April 20, 2021

The World Learns That Advertising Is Still A Thing

If you do something long enough, you start to see trends appear. The pendulum swings and history repeats itself. Based on a series of articles published over the past couple of weeks and some conversations I’ve been a part of, it seems people are suddenly getting excited about advertising again.

This first started when one person I know, who had notoriously been anti-advertising, started asking questions about running ads in their newsletter. The question was the same standard one you’d expect anyone to ask: how much can I make?

Since he runs a Substack, the only monetization he has ever considered is paid subscriptions. I won’t get into how annoying the dogma is over there, but it’s nice to see people starting to open their eyes about the potential for running ads in newsletters. I told this writer that based on his topic and audience size, he’s looking at a six-figure ad business.

Last week, Axios published a piece about the ad market making a major comeback post-Covid.

“In 2021, the American advertising industry is poised to regain all that it lost in 2020 and more,” wrote GroupM’s Brian Wieser in an analyst note last week.

In the U.S., GroupM forecasts that the industry will grow by 15% this year, better than its prior 12% forecast. Wieser predicts that the U.S. “should end the year with 6% more activity than we saw in the last ‘normal’ year of 2019.”

Not bad. And also not terribly surprising. Once you remove the annoying talking heads, you remember that digital advertising is worth far more than $150 billion per year and that the money has to go somewhere.

But if we dig a little deeper, it’s not all sunshine and rainbows for many publishers.

Digital advertising was resilient during the pandemic, thanks in large part to small businesses leaning into e-commerce, and favoring the likes of tech giants like Google, Amazon and Facebook.

Traditional publishers on the other hand, “barely stabilized digital ad sales,” per Magna.

This brings back much of what I’ve written about over the years: publishers need to do a better job delivering ad products that companies want to buy. It’s not enough to just have an ad product; it has to be the right one. Much of the money will continue going to the platforms until this is handled. More on that below.

That said, many of the large brands are seeing good results. According to The New York Times:

Several privately held publishers said their first-quarter ad revenue was up strikingly over the same quarter last year, which was the last one largely unscathed by the pandemic: Insider by more than 30 percent; Bloomberg Media was up 29 percent; Vice, 25 percent; Bustle Digital Group, more than 25 percent; and Axios’s quarterly ad revenue nearly doubled, executives at those companies told me.

There are plenty of reasons to be cautious about this revival. One is that, for all the political pressure on Google and Facebook, they continue to be the behemoths of the American advertising market. About 87 percent of last year’s growth went to those two companies, according to an estimate that the trade group Digital Content Next did for me, based on figures from the Interactive Advertising Bureau. Facebook alone brought in more than $84 billion in advertising revenue last year.

Those percentages are impressive. I can confirm, having spoken with other media operators, that the same is true for their companies. In some respects, they are seeing record advertising numbers. One sales guy I talked to told me they hit their 2021 goal in March. Perhaps that’s a bit of sandbagging, but it’s also because there’s so much more demand to spend.

The reality is, with millions of daily vaccinations, people are venturing out into the world again. On Saturday, I went to a bar for the first time in 13 months. I am dying for a vacation. No one should be surprised to see advertising increasing. Ads are a tool to convince people to do something.

But if publishers want to actually see more than just 13% of the advertising growth (see above where 87% went to Google and Facebook), they’re going to need to develop tools that work. In June, I wrote:

By offering a self-serve, streamlined, unique ad type that is guaranteed to be seen, publishers can start to pull marketers that are spending all their time on Facebook and Google. It’s certainly not going to be instant and I’m not suggesting either of those platforms are going to die. But we have audiences; marketers should want to talk to them. We just need to do a better job giving these marketers the tools they need to do it efficiently.

Fortunately, the pendulum swinging back and forth between ads and subscriptions could actually be a positive for publishers. With Apple getting ready to block targeting and the browsers getting rid of 3rd-party cookies, brands are going to need to use publisher data to actually target readers.

If you’ve built up any sort of a subscription or registration business, you’ve actually got that data. And if you don’t, you at least have the mechanism to capture it. Relating behavioral data to an individual requires some sort of a unique and constant identifier. Email is a good start, but it has its limitations The cookie that tracks the email could expire and if they don’t come in through the newsletter, it won’t refresh. A user who is registered and signing in is always tracked.

Publishers shouldn’t be thinking about how they can capture ad dollars versus subscriptions. Instead, they need to be thinking about both. Use the data you’ve acquired building your subscription business over the past few years to reinforce your advertising business. And if you’re not already doing that, start now.

Hybrid creator economy being built

There have been two ways for writers in media to make a living. They either work for a media company and get a salary, but have relatively limited upside. Or they quit their jobs and go launch a paid newsletter. Maybe they get an advance, but you know my thoughts on taking the check.

Now we are starting to see a bit of a hybrid start to take shape. According to The New York Times:

A former editor at Vanity Fair has been working for several years to create a digital publication with a business twist: Its writers will share in subscription revenue.

Think of it as Vanity Fair meets Substack, the subscription newsletter platform that has attracted big-name authors.

Writers have been offered equity and a percentage of the subscription revenue they would generate, the people said. It’s one of the first attempts to align the new talent economy with more traditional media institutions. Mr. Kelly has already been in talks with several well-known journalists, including Wesley Lowery, formerly of The Washington Post.

The publication would rely on an algorithm to gauge how many readers bought a subscription because of a specific writer, the people said.

Rather than just getting a salary or having to risk going out on their own, writers can get a blend of both. They have the security that comes from getting that salary but also see some of the upside tied to their work.

We also saw news that The Block had executed a management buyout, turning the company into an employee-owned firm. According to Axios:

The Block, a cryptocurrency-focused media startup, tells Axios that it has bought out its non-employee shareholders, including its investors and co-founders (who have left the company).

Why it matters: The company says it wants flexibility to better compensate existing and future employees in an increasingly competitive talent market, and to be independent from outside investors and interests.

I can attest to the fact that retention—especially in crypto—can be incredibly difficult. By providing more upside to the creators, The Block should be able to retain much of the same talent who might otherwise find new, higher-paying opportunities during this crypto bull market.

In both of these cases, a simple truth is made clear. With as many options as there are in the market right now for the very top-tier talent, retention is going to be critical. Any number of the researchers at The Block could go on to launch their own fund or join a larger outfit. And any of the journalists being targeted by the company in the Times’ story could likely do their own thing on Substack.

The goal here is to create an environment where this talent can have it both ways. They can have job security and some stability while also being part of the upside. While that upside might not be as much as if they went on their own, it at least provides options.

I anticipate other media companies—especially those that charge for niche information—to do something similar. The retention of these experts will be critical to long-term success.

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