News organizations will continue to struggle as users transition from consuming media on computers to mobile devices.
Since the mid-1990s, the lifeblood of media companies online has been display advertisements. The balance between revenue from online subscriptions versus online advertising is shifting. As online and mobile advertising dollars are commoditized via advertising exchanges run by Google, Facebook, and AOL, publishers are increasingly trying to drive revenue through subscriptions. The New York Times announced a controversial paywall in 2011. Their two-year experiment has seemingly reaped significant benefits for the paper. In its most recent quarter, the New York Times reached 727,000 digital-only subscribers, generating $37.7mm of revenue. At the same time, advertising revenue declined for the 12th straight quarter, with digital advertising bringing in only $32.9mm. This is the first quarter that digital subscription revenue surpassed digital ad revenue; thus, validating the controversial decision to create a paywall.
At one time, Google was seen as a partner in the pursuit of growing digital revenues at media companies, but as those companies have struggled and Google has continued to invest more money in online advertising technology and in mobile devices that commoditize the advertising revenue of publishers. Unfortunately, mobile technology platforms exacerbate the trends in online display advertising.
According to the State of Media Report from Pew, a publisher can expect an average CPM (the standard measurement of advertising costs) of $3.50 on a computer. Meanwhile, that rate drops precipitously on mobile platforms. The CPM on mobile devices is only $0.75. With 62% of people reporting that they are getting their news on their mobile devices weekly, this difference in ad rates should alarm every publisher. The Wall Street Journal’s head of Digital Networks reported that the paper is getting 32% of its traffic from mobile devices today and expects to that number to hit 50% next year.
Publishers are combatting the advertising exchanges by selling branded content. Publishers allow brands to sponsor or host articles within the native experience of the online and mobile newspapers. The publishers are able to sell the content creation and distribution of the sponsored content at a significant premium to typical display advertisements. BuzzFeed, which is one of the most prolific distributors of branded content, sells a branded campaign for approximately $92,000. These campaigns come with creative articles and distribution via social networks, which BuzzFeed typically purchases after determining the most viral content that the brand sponsored.
Some purists consider sponsored content to be an alarming and new phenomenon, but as David Carr points out, Kurt Vonnegut was a freelance writer for General Electric in 1947. Additionally, in 1975, Esquire Magazine printed a 23-page article sponsored by Xerox and written by a Pulitzer-Prize-winning author. So there’s a precedent for this type of work.
These branded campaigns are important to publishers because the publishers can sell the native ads at a premium rate, and just as important to the future of publishers, these native ads seamlessly integrate into a mobile experience.
The dominance of the technology giants continues to grow in mobile advertising. Google now accounts for 55% of all mobile advertising. Despite this, publishers should recognize that there are significant advantages to mobile devices – they just need to find ways to capitalize on it. According to Pew, 43% of survey respondents are consuming more news as a result of owning a mobile device.
The only way publishers can compete with the tech giants going forward is to offer a unique product and distribution to a large audience. The unique product they offer is their branded content, but the publishers must find ways to distribute the content both to their audience and through social distribution. This is what BuzzFeed is mastering, and it’s imperative that the legacy publishers catch-up before they lose out on another revenue opportunity.