Month: March 2020

Data regulation
Europe’s General Data Protection Regulation was adopted in 2016 and became enforceable from May 2018, yet still there are wildly different interpretations of the law among publishers and their vendors. Add in the California Consumer Privacy Act — it came into effect in January r — and there’s a melting pot of different data laws for publishers to contend with.

“We decided to be very compliant and we lost a ton of revenue,” said a publishing exec. “In the last week, we’ve been to three different countries and had three different versions [of how to gain user consent under GDPR], we’ll take the least restrictive one and apply that.”

“The Information Commissioner’s Officer themselves can’t tell us,” added another, referring to the U.K.’s data protection authority. “Quite often they ask us what this means. There’s a lack of awareness about how it will impact the industry.”

Strength in numbers
The digital advertising ecosystem is also chewing through how to replace third-party cookies, compounded by Google’s announcement to phase them out by 2022. The threat of the browsers becoming even more powerful could result in publishers working more collaboratively.

Yet, historically, publisher alliances haven’t worked out, said one publishing exec. “You see the same issues 10 years later,” the publisher said. “The difference this time if some publishers don’t do it, you sink. They are forced to do it. It has to succeed.”

Still, there appeared to be renewed hope in giving publisher tie-ups another shot.

“Publishers need to come back together,” said another attendee. “I don’t want to use the term ‘ad network’ because of the connotations, but we might see older-school trading where publishers collaborate to get scale. There are other IDs that have persistence.”

But while there is a sense of hope — or perhaps desperation — that publishers might be able to work better this time around, media execs have to be realistic.

“Browsers smell the blood in the water, they want to control that and be the intermediary where it simplifies that fractious space of small sites,” said one attendee. “A lot are perpetuating the death of the cookie because they see it as a potentially massive revenue stream. Browsers are going from being a dumb box to being able to control a lot of the conversation.”

“The major concern is there is no solution,” said another exec. “It’s just a waiting game until Google tells us what’s going to happen — I hate to say it.”

Identity Crisis
Shared IDs theoretically offer a more reliable way to identify audiences online, post-third-party cookies, and recoup lost revenue.

One publisher said their CPMS on Safari – the Apple-owned browser that introduced its Intelligent Tracking Prevention feature in 2017 —  had dropped by a third. “You can probably predict the same in Chrome. That’s probably business closing for a lot of publishers,” this publisher said. “We’re keen to hear more about ID solutions.”

But some publishers don’t like what they’re hearing from shared ID vendors and consortiums so far.

“I don’t think [universal IDs] are scalable — they imply they are universal but can’t be across 10 different companies. Most rely on cookies,” said one attendee. “At least with cookies users have the ability to delete them but you can’t very easily delete IDs on the browser. Ironically the solutions cropping up are worse for privacy.”

Education, education, education
Many attendees agreed that if publishers are to be viable in a post-cookie, highly regulated web landscape, they also need to remind agencies and advertisers about the unique value they bring to the market.

“Agencies are used to buying Facebook and Google and we just don’t have that scale and level of data, that’s where we struggle. There’s a lack of understanding [from agencies] about how they work with publishers these days,” one attendee said.

One publisher said they were seeing more brand uplift studies, which are helpful but also present a double-edged sword: “A lot of advertisers and agencies push that cost to publishers, while it’s great to prove our efficiency for smaller campaigns it’s not cost-effective to do that study.”

Publishers must “educate the marketers that they can also have efficient media buying without … always relying on first-party and third-party data,” said another executive.

Minute Media’s entire operations exist on technology that was built in-house, according to Routman, ranging from its content management system to its video players. With approximately 25% of the company’s 400-person staff dedicated to constructing new products or building tech stacks, Minute Media is equipped to become a platform provider in addition to a media company, he said, despite the spotty record of success of other publishers trying to do the same.

“All of our technology is homegrown. We’re not thinking that we can build it better, but we’re building it through the lens of being a publisher versus as a vendor — you’ll build it a little bit differently,” he said.

Minute Media isn’t unique in its pursuit of a business-to-business revenue stream. The Washington Post is one example of a successful attempt at becoming a software-as-a-service provider since launched its Arc tech platform in 2016. That service was estimated to become a $100 million business for the company and other publishers are looking to follow suit, including Vox Media with its Chorus platform.

Others weren’t able to make the transition into a tech provider, like Gawker whose publishing and commenting platform Kinja ended up buckling before Gawker itself went under. Mashable also tried making a business out of its tech platform.

The idea of licensing tech is an attractive one, particularly to venture capitalists who want the high returns of software businesses. But making both businesses work is notoriously hard, as software sales are typically longer sales cycles and publishers tend to focus on more near term revenue available in ad deals.

“When you have more SaaS revenues, that can give you a premium valuation for your company because SaaS businesses usually trade at a higher multiple than media businesses,” said Chris Erwin, founder of market research and strategy advisory company RockWater. “That can be exciting for investors that are seeking a potential M&A exit scenario if you have more and more revenue coming from a SaaS product.”
Erwin added that while other media companies have tried to build their own tech licensing businesses, a lack of resources, talent or having too unique of a product could have limited the opportunities to successfully scale that revenue stream.

“You’ve got to find something that’s going to have legs with a broader user base,” Erwin said.

Routman said that Minute Media makes money from its tech stack either by licensing it out or by setting up a revenue share with the customer, both options representing an equal portion of the contracts. The latter option enables the customer to get the tech stack for free but he said the company prefers this model because it has the potential to scale well for Minute Media in the long run. While he wouldn’t say how many customers Minute Media has in total, some publishers include USA Today, Bonnier, Billboard and Seattle Times, while companies like IMG also use the platform.
Bonnier, which is a customer of both Minute Media and The Washington Post, recently disabled Minute Media’s technology on some of its sites in December and January due to “concerns over speed,” according to a company spokesperson. The remaining services that Minute Media is providing Bonnier are various ad experiences, but the rest of the publishers’ websites live on Arc or WordPress technology. Certain publishers have also expressed concerns over SEO issues.

“We’re not looking to work with 100 publishers but to work with publishers that are similar to us. We’re not interested in small licensing deals. A couple hundred dollars a month for licensing platforms is not interesting to us,” Routman said.

Between the owned and operated products and the business-to-business offerings, Routman said revenue coming from both areas is roughly equal. The company is projected to earn nearly $200 million this year, he added, therefore, the business-to-business revenue can be estimated around $80-90 million.

In 2019, the business-to-business side of the company experienced the most growth in revenue out of all the other revenue streams, close to doubling its revenue year-over-year, with little to no client losses.

Routman said he views the business-to-business operation as “a secondary revenue stream” to the advertising that many publishers have been dependent on for some years. But instead of chasing the OTT business or commerce like others, the company’s philosophy was why not “utilize something that’s been working for us and leveraging it in a different way has been allowing us to grow?”

Ava Seave, principal at consulting firm Quantum Media, said there is a good argument for publishers to use an existing tech platform that other publishers have created, including saving the time and money of hiring their own tech team and constructing something from scratch. Additionally, most of the platforms have been tested so publishers adopting CMS platforms or technology can benefit from everyone else’s learnings.

The counterpoint is cash-strapped publishers aren’t exactly the best sales target. What’s more, the most likely customers are also competitors. “They can learn an awful lot about your business and somehow eat your lunch if they’re so inclined,” Seave said.

Seave added that she sees a lot of publishers looking at business-to-business options since monetizing the editorial side of the business is very strained with falling ad revenues. But the capability to build a business that caters to other publishers can be lacking the resources and staffing in order to successfully pull it off, which is why other publishers may not have been as successful in growing this revenue stream, she said.

“I think that most [media] organizations do not understand the full difference between consumer-facing and B2B businesses. If I’m paying you money, I need an account manager there to help me out,” Seave said.

“They don’t make the best press releases, but they make some of the strongest, most thriving business,” said one TV network executive. Whereas scripted shows tend to cost millions of dollars per episode to produce, unscripted series typically cost low- to mid-six figures per episode to generate higher profits for the networks that carry them.

High-quality scripted series like “The Crown” and “Fleabag” may draw accolades and audiences’ interest. But, these prestige programs are expensive bets. Considering that 532 scripted series aired across TV and streaming in 2019 — up from 210 scripted shows in 2009 — the odds of those bets paying off are diminishing.

Unscripted shows, by contrast, may face similarly difficult odds, but their lower production costs lower the stakes. As a result, TV networks and streamers can load up on these shows relatively inexpensively to increase their odds that a viewer will find something to watch. And when an unscripted show succeeds, companies can quickly and cheaply produce more episodes of it and spin off related series.

“You can either choose to do three premium scripted series a year, or for the same amount of money, you can do 30 reality formats. Most won’t work, but if you get one [to succeed], the chances of somebody watching repeatedly will be higher,” said the TV network executive.

As people continue to cancel their pay-TV subscriptions and tune into streaming services, TV networks are turning to unscripted shows to help retain the viewers they have and protect their businesses’ bottom lines. Discovery is counting on its unscripted programming to help it contend with deeper-pocketed competitors like Disney and WarnerMedia. Meanwhile, WarnerMedia is looking to fill its cable TV networks with more unscripted shows.

“We all know that general entertainment content … is not performing as well,” AT&T COO and WarnerMedia CEO John Stankey said during the company’s quarterly earnings call in January in reference to scripted series. In 2019, less than a quarter of cable TV’s 25 highest rated original series were scripted shows, according to The Hollywood Reporter. A looming writers’ strike may only lead to more of an emphasis among TV networks on unscripted series.

Unscripted programming can be especially attractive to TV networks because programming costs are becoming more of a concern as their revenue is at risk. The TV industry’s shift from linear to streaming has endangered networks’ dual-revenue model, in which they receive a carriage fee for every pay-TV subscriber in addition to the money they make from selling ads against their shows. While networks have been able to negotiate higher carriage fees and ad rates in recent years, that dynamic may be coming to a head as pay-TV providers become more willing to drop networks over carriage fees and advertisers grow frustrated with having to pay more money to reach fewer people on traditional TV. In 2019, six million people canceled their traditional pay-TV subscriptions, according to research firm MoffettNathanson.

The uncertainty around networks’ revenue growth prospects is pushing the networks to reduce their programming costs, which has a ripple effect on the companies producing those programs. “The pressure from advertisers and [pay-TV] distributors is putting pressure on the channels, and the channels are putting that pressure onto the producers,” said the TV network executive.

Unscripted show producers have picked up on this increased pressure. Not only are they receiving more notes from network executives on established series, but “a lot of the traditional unscripted buyers are now asking production companies to produce the same shows on smaller budgets,” said one entertainment executive.

The current preoccupation with unscripted programming creates opportunities for producers, especially newer players. Since unscripted series are cheaper to produce, they serve as low-hanging fruit and a solid foundation for publishers that are looking to grow their studio businesses without breaking the bank.

For one publisher, unscripted shows account for roughly three-quarters of the company’s current original programming mix, according to an executive at that publisher. That share will shift as the company plans to produce more scripted series over the next couple years. But for now, the company’s entertainment arm needs to make sure it hits its financial targets, and unscripted series can be better suited to that end. “The economics of unscripted are easier for us to manage and have them be more favorable to our business,” said the publishing executive.

As DTC companies have matured, moving beyond the Facebook and Instagram ads that helped them acquire customers, so too have the agencies that specialize in working with them. With this acquisition, Metric Digital employees will now be able to more easily work with larger brands and use the technology and data capabilities of a larger agency to do so.

Metric Digital is the fifth acquisition by WPromote in the last four years. Previously, WPromote scooped up shops like Standing Dog in Dallas and Prime Visibility in New York as well as San Francisco-based DemandWave and Growth Pilots. With this acquisition, WPromote now has roughly 500 employees in seven offices. Mothner and Simonson don’t expect any layoffs to occur due to the deal unless there’s “obviously a completely redundant scenario,” said WPromote CEO Michael Mothner.

“As you grow any company, let alone agencies, there’s a lot of problems to solve for that other people have already solved,” said Kevin Simonson, CEO of Metric Digital. “Logistically, there are things like billing. As you get bigger clients, you have to deal with procurement and other highly complicated issues. [Instead of trying to solve those problems by ourselves we realized] this was easier.”

Agencies specializing in the needs of DTC companies have cropped up in recent years including shops like Gin Lane, Derris, Yellowhammer and Azione, among others. Shops that specialize in DTC have caught the eye of holding companies as holding companies look to get on the DTC boom. This past Fall, for example, Dentsu shop iProspect acquired performance marketing agency MuteSix.

Prior to the acquisition, Metric Digital was looking to build out an outbound sales team as well as bolster its data and technology capabilities to work with Fortune 100 brands. WPromote already had those capabilities in place and that will allow the team to work for those larger companies, explained Simonson, who will now serve as vp of social for WPromote.

“They excel in paid social and performance creative areas, which are significant components of our business, and we’re always looking for new ways of thinking,” said Mothner. “[This acquisition] makes our team genuinely stronger.”

Mothner and Simonson said that larger brands, like a Fortune 50 beauty conglomerate — Simonson declined to clarify which ones, citing non-disclosure agreements — have been more interested in working with the performance marketing agencies like Metric Digital, the shops that have helped carve out the DTC marketing path in recent years.

Those larger brands want to market more like the DTC brands that disrupted their industries in recent years. Major marketers like Anheuser-Busch and Procter & Gamble have both build out venture arms to build DTC brands that market like their DTC competitors. At the same time, the DTC brands that companies like Metric Digital have worked with have wanted to move beyond the Facebook, Instagram and Google ads that helped launch them as they have plateaued with those marketing techniques. The acquisition allows both companies to meet the needs of both DTC and larger brands, they explained.

“The 90-year-old legacy brands are at a similar transformation point as the Bonobos or the Warby Parkers that are now opening stores and doing TV ads,” said Mothner. “There’s an incredible amount of overlap that will allow the teams to be impactful to each other.”

“This is a natural step for us,” said Simonson. “We had the tools to grow from $5 million to $20 million to $50 million [in revenue] a year. Now we can start doing the stuff we should be doing [beyond that] that we weren’t capable of.”