As any publisher will tell you, digital media is a tough business. Quality content is expensive to produce, and the revenue that individual publishers generate from advertising has been on a steady decline as more brands shift their spend to Facebook and Google. The duopoly, as they’re commonly referred to, now account for more than 60 percent of U.S. digital ad spend.
Not only have Google and Facebook perfected a system in which they use third-party content to bring in advertising revenue, they’ve also mastered monetizing their user base. Take Time Inc., for example. During Q4 of 2017, the same quarter that Meredith acquired the company, Time reported that 20 percent of their revenues came from digital advertising. Now compare that to Facebook, which generates 98 percent of their revenue from digital advertising, and Google, which reports about 90 percent.
Why is this difference so stark? Simply put, Facebook and Google are much better than publishers at extracting economic value from their users through advertising. In our Q1 2018 Global Facebook Benchmark Report, Nanigans had the average Facebook CPMs (cost per 1,000 impressions) at $9.08, a 50 percent YoY increase. In their 2018 Digital Ad Pricing Stack, eMarketer had most mobile web CPMs between $0.95 and $1.31, depending on the ad unit size, which actually represented a YoY decrease.
So not only do advertisers pay on average 800 percent more to Facebook than they do most publishers, Facebook also retains all of those revenues. Meanwhile, publishers pay an ad tech tax that sees middlemen such as DSPs, SSPs and ad exchanges eating up 40–60 percent of media spend from the advertisers.
However, publishers can take cues from Facebook and Google and implement strategies to boost their ad revenues, including cutting out intermediaries, joining forces with other publishers and making a long-term commitment to develop tech that performs for advertisers.
Ways publishers can still compete
One major method that publishers are using to retain revenue is paid subscriptions. A 2018 Reuters Institute survey showed that 44 percent of publishing executives viewed subscriptions as a “very important” source of revenues. But despite some high-profile examples (The New York Times and The Washington Post have both had success with subscriptions), another Reuters Institute survey showed that 79 percent of readers said it was “somewhat or very unlikely” that they’d pay for online news in the future. Paywalls may help some publishers catch up, but they’re not a solution for most.
For better or worse, that means that most publishers will have to make advertising work. Despite Google and Facebook’s sway, publishers can learn a lot from them. Google and Facebook have three advantages over publishers: scale, identity data and incredible ad tech.
For publishers to level the playing field, they’ll need to join forces. No publisher on its own will be able to stop these two giants from pulling further away. A few publishers are already starting to pair up. Condé Nast and Hearst, for instance, pooled their resources for PubWorX, and the Pangaea Alliance provides ad sales for The Guardian, CNN, Inc. magazine and others. PopSugar, Rolling Stone and New York Media recently announced they were joining Vox Media’s Concert marketplace.
When you pool resources, you get better identity and purchase data. However, that isn’t enough. Google and Facebook have thousands of engineers focused just on advertising. Creating a better dataset is a good start; the next step is to have the combined talent and resources to use that dataset to create a shared, sophisticated advertising solution that brands can leverage.
One example of this is machine learning. Oath, Meredith or Hearst surely do not have large teams of engineers creating conversion optimization, look-alike targeting and personalized ads the way that Facebook and Google do. Further, publishers need to create self-service portals so that SMBs can purchase inventory from them directly and easily. It’s ironic that the only option most SMBs have to purchase ads on CNN’s website is through Google’s AdWords and Facebook’s Ads Manager platforms.
Overall, a lot must be done, but publishers need to act now. If publishers truly come together under a joint banner, they’ll finally gain back control of their own destinies. In the process, they’ll create high-performing campaigns that advertisers will pay more for and cut out their reliance on middlemen. That’s a much better strategy than waiting for legislators to save them from the duopoly.