Online publisher Digitalbox reported revenue decline of 22% as it blamed Google and Facebook algorithm decisions for impacting the reach of its entertainment brands.
Digitalbox owns the online-only brands Entertainment Daily, TV Guide, student website The Tab, satire site The Daily Mash and online humour brand The Poke.
Entertainment Daily, Digitalbox’s biggest brand by revenue and the one it has owned the longest before it began making acquisitions in 2019, was “blocked” by Google in search, news and Discover results at around the start of 2023 resulting in an overall drop in visits of 27% year-on-year. Google accounted for 25 million visits for the brand in 2022.
At the same time The Tab’s Facebook page The Holy Church of Netflix, which has 546,000 followers, was flagged for months as a result of a post about a documentary on serial killer Jeffrey Dahmer.
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Digitalbox chief executive James Carter told Press Gazette this “illegitimate” flag reduced the page’s reach by roughly 95% and this had a “significant impact on our ability to reach out to our follower base”. The issue has now been resolved, he said.
The platform decisions were said to have had the “most significant” impact on the revenue decline of 22% to £2.8m in the year to 31 December.
Entertainment Daily made up 52% or £1.4m of Digitalbox revenues last year, followed by The Tab (33%), The Poke (8%), The Daily Mash (4%) and TV Guide (3%).
[Read more: Online publishers hit by declining Facebook and advertising revenue in 2023]
Adjusted EBITDA (defined as operating profit after adding back depreciation, amortisation, impairment, share based payments, acquisition costs and direct costs associated with business combinations) was at £20,000, down 98% from £1.1m in 2022.
This marks the fifth consecutive year of profit by this measure since Digitalbox listed on the stock market in 2019.
However it fell into an operating loss and pre-tax loss (£6.8m, down from profit on both of £45,000 in 2022).
Digitalbox generated £193,000 in cash from its operations last year compared to £1.4m in 2022, down 86%. Its gross cash at the end of the year was £1.9m, down 32% from £2.8m.
The publisher has 32 employees, of which 22 work in content.
Digitalbox ad tech stack monetisation 'better than average'
Digitalbox revenues are almost entirely from advertising but despite headwinds hitting the ad market and affecting many other publishers Carter remained bullish about the sector.
He cited Digitalbox's proprietary ad stack Graphene which he said has a proven ability to help products perform better.
He said The Tab, which was previously running through News UK's ad stack, has "quadrupled monetisation" since it was acquired by Digitalbox in October 2020 and moved to Graphene. The Tab's overall session values grew by 25% last year, he added.
Similarly session values at The Poke were up 300% in December compared to December 2022, the month it was acquired by Digitalbox. The Poke has now repaid 50% of its purchase costs in its first year at the publisher.
"So there's evidence there that we can improve monetisation," Carter told Press Gazette.
"Why does it [Graphene] work as well as it does? Well, because we're very focused on delivering the optimum number of ads per user per visit so it doesn't damage user experience but we maximise revenue return and we use technology that allows for the ads to be served with the highest viewability rates, etc. So there's a reason people search out our inventory and that's because the performance metrics on it are better than average, quite simply."
Carter added: "There's a reason to remain optimistic around the ad market and its future performance. It's been a challenging 12 to 18 months since the ad market became subdued in the middle of 2022 but any movement back will go to the bottom line and it will be certainly a good place to be and there continues to be demand for high quality inventory and competition behind quality inventory.
"So if you're delivering the right kind of performance levels around your ad units, things like viewability, dwell time et cetera, it continues to be a good market to operate in."
Carter was also relaxed about the end of third-party cookies in Google's dominant Chrome browser coming at the end of this year saying there will still be strong demand for inventory and that publishers will "head to the solution that is most commonly embraced".
He did however share concerns about Google's AI-powered search generative experience, which is being trialled in the US and is expected to roll out in the UK later this year. He noted that they scrape "content from potential search destinations that won't now get those clicks" and described it as "a case of daylight robbery in terms of IP".
Noting that some major news organisations like Axel Springer have done deals with OpenAI, Carter said it would be better if there was a "unified approach" to create a solution that can benefit all publishers.
Despite the company's reliance on advertising revenues, The Daily Mash also has a small subscription offering with unlimited ad-free access to articles for £20 per year or £2 per month. It now has almost 4,200 subscribers, which Carter said had doubled in the past year.
This model was added, Carter said, because Facebook struggles to identify the difference between fake news and satire and its algorithm therefore often suppresses the reach of The Daily Mash content, similar to other sites like The Onion in the US.
However he said a subscription model would not work for all of Digitalbox's brands because while The Daily Mash's content is "100% unique" others have more direct competitors in the market - for example Entertainment Daily producing similar content to The Sun and Digital Spy.
Carter did say though that publishers may be "forced to pursue" a "consent or pay" style model as the Information Commissioner's Office cracks down on prominent "reject all" messages for personalised advertising. He said: "Maybe there's nothing wrong with that because it pushes the paid experience higher up the food chain."
Carter said further acquisitions could follow in a similar theme to those it has already undertaken, which have all been "first wave digital media businesses". The Poke first launched in 2002, The Daily Mash in 2007 and The Tab in 2009, for example.
Many media brands that "took on significant investment in those early stages of development" are now "challenged, maybe in a similar way to the way magazine publishers were historically challenged" in the transition to digital, he said.
"There's a cluster of sort of desktop-focused businesses that were formed around the early age of the internet that need to be refocused for today's market and I do think yes, there will there will be first wave digital media businesses that are distressed and will be pushed into a position where they need to adapt and change and I think we can provide a solution."
Overall he said he was "cautiously optimistic" about the year ahead despite the "tough" 2023. Digitalbox's financial report said it expects advertising markets "to bounce back as we head into 2025".
Carter said: "Optimistic because when we floated the business in 2019, we had one brand, we've now got five brands. We've grown to five operating brands through cash and cash generation which is not a bad place to be. We've got £1.9m of cash in the bank to make further acquisitions if they become available and if they fit our model."
Despite expecting "continued turbulence from the key platforms", Carter said, "I think we're better equipped now than ever to deal with those changes. So I think we're just pretty well placed to be able to adapt and improve that profitability as we move into this year."
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