Wednesday, April 05, 2017

The Jig’s Up for Publishers Worshipping Scale

 “The jig’s up, they didn’t make more money off of it. Because guess what? Everyone else did it. Laws of supply and demand kicked in, and everyone had tons of inventory, and you’re throwing it through these third parties, that are giving you a penny an ad, and it doesn’t really add up unless you get more and more pageviews. So then you want to do more. the next thing you know, you have something that has no value to the consumer, and so, of not much value as a brand.” – Axios CEO Jim VandeHei

If Jim VandeHei’s assertion is correct, then Judgment Day has come for digital publishers. There are three possible outcomes under such a scenario, where “scale” has become untenable and abandoned as a strategy for publishers: 1) Brands pay significantly more for advertising and brand partnerships, 2) Readers pay for subscriptions, or 3) the publisher downsizes significantly or shuts down. We’ll evaluate each of these possibilities:

1)    Brands pay significantly more for advertising and brand partnerships

The glut of content that has followed “publishers worshipping scale” has devalued advertising significantly. First, the infinite advertising inventory generated by endless amounts of content has inflated supply so much that prices for ads are pennies on the dollar from what they had been in the advent of digital advertising. Moreover, the fact that there were simply so many ads draping online content, they became a nuisance, and ignored (or even disliked) and significantly less effective. Digital ads have a long way to go to rehabilitate their image in the minds of marketers, but it’s not impossible for publishers to achieve. By introducing digital ad formats that are sexy and engaging, much like print advertising or TV commercials, publishers can make their ads an attractive option once again. This is already happening, but it’s doubtful that this possibility will sufficiently fill the coffers of capital intensive “traditional” publishers in the digital age.

2)    Readers pay for subscriptions

This is the most likely outcome in the wake of VandeHei’s proclamation, but will weed out all but the most desirable publishers. Already, The New York Times has made it clear that their future revenue model is based significantly more on subscriptions than on digital advertising. It will be challenging to convince millennials and younger to pay for content, especially when this generation was raised on free content via social media, blogs, and bundled cable tv (which gives the feeling of free). The turning tides are in the favor of subscriptions for digital publishers, with “cord cutting” moving individual’s budgets toward a la cart media purchases, and away from bundled content, so the possibility of this providing tenable revenue for publishers is possible, but will only work for a select few publishers.

3)    The publisher downsizes significantly or shuts down

The fact of the matter is that the internet has democratized the sharing of information, so information is cheap or free. People write for free, and increasingly provide video for free. So business models that hinged on content being the product of an educated elite through few distribution channels (think newspapers), are no longer viable. And publishers whose operational budgets rely on limited distribution channels and higher payment for the content generated are being turned upside down. This reality, that there are many distribution channels via the internet, instead of a select few (newspaper, magazine, tv, radio), isn’t a temporary hurdle that digital publishers have to work through… it’s the new landscape of a digital world that won’t go away. This will kill many media bodies, and pare down many others. This is the inevitable outcome for publishers who can not adequately boost revenues through either outcome 1, outcome 2, or both.

No comments: