Economist deputy editor and digital strategy head Tom Standage on why news publishers need to say goodbye to advertising…
The majority of our revenue (65 per cent and rising) comes from circulation.
We expect display advertising to have pretty much vanished by 2025. We are sorry to see it go – print advertising had very high margins in the past, and extra print pages were almost pure profit for publishers. But those days are never coming back.
Many publishers seem unwilling to accept this, though. They hope to find a way to replace declining print revenues with online advertising.
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This is a fantasy, and incumbent print publishers who try to move to a digital-ad model are mostly doomed to failure.
Some digital-publishing startups have managed to sustain themselves from digital advertising revenue – Gawker managed it for a while, for example – but it’s difficult. When Verizon bought AOL it emerged that the Huffington Post was not profitable, for example, and it’s a pure-digital news operation that doesn’t even have to pay for a lot of its content.
So if it can’t support itself from digital advertising alone, that bodes ill for others trying to do the same thing.
And the situation is even worse for incumbent publishers (e.g,, the Guardian) trying to switch to this model, because they have far higher costs as a result of their print legacies: larger newsrooms, pension liabilities, physical assets such as printing presses, and so on.
That does not mean that all incumbents are doomed: just those that try to switch to a free, ad-supported model.
It doesn’t work now, and the chance of it working in the future will only get smaller, as ad-blocking becomes more widespread and the shift to mobile consumption pushes down advertising rates.
Publishers live in hope that some new kind of advertising will be invented that will somehow pay the bills: people at the Guardian have argued for years that it is still “early days” for the web and that something will turn up eventually.
Perhaps, but it seems unlikely. Video advertising, native advertising and other forms of advertising provide only small incremental revenue streams for publishers, and the majority of online ad spending in the West now goes to Google and Facebook, not to publishers.
That means publishers will have to look for other sources of revenue. Conferences? Travel? Financial services? Philanthropic supporters? Diet clubs?
All these have been tried, but again the resulting revenues are merely incremental.
The obvious answer is to ask readers to contribute, as they used to in the past. And yes, that means having some kind of paywall, because asking people to pay up voluntarily for something they can easily get for nothing doesn’t really work (though the Guardian, in its determination to remain free, hopes to prove otherwise).
That, in turn, means having content that people cannot get elsewhere. Like what?
There is no single answer. It could be analysis of current affairs; columnists people can’t do without; local sports news; business information that gives traders an edge.
There are subscription-based publishers who differentiate themselves in each of these ways. When readers consider it so valuable that they cannot do without it, they will pay.
Many publishers (including the Economist and the New York Times) operate metered paywalls that allow readers to sample a few articles each week without paying; but to get access to everything they must pay up.
The metered model also allows publishers to take full advantage of social media to promote their journalism to new readers in a way that a watertight paywall doesn’t. (This is why the Times has recently relaxed its paywall slightly.)
Another form of funding, which currently sustains many digital-news startups, is outside investment from VCs or other backers. They are betting that the startups (such as Vox) will eventually find a way to make money. That’s quite a risky bet, and already we are seeing signs of a shakeout. The most likely scenario is that telecoms and cable giants will buy the best of these firms at knock-down prices, and subsidise them from broadband and cable-TV rents.
Verizon bought AOL, for example, to bolster its ad-tech business (it dreams of being number three in online advertising the US, behind Google and Facebook); it and other firms may also buy digital publishers who can provide content to fill their digital pipes, and keep subscribers paying.
So much for the question of how to fund a news organisation in an era when advertising revenue is shifting away from publishers and towards Google and Facebook. That is the biggest challenge facing publishers. The second biggest is working out how to structure their relationships with those big technology platforms. Are they friend or foe?
The short answer is: they are not your enemies, but they do not have a duty to be your friends, either. That said, they have a great deal to offer publishers.
Google sends a lot of traffic to the Economist, helps people discover our journalism, and provides a widely used mobile platform.
Publishers in Spain and Germany who demanded that Google stop linking to them quickly realised it was a mistake when their traffic collapsed.
And although Facebook and Google take the lion’s share of digital advertising revenue, the idea that this revenue would go to publishers instead if they didn’t exist is mistaken. It would just go to other digital platforms because the ads that publishers sell are no longer – for the most part – the kinds that advertisers want to buy.
Facebook can also be a great source of referral traffic for publishers. But might it also provide a new revenue model?
Facebook’s Instant Articles feature encourages publishers to upload content directly to Facebook’s servers, so that articles appear instantly when Facebook users tap on them. This allows publishers to reach a potentially huge audience, but at the cost of losing control over their distribution.
Publishers can also sell ads inside Instant Articles. Might this be a viable publishing model? Probably not, but even if it were, Facebook could change its terms at any time. It is not Facebook’s responsibility to provide a new business model for news organisations. If they don’t like the terms, they don’t have to use the platform.
The Economist uses Facebook as part of its sampling strategy, placing a handful of pieces in Instant Articles each week, and posting links to the rest of our content, pointing back to our website where readers are invited to subscribe.
From our point of view Facebook is a great way to reach potential new readers: 60 per cent of Americans have never heard of The Economist, and Facebook is a very good way to reach them.
Similarly, we also use Twitter, LinkedIn and Snapchat Discover to put our journalism in front of readers. We don’t expect them to subscribe straight away, and most of them will never subscribe at all. But as we search for new readers and continue to build our circulation, the first step is to introduce ourselves, and social platforms are an amazingly efficient way to do it. If it stops being a good deal, we will stop doing it.
A final question is whether all news platforms – broadcast, print and online – will converge and start chasing the same sources of revenue. This is already happening, but there will still be a range of business models and revenue sources and we are already seeing a split.
Buzzfeed gets its revenue from native advertising, for example, so which platform the content is viewed on doesn’t matter.
Vice gets an increasing chunk of its revenue from television commissioning.
Others (including the Economist) will get most of their revenues from readers, with advertising and other activities providing extra profits.
Some news outlets will no doubt benefit from philanthropic support.
Old-fashioned display advertising will be a much smaller piece of the puzzle. But there is no right answer.
As someone said of the music industry ten years ago: the new model is that there is no single model.
This is an extract from Last Words? How Can Journalism Survive the Decline of Print? Edited by John Mair, Tor Clark, Neil Fowler, Raymond Snoddy and Richard Tait Abramis Academic Publishing Bury St Edmunds £19.95. January 2017. Available at special pre-publication price of £15 to Press Gazette readers from Richard@abramis.co.uk
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