The looming social tsunami

The weight of social media distribution is such that news brands will be tempted to consider any deal that could […]

The weight of social media distribution is such that news brands will be tempted to consider any deal that could expand their reach. Social media is the third rogue wave to threaten the news industry.

In modern economic history, no industry has been hit as hard and as fast as the news media. In only 15 years, news publishers have had to deal with two major tidal waves: first the web, then the rise of mobile users. Now a third wave is looming, with the rising news consumption on social networks.

Let us rewind the tape.

The World Wide Web basically wiped out revenue from the reader, reducing his or her value to a tenth or a fifteenth of a paper reader. In the Western world, many news organizations got over it. The survivors hastily reinvented themselves by downsizing news operations, shifting their workforce towards digital, or undertaking decisive business diversifications – Schibsted a textbook example of this.

In the process, revenue models shifted massively.

The advertising stream was turned completely upside down as digital media morphed from a relatively low audience – high price model to a high audience-super low price model. As the digital ad market is becoming an automated marketplace, prices are pushed further down. Real Time Bidding (RTB) – once seen as the best way to sell remnant inventories – is now turning against publishers who are having a hard time protecting their premium spaces from continuous deflation.

The failure of the ad model

News publishers are facing a hard truth: The current form of digital advertising has failed to support value-added editorial. Rather than maintaining relative scarcity, media outlets have opened the floodgates of ad space availability. On any given day, a television news channel will host approximately 300 ad slots, the rates set by simple supply and demand. Digital media, on the other hand, has unbeknownst to itself created infinite supply.

Every day, a news machine like the New York Times – known for its successful digital transformation as well as setting the gold standard of value-added journalism – pushes 700 articles (about 160,000 words), 600 images, 14 slide shows and 50 videos. That translates into about 200,000 stories and 15,000 videos every year, each of them hosting at least one ad format. No wonder prices are plunging.

As if that was not enough, digital advertising is prone to many types of fraud: robots that generate fake clicks; ad injectors that substitute legitimate ads with unwanted ones. The latest worry is the ad blocking plague. The impact of these pernicious browser extensions that remove ads from HTML pages, is vastly underestimated.

The presumption that 25% of readers use an ad blocker could be way off. Technology and gaming sites often see four out of five viewers using ad blocking systems. A Q4 2014 barometer by Kantar media and Adledge studied billions of impressions, and concluded that 57% of formats served have not actually been seen by users.

Publishers have reacted to the collapse of standard advertising in two ways. The first way is to make readers pay for content through paywalls or subscription systems. The New York Times has generated a $200 million revenue line that did not exist four years ago – thanks to the newspaper’s almost one million paying subscribers. However, very few media are in a position to deploy a successful paid-for strategy.

The second response is the emergence of new forms of advertising. A growing number of large media companies have built sustainable branded content divisions. Some have assigned large resources – strategic planning, digital and video production staff – to move upstream in the commercial value chain and create sponsored editorial for brands.

The handful of players smart enough to embrace this new form of advertising with sufficient resources from the outset, have seen tangible windfall as branded or native ads at times have commanded triple digit CPMs – as many regular ads have fallen below 10 euro per thousand impressions.

Dealing with the mobile shift

When Schibsted launched 20 Minutes in Switzerland 13 years ago, it was an overnight success (I had the privilege to edit 20 Minutes France for six years). In just a few years, the paper became the most widely read publication in Switzerland.

In twenty-plus cities across France, scores of commuters in subways, trains or trams could be seen immersed in their morning read. Today this population has shifted to mobile. Unfortunately, news consumption accounts for only 10% of the time spent on smartphones – the rest commanded by social apps, instant messaging, and gaming.

In 2015, news organizations across the world have seen more than half of their traffic shift to mobile. According to a survey made from Reuters Institute, 20% of news consumers say mobile is their primary access point. In the 18-24 segment, that proportion is 36%.

Businesswise, this second tidal wave of mobile has proven as damaging to news organizations as the first wave. While half of visits now come from mobile, in Western Europe and the U.S. mobile users still account for only 20% of digital ad revenue. Users tend to reject any form of advertising on the mobile’s small screen – and the advertising community has been unable to come up with compelling formats.

No one has been able to crack the code of efficient ads on smartphone, with the notable exception of Facebook – deriving 73% of its revenue from its highly targeted text ads. One single figure underlines the mobile blunder: While people in Western Europe and the U.S now spend the same amount of time on their smartphone as on TV, the advertising investment on mobile is just an eighth of TV media buying.

Desperate times often trigger desperate moves. In early 2015, for instance, a bunch of Dutchmen came up with a clever system to unbundle digital newspapers and sell articles-on-demand. Two large media companies, Axel Springer and the New York Times, took minority stakes in the venture – forgetting that the unbundling process is what decimated the music industry when iTunes began to sell songs for 0.99 cents. The unbundling also kills the notion of internal cross-subsidizing – i.e. where a large sports readership pays for the foreign coverage.

Similarly, in March 2015 Facebook approached large news organizations like NYT, National Geographic, Quartz and Buzzfeed with a Faustian bargain:

We will distribute your content to people who will read you and trust us; we know who they are and we own the largest reservoir of readers imaginable; we will take care of distribution in every possible market, mobile apps, ad serving

FACEBOOK TO PUBLISHERS

Predictably, it triggered an intense debate among smaller publishers who wondered what they would do if offered the same deal.

The third wave: the social tsunami

To understand the (fatal) attraction exercised by the social media phenomenon, we can look at Buzzfeed. On the surface, Buzzfeed.com is a compilation of dumb listicles and kitten videos generating a staggering 200 million monthly unique visitors – four times that of the New York Times – and one billion monthly page views, more than the ten largest French news sites combined. That is just the tip of the iceberg. Below the surface lies a rhizome, an underground vector that will distribute all of Buzzfeed’s contents – including quality editorial produced by hundreds of journalists, some poached from The Guardian, The New York Times, ProPublica and Politico.

Most of this content lands on Facebook. While Buzzfeed generates 18 billion impressions per month on Facebook, only a tiny proportion of 2% (400 million) translate into clicks back on Buzzfeed.com. The same goes for videos: Of the one billion video views that Buzzfeed attracts every month, only 5% are viewed on the original site. Buzzfeed makes big money by using its propagation skills for advertisers willing to reverberate on social media.

This has led many media pundits to wonder if this is the news distribution channel of the future. After all, a third of the American adult population – and nine out of ten milennials! – gets its news from Facebook. Facebook combines a gigantic user base of 1.44 billion people with laser-like precision capability. The social network can pinpoint a Norwegian expatriate in Hong Kong and inject editorial contents from VG in his or her newsfeed. Who would not find this feature appealing?

There are two possible approaches to the social tsunami – leading to a critical strategic choice.

The first approach is pragmatic. One can utilize social media – and Facebook in particular – to connect with readers where they are. If Facebook is able to accurately retrieve a community of English speaking expatriates in South America, let’s go for it. Many publishers are tempted by this irrefutable duality of volume and selection.

The second approach entails building on a brand’s robustness and timelessness. The Financial Times, for instance, has methodically bypassed every intermediary trying to get between FT products and the public. They have resisted the appeal of Apple’s AppStore, opting to create an independent web-app. While a web-app lacks some of the native app’s functionality, it allows FT to cut around Apple’s 30% commission and to preserve its relationship with the end user – while keeping the data that comes with it to itself. The FT did the same with its vast syndication business: When aggregators like Factiva and Lexis Nexis tried to act as resellers, like they are for thousands of publishers worldwide, FT demanded to keep the direct contractual relationship with the end user. The aggregators had no choice but to accept. FT’s strategy paid off: FT.com has 500,000 direct subscribers (a 21% increase in 2014), and hundreds of distribution deals in which the FT is able to monitor use at the individual level to prevent overuse of the subscriptions.

Very few media organizations are in this position where they can land their brand on the mobile phone’s home screen, or dictate conditions to content aggregators. In real life, most news media will likely succumb to Facebook and its promises to deliver “eyeballs”. Many have good reasons to do so. Especially newer brands will hope to save big on marketing by relying on social propagation.

Young or ancient, however, news brands should never forget that once they are locked into social dependency, there is no way back. To many publishers, the bargain will feel like golden handcuffs.

Frederic Filloux is the founder and editor of the Monday Note newsletter and a former Schibsted editor. He lives in Paris.