Media companies are struggling. They’re missing revenue targets and laying off employees. Cash is drying up.
In 2018, Vox missed revenue targets by approximately 15%, Verizon Media Group laid off 7% of its staff, BuzzFeed laid off 200 employees and Condé Nast plans to paywall all digital content after reporting losses of $120 million in 2017.
To combat these challenges while still satisfying investors, the media industry is looking to new business models, predictable revenue streams and increased customer lifetime value. As a result, media pivoted from video to podcasting to subscription models.
But here’s the bitter truth: Subscription models will only work for a small number of differentiated media companies, like The New York Times. Most media companies don’t have the culture, the personnel or the brand affinity to pursue a subscription model.
Once the promise of subscription media fades, media companies will make their next move: the pivot to owned commerce.
Ad costs lead to owned commerce
Companies of all sizes are investing more than ever in digital marketing. Competitive bids for scarce inventory addressed to the same audience drives up demand for the same real estate within a feed or a story, causing ad prices to skyrocket.
Advertising on Facebook became 70% more expensive between 2017 and 2018 while ad spend on Facebook grew 40% during Q2 of 2018. Cost per click is growing 23% month-over-month and 85% year over year.
As a result, media companies eager to grow top-line revenue have turned to owned commerce. Yet owned commerce is beyond selling a few hundred T-shirts with a logo on them. We’re talking about launching, acquiring or licensing entirely new brands. Think Fat Jewish’s White Girl Rosé or Tasty’s One Top. They’re just the tip of the iceberg for what is about to come.
Media companies, in particular, believe they will have a competitive advantage over traditional direct-to-consumer players because they understand how to connect with their audience better than product-first DTCs. However, just like the many previous media pivots, only a few players will succeed in the pivot to owned commerce. More specifically, only the media brands (and influencers) who truly have brand loyalty will be able to successfully launch owned commerce brands.
Need versus feed
True brand loyalty means that people would miss your company if it disappears. The best heuristic for the differentiation of a media company is need versus feed.
If you need a company, you seek it out or opt into communication from it. Need companies are the email newsletters you subscribe to from the creators you talk about with friends and the podcasts you listen to weekly. They have extremely loyal audiences. Many have direct relationships with them. Readers become followers and followers become customers, brand evangelists and voluntary product advisers.
Feed companies are the opposite. They’re undifferentiated. They try to be everything to everyone. Most feed-discovered content is interchangeable.
So how will media companies with loyal followings determine which owned commerce products to launch?
The Netflix approach
First, publishers build audience intelligence by promoting other companies’ products. After seeing the data on what performs well, they will launch and promote their own. This is called “the Netflix approach.” It’s enabled by a combination of owning and knowing audiences.
Netflix acquired large volumes of streaming rights through partnerships with media companies. The user experience was excellent, so Netflix attracted passionate brand loyalty. As their pockets deepened, they expanded their user base.
Informed by the data they acquired by streaming content from other studios, Netflix augmented licensed content with its own original shows. Today, large swaths of the Netflix homepage are originals.
In summary, Netflix followed a six-step process: create a brand people love, gain early revenue traction by selling other companies’ products, collect data on user behavior, create owned products based on data insights, sell those products to your existing audience and iterate and improve those products.
In the pivot to owned commerce, publishers will implement the Netflix approach. Using their existing audiences as guinea pigs, they’ll advertise products for other companies. In turn, they’ll acquire engagement data and learn about their audiences. Informed by user behavior and emerging trends, they’ll launch their own white-label products. Once the products are launched, they’ll use customer data to iterate and improve their offerings.
Publishers to commerce companies
The publishers of today are the commerce companies of tomorrow. Publishers with organic reach can launch and test products without paid media. They can A/B test every ad, evaluate customers with engagement data and use additional real-time data to iterate and improve. By diversifying their revenue streams, they’ll decrease business risk and increase revenue.
Content and commerce are converging, and publishers who appeal to owned audiences will win the upcoming pivot to owned commerce.
