June 14, 2022

Facebook Rug Pulls Media Companies… Again.

If there is one thing publishers can always depend on, it’s Facebook pulling the rug out from under them. And yet, even though they know it’s going to happen, so often, publishers are unable to resist the temptation that comes from a Facebook offering.

According to The Wall Street Journal:

Meta Platforms Inc.’s Facebook is re-examining its commitment to paying for news, people familiar with the matter said, prompting some news organizations to prepare for a potential revenue shortfall of tens of millions of dollars.

The company has paid average annual fees of more than $15 million to the Washington Post, just over $20 million to the New York Times, and more than $10 million to The Wall Street Journal, according to people familiar with the matter. The Journal fee is part of a broader Facebook News deal largely negotiated by parent company Dow Jones & Co., including annual compensation worth more than $20 million, people familiar with the partnership said.

The company is looking to shift its investments away from news and toward products that attract creators such as short-form video producers to compete with ByteDance Ltd.’s TikTok, according to some of the people.

Facebook always loses focus. Three years ago, it thought that its readers would want to bypass media paywalls and just read news articles on the platform. But fast forward three years later and Facebook has a new, shiny toy that it wants to play with. In another few years, it’ll be onto something else.

That’s just how history has always played out.

But we publishers should know better. Facebook itself has done this to publishers multiple times over the years. The entire pivot to video was predicated on Facebook offering lots of money to publishers. And then, when that failed, publishers had to fire entire teams because they couldn’t afford those employees.

The truth is, for the larger publishers listed above, it probably doesn’t matter all that much. The New York Times, for example, generated $2.1 billion in revenue last year, so $20 million is about a percent of its revenue.

Smaller publishers will also be affected, though, and it could be a lot worse for them. According to that same WSJ article:

Many other U.S. news publishers are getting payments from Facebook to have their content featured in its news tab, but they only get a fraction of the sums paid to the Washington Post, the New York Times and Dow Jones, according to people familiar with the matter. Facebook is paying more for access to paywalled content, while publishers whose stories are accessible for free are getting less money, a person familiar with the deals said. The smaller deals usually are for less than $3 million a year, the people said.

It likely adds up for these smaller publishers. So, what should everyone be doing? Honestly, there’s probably not much. It’s better to learn from these situations than prepare some sort of response. The reality is that Facebook holds all the cards and if it wants out of the news business—this time—then nothing can change.

So, does this mean we should never do these sorts of deals? Not exactly.

Back in 2019, Cheddar’s founder, Jon Steinberg, spoke at The Information’s Media Bootcamp. And there, he said something that has stuck with me:

Always take the check. But you are never getting another check, so you either take the check and staff it in a way that you can do it and shut it down without hurting your people, or you figure out a way to make it self-sustainable.

And that is the framework publishers should be using to ensure they don’t get the rug pulled out from under them by platforms in the future. Sure, you can take the check. Getting $500k, $3 million, or $20 million is great. But you can’t look at that money as long-term operating revenue. On the contrary, you have to look at it as a savings account.

That means any deal that requires you to hire a team is probably not worth taking. Sure, the money might be nice, but you’ll be firing people when the deal’s over. On the other hand, if you can uphold your side of the deal without needing to bring anyone else on, it’s straightforward money. That’s a good approach.

In the case of Facebook News, my suspicion is it was more of the latter. By and large, it seemed like a headline-only deal (for smaller amounts) and a full paywall removal (for larger amounts). Take the money, but continue operating business as usual. That way, you can walk away if you need to.

Is there still money in product recommendations?

The Wall Street Journal is unbelievably late to the party but has decided to enter the product recommendation space. According to Axios:

Unlike The Journal’s news site, Buy Side will remain free, helping The Journal attract new audiences, while also bringing in new types of revenue.

The company will review the types of products and services that cater to a typical Wall Street Journal reader — a professionally driven consumer navigating return to office changes and has an interest in the economy.

At launch, Buy Side will have a handful of affiliate partners, including Skimlinks, Red Ventures and Amazon. Over time, it plans to expand its list of partners and work directly with certain retailers or manufacturers.

Interestingly, WSJ has decided now is the time to make this move. On the one hand, the strategy sort of makes sense. It can ideally bring in a new audience and perhaps monetize those people differently than the core WSJ. But, on the other hand, are we in the late innings with affiliate marketing as a functional revenue strategy?

Amazon is one of the affiliate networks WSJ is using, and over the past couple of years, we’ve seen the retailer compress rates for partners. That’ll make it harder than it used to be to generate revenue. Wirecutter in 2016, for example, was likely earning a higher cut from Amazon than it does today.

But another reason I question this as a functional revenue strategy is the death of the 3rd-party cookie. When Chrome gets rid of them, how will affiliate sites know to whom they should pay the affiliate fee? That can get very complicated, very quickly.

One way is for Amazon to drop a 1st-party cookie on the user when they come over from a partner’s site. For example, Amazon could use unique URLs with the partner’s ID embedded and when a user hits the site, drop a cookie that tracks what that user buys with that partner ID activated. That would get around the cookie problem.

But will Amazon? Does it even need to? There are so many other affiliate platforms out there, and perhaps Amazon will play kind with partners.

I do like how WSJ is thinking about it, though. It will focus on creating content that it believes its WSJ reader will want rather than just trying to be a general product review site. A more niche offering might help it break through the clutter. However, I can’t help but feel this is a very late play for WSJ.

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