Introduction
The digital publishing industry has gone through quite a lot of change in the past decade, largely in its ability to grow revenue or even maintain steady revenue. Publishers have come from an industry largely built on display advertising revenue, to one which is struggling to make cents on the dollar in 2019 vs 2009, that way. There are many reasons for the deterioration of this revenue channel, but primary are changes in the “big tech” of social and search platforms, which have reduced the amount of referral traffic to publishers from their sources. In addition, the onset of “big ad tech” in programmatic advertising, and a bewildering array of ad tech companies, has added a bevy of entrants to the publisher advertising value chain, each exacting its own percentage of ad revenue, leaving publishers with a seemingly ever-smaller piece of the pie.
Publishers with foresight have been working on this quagmire for some time, under the rubric of revenue diversification, which is the subject of this series of posts. After all, display advertising, even with the addition of video advertising, isn’t the only way to run a business around quality original content. There are many other approaches, and a well-rounded, diversified portfolio of revenue channels, each continuously optimized, is recommended for all such digital businesses. In what follows, I outline the past, present, and possible future of this landscape, in some detail drawing from my own experience leading platform products for major digital publishing businesses, and in advising clients. I hope it is useful to many looking to gain a cohesive view into the challenges surrounding revenue for digital publishers today, and might help some to improve their outlook.
The Past: Publishers, Advertising, and Platform Disintermediation
A Simpler Time
There was a simpler time. Some ten years ago, making a business out of digital publishing was easier, and display advertising led the way. Sure, a digital operation needed to shell out some decent initial investment to host and manage its publishing stack, ensure it could scale, optimize for search engines, and equip a sales team to get before brands to secure campaigns bearing large ticket prices for direct insertion. But once that was done, it was fairly uncomplicated and the game became in getting larger audiences (measured by Comscore) to speak the language of media buyers, and collecting revenues on renewing or new advertising customers.
Getting Away With It
Businesses could get away with many sins, or at the very least take advantage of a formative value chain. Ad targeting was elementary, measurement limited, and audience quality quite often rather suspect. Publishers could to some extent rest on their laurels, as brands did not have many other or better options in digital advertising. And even better, traffic was quite often literally free. Organic search referrals were the leading source of traffic for many, and soon, social referrals began to take equal share with search, as Facebook strove to build the largest online audience, possible. It was all free. Until it wasn’t.
Killer Penguins
Midway through the 2010s publishers noticed some troubling trends in their traffic volumes, and asked their product teams what the problem was. Nothing had been changed in their site operations to cause this drop – the dropoff came entirely, and suddenly, from Google search referrals. And it didn’t happen just once – there followed a long and still ongoing history of Google updates with friendly sounding names like Hummingbird, Panda and Penguin. “They changed the algorithm, and it killed our traffic,” was the conclusion. Many strenuous efforts were made to adapt to these algorithm changes in ways Google (sometimes) (rather vaguely) suggested. This work continues and all those responsible for SEO are watchful for algorithm changes to adapt to them quickly, however possible.
No More Free Facebook Traffic for You!
Facebook was the same story but worse. The early 2010s had been a bellwether period for free Facebook traffic, and whole businesses were built on it (many no longer exist). But the effect of Facebook ads and their (valid) promise of “custom audiences” became painfully apparent to Publishers when the Facebook’s algorithms began also to change, no longer sending free traffic to publishers. Most notably a large change to Facebook’s EdgeRank took place in January 2018 to focus on prioritizing “friends, family and groups” and caused a huge decline in most publisher traffic. Publishers, beaten by their dependence on Facebook, joined them by beginning to invest in Facebook traffic buys – that is, buying Facebook ads to drive to their own sites. This was great for a publisher when in a bind to meet an impression commitment to an advertiser, but then the cost of the Facebook buy, as as cost of sales, counted negatively against the ad revenue, lessening the net profit. And to make matters worse — far worse — brands which formerly bought ads on publisher sites now began to buy direct from Facebook because larger and more highly targetable audiences were there. The platforms had disintermediated the publishers.
Programmatic (Diminishing) Returns
Ad tech was doing the same thing at the same time. Indirect advertising through Google DFP had been a good way to fill unused traffic avails with low-CPM inventory, but that also reduced the average CPM hugely and in some cases, brands would buy indirect vs working with direct sales teams from publishers. That was only the start, though; soon, the programmatic ad stack any given publisher needed to set up included DSPs, SSPs, Header-Bidders, and all manner of 3rd party data aggregators and resellers. Ad targeting became better, CPMs dropped lower, and every new entrant to the party took its piece of the pie while the publisher’s piece grew ever smaller. Publishers responded by adding more ad units. The customer experience became ever worse. Customers responded by adding ad blockers or just not coming back, so impressions dropped further and organic traffic took the hit on customer reprisal.
Pivot to Video!
Video became a much larger strategic importance to publishers because the CPMs were off-the-charts higher than display. It was a lot more work, though, which came with costs. Targeting and inventory were a problem. Getting people to click play was a problem, and publishers added insult to their existing ad-spam injury by setting up auto-play on all pages, which worked to inflate preroll revenue, except where modern browser updates blocked autoplay. More ad tech businesses arrived to solve the inventory and targeting challenges,, but they were for-profit businesses, too. Some publishers went all in and “pivoted to video” between 2015 2017 – laying off most of editorial, and building large video production teams. Some of them, like NowThis and Mic.com, lost their way in the process. And at the same time, OTT platforms were on the rise, with more customer time spent on SVOD or AVOD video platform offerings than ever before. Consumer tolerance for ad-spammed webpages was lower than ever while, ironically, consumer tolerance for additional premium subscriptions grew to its highest point yet. As such the “duopoly” of platform disintermediation expanded into “FAANG” aka Facebook, Amazon, Apple, Netflix, and Google (including YouTube). Digital publishers might be able to get distribution on these platforms, but seldom on their own, or very advantageous, terms.
The Publisher Pickle
Therefore by 2018 you could say that publishers were thoroughly in a pickle. Efforts were made by news consortiums to negotiate with platforms. Litigation and more recently extensive government investigations were started. Platforms began making heartfelt gestures about doing right by content creators. But reacting to the pickle publishers were in,was only exactly that, a reaction.
Proactive measures would have been far more effective to near-term revenue recovery and return to growth.
Continue on to read about “The Present: Revenue Diversification.”
Note: this post was originally published on the Vuukle Blog and is reposted here.