arm, Xandr, terminated its contract with OpenWeb over alleged user redirection violations, costing $8.6 million. Taboola is also facing challenges, including a policy change by Google that negatively impacted its advertising tools, causing its stock to drop 25% in a single day. Teads-Outbrain has reported a 21% decrease in views on the news sites it serves, attributing the decline to structural changes in digital advertising and shifting user behaviors driven by AI integration in search engines.
Industry analysts describe this phenomenon as "Zero-click conversion," where users receive concise answers directly from AI or search engines without needing to visit external websites. Users are consolidating on platforms like Instagram, TikTok, and YouTube for entertainment, and on AI and search engines for information. This consolidation benefits platforms that aim to increase user engagement time, often at the expense of independent content creators and news organizations. The increasing data held by AI engines on users further enhances their ability to monetize these interactions.