The (Utterly Predictable) Decline of Advertising
The advertising industry is in freefall. Particularly when it comes to publishing, and particularly online.
2020 has been especially disastrous, with the impact of COVID-19 causing businesses of all kinds to drastically cut their advertising budgets. This — as has been exhaustively reported — led to what the Financial Times has called “carnage” for digital publishers, who are still reliant on advertising revenue. The results? Heavy staff layoffs, downsizing across the board, and vulnerable titles — particularly local media publications — closing shop altogether.
Global pandemics are, of course, almost impossible to predict. But the accelerated decline of advertising? How could anyone not see that coming?
Advertising revenues have been see-sawing for well over a decade now. The last time they were this bad was during the 2008 financial crisis, and while the industry has been hoping for a recovery, that didn’t emerge over the following 10 years. (2020 was, ironically, supposed to be the year digital publishers finally turned a profit.) Instead, the industry continued to decline: Mass advertising in print and TV no longer influenced consumers, and audiences were more likely to block digital ads than click on them. This culminated, in 2013, with Jonathan Perelman, then vice-president of agency strategy at Buzzfeed, stating that "You're more likely to summit Mount Everest than click on a banner ad" — 279 times more likely, in fact, according to Solve Media.
The decline continued, but the final nail in the coffin may have been 2018’s Cambridge Analytica scandal. While that controversy was based on Facebook’s alleged harvesting and use of users' personal data in the 2016 US elections, it opened an even larger can of worms. End users were suddenly presented in no uncertain terms with how much personal information they were inadvertently (and unwillingly) sharing online. Publishers’ almost religious commitment to the latest in targeted advertising proved deeply unpopular, demonstrating as it did how consumers could be pursued by advertisers across websites, platforms, and even accounts.
So, if their advertising revenue has been threatened for well over a decade, why weren’t publishers better prepared?
The Issue With Subscriptions
In general, the publishing industry is not particularly experimental. Publishers are willing to grow if opportunities present themselves, but they are far slower to course-correct when they need to. Ironically, this can best be seen when we look at how publishers have addressed the decline in advertising dollars to date. They rightly acknowledged the need to focus more on reader-generated revenue, but virtually to a one, they all steadfastly embraced one single business model — growing subscriptions by implementing paywalls.
Loyal readers enjoy subscriptions, because it’s an easy way to consume — at a flat rate — the content they really like. Unfortunately, they don’t appeal much to casual readers, people who may want to regularly read a few articles but aren’t ready to make a commitment. Subscriptions are not an appropriate answer to people’s surfing behavior because they ignore that we all consume content on a myriad of sites but may only want to subscribe to one or two. One could say that subscriptions ignore or sacrifice the overwhelming need of the many for the benefit of a few. And that’s why paywalls are a real kicker — potential regular readers find themselves forced into either accepting a subscription model or not being allowed to access the content they want.
Many publishers are seeing their subscriptions grow during COVID-19, leading them to believe this is a sustainable revenue model, but I believe it’s actually a false-positive. Especially during the early months of the pandemic, when consumers were frantically searching for information, they were devouring unprecedented amounts of content online and so, naturally, subscriptions grew. But can publishers expect that to continue once the coronavirus begins to abate? Or will the Reuters Institute Digital News Report prove correct, predicting that users no longer want to have multiple news subscriptions?
A Mindset Shift
Publishers are missing the chance to establish and nurture value. Intensifying their relationship with users by allowing them to access precisely the content they want, when they want it. And unfortunately this is because they are not accustomed to adapting to their users’ needs. Publishers need to stop thinking just from their own perspective and instead they must accept that a paradigm shift has taken place — from a push to a pull model. Now the power equation firmly favors the user. If a reader hits a paywall when they try to access the content they want on one site, they’re more likely to go somewhere else to find it. The power is in their hands.
This tells us that any successful business model has to be based around the user. If you don’t start with the individual reader/viewer in mind, you set yourself up for failure. And a business model that starts by protecting predictable subscription-based revenue, and which focuses only on 2 to 3% of potentially loyal readers, is doomed to fail as it places its bets on the 3% and ignores the vast opportunity that the 90% offer — just as those based on advertising revenue have proven to be failures.
Publishers need to ask themselves: What does my audience want? How do my readers consume content? Is our business model set up to embrace (and, yes, capitalize on) this? Readers don’t care about you unless you serve them the way they want to be served. The single article — allowing readers to purchase and access just the content they want to consume — serves as the basis of this. But that doesn’t mean it can’t be profitable; you just need to think about pricing models that make it easy for people to profitably consume your content. Feel free to make your articles more expensive, if you want to. Give them the choice to buy a week’s access, or purchase an individual article for anything from ¢50 to ¢99. That will more than match your subscription rates.
Downsizing may, unfortunately, be a side-effect of COVID-19, no matter the ultimate outcome. There is no right to wealth; there is only the right to pursue it. And in the same way, publishers have no right to endless growth. It goes in waves.
Consider this. If you embrace the American Dream, and if you work hard and do well, you are able to buy a house. Work harder, do better, and your house may get larger too. But eventually you’re going to get older, your children will go off to college, and you’ll find the house is too big for you. So you take a smaller house or apartment instead. But you can’t take everything with you, so you downsize — that’s a normal way of things, and you just plan for it.
Publishers and publishing have gotten used to printing money, but the internet’s shift from push to pull has changed the way people interact with one another. The publishing house needs to downsize and become a publishing apartment. It’s painful, but if you don’t accept and embrace it, and if you don’t think about what this means for your circumstances, you’re not going to have a home at all.
Cosmin Ene is the founder and CEO of LaterPay, a payments and technology company with offices in the US and Germany. Under Cosmin’s leadership, LaterPay has become the monetization standard for local publishers in Germany with over 200 clients, and has expanded to the US market.