Month: August 2020

In countries that have done a better job of controlling the spread of the coronavirus, in-person events are beginning to come back online — the Australian marketing industry trade publication Mumbrella, for example, is planning a hybrid in-person and digital event for November. But similar prospects are still a ways off in the United States.

“Once it’s legal and people want to come, we could very
easily flip that switch,” said Michael Rose, the CEO of Observer Media, which
owns Commercial Observer, a news publication covering real estate development. “Our
plan does not call for that to happen this year.”

Of all the business lines that B2B companies rely on, the outlook for events is murkiest. While much of the advertising market has rebounded from the nadir of late March and early April, and subscriptions remain resilient, events remain, at best, ill-conceived or, at worst, illegal in places where governments have barred large, in-person gatherings of people.

The prospects for B2B events are so uncertain that companies which were thinking about moving into them have backed off. As recently as six months ago, Industry Dive, a B2B publisher that covers 19 different verticals, was looking to buy an events company to help diversify into that business. It has abandoned those plans for the time being.

“It’s not something we’re doing in the near- to medium-term,” Industry Dive CEO Sean Griffey said, adding that he expects the events industry to change as a result of coronavirus, though he did not have an idea of what a new model might look like.

After it became clear that in-person events would not be possible for a while, many publishers, including Digiday Media, moved to virtual events, which can offer healthier margins than physical ones because they can attract greater numbers of people and typically incur lower costs.

But the margins are carved out of much lower top-line revenues. John Yedinak, the cofounder of Aging Media, which covers the senior care industries, said that for smaller events, the topline revenue for a virtual can be 30 to 50% lower than the revenue generated by an in-person one. For large, trade show-style events, the disparity is even greater, Yedinak said.

To make up the difference, some publishers have opted to produce more events. Observer Media, for example, will produce between 70 and 80 virtual events this year, up from the 20 in-person events it had scheduled for 2020, Rose said.

Others are trying to offer sponsors more scale by producing bigger programs that can gather up bigger piles of possible leads. At Arizent, which owns 17 B2B media brands focused on industries including commercial banking, mortgages and digital insurance, is launching a digital events brand next week called Leaders designed to convene audiences from many of its titles at once.

“A sponsor of a program inside of that channel will cut across four
different communities,” Arizent Chief Strategy Officer Jeff Mancini said,
describing a hypothetical example. “It quadruples the access to lead
generation.”

In some cases, going for a higher-quantity strategy has eased some of the pressure; Rose said that he expects that, among Commercial Observer’s business lines, events has the best shot at hitting the business’s original 2020 revenue goals.

But the longer that events remain off limits, the more publishers are going to have to think about reimagining what their virtual events are like. Though sponsorship drives a significant portion of most B2B company event revenue, most are forgoing ticket revenue by either deeply discounting their tickets or simply requiring that attendees register.

“So many people are giving away tickets to these virtual events which makes no sense,” Yedinak said. “This makes virtual event revenue a lot less and way less attractive long term.” 

“You have to deliver premium editorial/content that people will pay for or the whole virtual events model starts to fall apart,” added Yedinak. “There will be new models for virtual to emerge but having people pay you for premium editorial is always a smart strategy and even more necessary in times like this.”

That can take longer, but some think the programs they’ve built out of necessity can endure as a good complement to live events when the return.

“What’s going to happen to us is the live events will come back and be fully complementary,” Arizent CEO Gemma Postlethwaite said. “Nobody wants to spend 4 days sat in front of the computer.”

TikTok is coming of age in a post-techlash world.

But unlike Facebook and Google, it has the added challenge of doubling as a political football in the Trump administration’s clashes with China.

Last Friday President Trump told reporters he was considering a ban on the video app, which is owned by ByteDance, a Chinese company. Over the weekend Reuters reported the company may be looking to divest from its U.S. operations completely — perhaps in a sale to Microsoft — in order to avoid such a ban.

Like other tech giants, ByteDance has also hired lobbyists in Washington in an effort to keep its access to a massive U.S. market — and its 100 million existing American users, according to the company.

The Trump administration’s nominal concern is TikTok’s possible ties to Beijing — last fall leaked documents revealed how the app had censored topics that the Chinese Communist Party deems unacceptable, like Tiananmen Square or Tibetan independence. In some cases, TikTok has apologized.

Blake Chandlee, TikTok’s vp of global business solutions in Europe and the US, downplays any compromising ties between the company and its country of origin.

“TikTok is clearly an independent company and we’ve given people lots of reassurances,” Chandlee said in an interview recorded last Thursday, a day before Trump’s remarks.

“We built the whole company outside of China. Data sits outside of China, it sits in the U.S. and then it’s got redundancy in Singapore,” he added.

Chandlee argued that the company is more concerned with data privacy than its established rivals.

“We’ve watched what’s happened and we can kind of see where the world’s going,” Chandlee said. “People are becoming increasingly aware and educated. How to manage data and privacy is something that we’ve certainly learned from.”

Last summer Chandlee was hired away from Facebook, where data collection practices have drawn scrutiny from the press, Capitol Hill and even some users, after 12 years at the company.

With Chandlee, TikTok is hoping to prove indispensable for brands eager to market to the app’s massive and young set of users.

“Brands get it,” he said in reference to their willingness to work with the company despite the political scrutiny. “There aren’t many brands that have stepped back, stepped away from TikTok because of it,” he said, adding “most of these big brands have a presence inside of China. They understand, once we give them reassurances. We explain the corporate structure and how decision-making takes place.”

TikTok’s new “Creator Marketplace” connects advertisers with influencers, a transaction the app sometimes participates in.

Last week, before Trump ratcheted up tensions, the company announced it would spend $1 billion on a fund for creators in the U.S. over the next three years — and more than twice that around the world.

Beyond that, Chandlee was coy on the upcoming ways TikTok will help brands spend money (and creators make it) in a way that breaks with the precedent of its big tech competitors.

“Stay tuned on that one,” he said.

Here are highlights from the conversation, which have been lightly edited for clarity.

‘Brands get it’

“Brands get it. Most of these big brands have a presence inside of China. They understand, once we give them reassurances. We explain the corporate structure and how decision-making takes place. They get it. There aren’t many brands that have stepped back, stepped away from TikTok because of it. Our creators have stuck with us [as well].”

TikTok users will tolerate the right kind of ad

“I always say that audiences and consumers don’t dislike advertising, they just don’t like advertising that’s not relevant to them. People love brands. They’re inspired by brands, they identify with brands. So we’re trying to create environments where users can find those brands and engage with them in a way they just can’t anywhere else. And that’s a brand’s dream. Brands want to be able to do that and do it at scale. By the way, all the platforms that have done this have moved to his programmatic world where you’ve taken identify and tracking people from all over the web across devices and serving ads based on that. That means the ads have to fit certain formats. So you’ve got a world where brands can’t really be creative anymore. You can only see the same auto ad so many times on different platforms for you to go ‘I get it.’ We’re trying to operate from a very different place.”

How TikTok wants to nurture its base of creators

“There are people trying to make a living on TikTok, and on Instagram and YouTube. Until recently, we just hadn’t had the platform to enable that. The way people typically made money was go through the Creative Marketplace (we call it “TCM”), which is a place where brands can go in and find creators that have similar values — there’s a bunch of different discovery tools that allow brands to go in and say ‘wow, here are four or five creators I’d like to work with.’ The connection with those creators and offline build a relationship with them, do a brief. Sometimes we support those. And there’s a value exchange there. Typically it’s a fee paid to those creators. But what are other ways we can allow those creators to make money? So we created a fund — a big one in the U.S. and in Europe as well — designed to say ‘how do we work collectively with the creator community to allow them to make money?’ That’ll take a number of forms over time and there are different monetization standards around the industry. We’re working with our creatives now, but it’ll be distinct with TikTok. We really want to do it in a way that benefits the creators and our users.”

Brand safety doesn’t mix with politics (especially in an election year)

“We made a conscious decision last year, a month before anyone else, to not take political advertising. We knew that if politicians got on the platform they would create an environment that quickly would be potentially a negative one. Our whole intention is to keep our audience safe and to create that joy — [and] make sure our algorithms are identifying content before it gets published onto the platform [and] that our moderators are quickly responding to anything that is raised by our audience and our community.”

“Every pound and penny is being scrutinized,” said Jonathan Kitchen, chief revenue officer at Dennis Publishing, home to titles like Auto Express and Carbuyer. “We’re working on longer-term partnerships where we have shown results, like in motoring and cycling. A few content briefs have flipped to reach or response because it’s the results that clients want to see. We’re not seeing speculative briefs, it’s about sticking to your knitting.”

Dennis expects branded content revenues to be flat compared with last year, partly because it has core specialisms in passion areas, having a clearly defined and active audience makes it an easier sell for brands.

Across board branded content revenue for publishers will be down between 20% and 40% this year, according to tech company Polar, which helps publishers with branded content and native advertising. That’s tough to swallow considering that, for many, up to 40% of digital ad revenue comes from branded content.

The number of campaigns run through Polar’s publisher network of hundreds of publishers was down minus 22% in April compared with March. That has yet to rebound as June and July are flat.  

“I can’t think of a single publisher back in February that didn’t have revenue growth plans in the 10% to 20% range,” said Polar CEO Kunal Gupta. “Part of that growth involved investment, that investment is no longer available, for some it would have been for different skills or different types of content, now that innovation budget has gone and they have to retool existing budgets or find it elsewhere.”

Compared to the boom of performance-based, direct reader-revenue lines — like subscriptions — and the rollercoaster of programmatic marketing, the future of branded content advertising revenue has been less clear cut. Publishers are being clear-eyed about what works. Challenges like low margins on expensive shoots, more complicated consultative selling processes, longer lead times or tensions between editorial and commercial, have been exacerbated.

Due to coronavirus fallout, Dennis has decentralized its branded content sales under category pillars after making staff cuts. While it’s efficient for sales teams to sell a suite of products, decentralizing gets rid of the expertise. To counter that concern, it’s giving teams more education and training, adding more meetings between sales and content delivery teams, critiquing workflows and increasing use of Jira project management software.

As the pandemic has rumbled on, the number of shorter-form branded content campaigns, typically costing under $25,000, has grown. More bite-sized timely and targeted content costs less and is quicker to turn around, although it keeps content delivery teams just as busy for less money. Last week, News UK launched The Times Social Studio (following The Sun’s Social Studio last year) offering quick edit newsroom video capabilities for clients who want to reach the title’s audiences on Facebook, Instagram and YouTube. 

One global news publisher, asking for anonymity, pointed out that the number of people involved in client-side campaign signed off has increased, making the process longer and less lucrative. In any case, branded content campaigns are low margin projects for publishers because they have to provide a high degree of service to match the high price tag. During the pandemic, publishers — and platforms — have dropped their pieces by between 10% and 20%, for others, this is between 40% and 50%, said Polar’s Gupta.  

Spending on native advertising halved to $23 million at the end of March from $40 million in February, according to Mediaradar research, down 31% from 2019, as hundreds of advertisers quit the format. 

And as the number of branded content campaigns has decreased, so has the ticket price. One tier-one U.S. news publisher which typically runs branded content campaigns for national and local advertisers — the former being many multitudes higher than local campaigns — joked that national advertiser campaigns are now the size of local campaigns.

As publishers’ branded content studios have matured, larger entities introduced minimum pricing of $60,000 or $100,000 per campaign to help manage margins. With coronavirus, those thresholds have gone out the window and publishers have taken on smaller campaigns in hopes they grow into bigger partnerships in the fourth quarter.

But for now, longer-form, splashy multi-media spreads that typically cost over $150,000 are few and far between, according to Polar. Though there is some hope that is starting to change as Dennis has had a couple larger projects come in ahead of the year’s end.

Lengthening payment terms and late payments have plagued the digital ad industry for years. Like so many other aspects of business, the coronavirus crisis accelerated an existing trend. Digiday research published in June found 62% of publishers were experiencing late payment problems.

As many marketers reined in their spending — at least in the earlier throes of the pandemic — publishers became highly scrutinous of their ad tech vendors. Again, nothing new here. “Sequential liability” has become a Voldemort-like utterance in the volatile ad market. It’s a risk that was hammered home by the high-profile bankruptcy of demand-side platform Sizmek, which left many publishers out of pocket. Nobody wants to be stuck holding the baby again. Cognizant of these concerns, SSPs including PubMatic, OpenX and Triplift recently added payment protection lines and insurance plans to cover any potential DSP failures as the coronavirus crisis wore on.

Early payments have become another way ad tech vendors can peacock an outward display of their apparent financial heft and create an apparent competitive advantage.

Oarex — an invoice factoring firm that works with demand-side platforms, supply-side platforms, agencies and digital media companies — found that early payments hit a year-to-date high in May, with 49% of payments arriving early. Also that month, payments that were late by more than two weeks fell to an 18-month low. The trend has continued since. From January to June, payments were arriving on average eight days late and with total payment terms of 59 days. But in July, payments were on average arriving four days early and with an average term of 52 days.

Jeffrey Hirsch, Pubmatic chief commercial officer, said the company’s early payments gesture was, “announced more internally, [we were] not trying to use it as a marketing tactic.” Now there has been a rebound in the programmatic ad market, there are no plans to continue the program again in the third quarter.

“We are set up to do it again if necessary,” said Hirsch. “We have an extremely strong balance sheet [and we were] able to put it to use in a way that was very productive for [publishers] in a way that was not a significant stress on us to do.”

DSPs often pay later than their stated terms, said TripleLift chief strategy officer Ari Lewine. However, he added, they’ve surprisingly been paying less late recently.

“This is a way of passing on a lot of the goodwill we have been given ourselves,” Lewine said. “Hopefully we can create positive feedback loops where everybody is paying each other a little bit sooner than normal.”

That could be a tad overoptimistic. 

Oarex owes the positive payment upswings to two — temporary — recent trends. The first: Over the last few months many digital media firms had received cash injections in the form of government PPP and SBA loans. (TripleLift, for example, received between $2 million and $5 million, which Lewine said was specifically used to bring back furloughed employees.)

The second: April and May this year, scores of advertisers and vendors began extending their payment terms. Firms that had always historically paid “late” became “early” payers. And not every company has jumped aboard the “early” payment train: Payments late by more than 15 days jumped 54% in June versus May, according to Oarex’s invoice data.

Plus, it’s unclear what the future holds for the economy, given a recent spike of infections in many U.S. states and countries, uncertainty about when a vaccine could become readily available and rising unemployment. IPG’s Magna Global does not expect a global ad market recovery until 2021, but even then, the sector will be $9 billion smaller than it was pre-covid.

“It would take a significant injection of liquidity into a problematic landscape in order for [early payments] to truly be a trend,” said Bernard Urban, CEO at Silverblade, a company that offers accounts receivable financing solutions to advertiser and media clients. “I think there’s a lot of treading water going on and once the waves get a little rougher treading water is going to be harder to do.”

If early payments aren’t a digital media trend that’s likely to stick around once the world emerges from the other side of the coronavirus crisis, perhaps greater financial transparency is one that will. In a highly competitive and somewhat commoditized environment, could showing off a flush balance sheet replace hiring the fancy yacht at Cannes as the go-to ad tech marketing tactic? Well, maybe this year.

Throughout the coronavirus crisis “publisher partners often did want to have a deeper financial conversation with us than they previously had: They wanted to understand how we managed credit and understand our financial stability,” said PubMatic’s Hirsch. “We provided more financial data under NDA than we ever have before to help people feel confident and safe in this environment.”

Now, it is starting to return to the platform as staying off the Facebook advertising ecosystem permanently is untenable, according to Paul Hanges, CEO of JibJab, who added that like many smaller direct-to-consumer brands Facebook is a needed acquisition channel for the company. Facebook now has roughly eight million advertisers, many of which are small businesses that make up the bulk of the advertising spending and that use the platform as a primary customer acquisition channel. 

“We know that a lot of DTC brands didn’t feel like they could participate in July because so much of their new business and their new revenue relies so heavily on Facebook advertising,” said Hanges. “That’s why it felt even more important to participate during the month of July, even though we knew it would impact our business negatively for the month.” 

Typically, Facebook campaigns drive 35 to 40% of total new subscriber volume for the company, said Hanges. At the end of July, new subscriber volume was down 25% compared to where it was trending at the end of June. JibJab has between 1.3 to 1.5 million subscribers and spends between $4 to $6 million on Facebook ads annually, said Hanges, who added that typical new subscriber volume varies by the time of year. 

While JibJab “didn’t see as big of an impact as we might’ve expected,” said Hanges, returning to the platform now is necessary to continue to grow the business. 

Dealing with the losses from a month off Facebook was “never a realistic option for many brands I work with,” said Jeremy Sonne, managing director at Moonshine Marketing, an agency that works with many DTC brands. “Most brands, especially DTC brands that I work with, more than half of their revenue comes from Facebook and Instagram. In a way, it’s a luxury that larger brands have that its even something they could consider.”

JibJab is still figuring out what returning to Facebook looks like and if it will continue to advertise at similar levels to that of 2019 or earlier in 2020. “We’re starting to slowly dip our feet slowly back,” said Hanges. “One of our priorities is diversifying our acquisition set and finding other channels to reduce the reliance of our brand on Facebook advertising.” 

JibJab is testing other channels like Pinterest and Twitter to help broaden its advertising channels as having roughly 40% of its new subscriber volume come from one channel is “risky.” It’s too early to tell what the results from those platforms are and whether or not the company will divert a greater percentage of ad dollars to those other channels going forward. 

As for whether or not JibJab is satisfied with the results of the boycott, Hanges said it’s a “difficult question to answer” as a smaller advertiser. “I’m not in those rooms. We understand our place in the broader ecosystem and know that we are a smaller advertiser who is not having direct conversations with leadership on different sides, so we don’t know all the nuances.”

To survive, agencies have to change how they do business instead of making cuts here or there to manage for the next quarter. As the New York Times reported last week, there’s “a big correction” coming for the agency business. The trouble is this correction of sorts has been staring agency leaders in the face for years. But without an emergency to push them, leaders didn’t make significant enough changes. That’s not to say agency leaders could’ve predicted the coronavirus, but that the need to transform the business was already obvious. 

“Most of the time, agencies can do a little nipping and tucking,” said Allen Adamson, brand consultant and co-founder of Metaforce, adding that the two biggest expenses for agencies are talent and real estate. “But this is such a dramatic drop in the economy that you have to do a reset on how you do business. You can’t just cut a little bit.” 

Cutting a little bit had been the go-to move. During the financial crises of ’08 and ’09, ad agencies were among the many businesses hit hard. With marketers reducing ad budgets to reel in spending and mitigate risk amid a pending recession, agencies naturally had to cut back too. They did so with “hefty layoffs,” said Nancy Hill, founder of The Media Sherpa and former 4A’s president, but “didn’t change the infrastructure, way we work or way we were getting paid, which is what needed to change.” 

This time around, agencies are cutting their headcounts once again. For example, during the second quarter IPG culled 1% of staff across its agencies. Omnicom, meanwhile, cut 6100 jobs. It’s not just holding companies — independent shops like Wieden + Kennedy have also recently cut staffers. Per Forrester research, the industry average for staff reduction is 12%. 

But they’re also cutting real estate. Typically, due to unwieldy long-term lease agreements, agencies are more likely to cut staff than office space during a downturn. Now, with the coronavirus forcing the vast majority of employees to remotely, holding companies are cutting both. During the second quarter, for example, Omnicom trimmed one million square feet of space and IPG got rid of 500,000 square feet of its leased office space across the globe.

Doing so sends a “loud signal,” said Jay Pattisall, principal analyst at Forrester, that agencies are “accepting and embracing that there will be fewer people in less office space” going forward. 

But industry analysts and agency execs say that cutting headcount or reducing space won’t be enough.

“Agencies need to change the economic model,” said Pattisall. “We started 2020, which was supposed to be a pivotal comeback year for the agencies, with most of them hovering around 3% growth. When you’ve got tech companies and consultancies well into double digit growth, it underscores the people-based services economic model has not worked for agencies as they intended it to. This is an opportunity to embrace that change.” 

Some believe that change will be realized in the new agencies that will crop up in the wake of this large disruption. Per Hill, it’s common during economic downturns to see new agencies founded as laid off creatives often start their own shops. It’s already happening: Former BBDO CCO Greg Hahn was cut from the shop in April and announced he was co-founding a new shop, Mischief, by June. 

Still, no matter their size or age, it’s clear that agencies can no longer make incremental changes to deal with the fallout from coronavirus especially since ad budgets are not expected to return to 2019 levels until mid-2021 or even 2022, noted Pattisall. 

“This disruption will force many agencies to rethink how they are structured and how they go to market, not just put a top spin on what they are currently doing,” said Adamson. “It requires starting with a clean sheet of paper.”

Over the past days and weeks, however, it’s become apparent just how precarious a financial situation many organizations are in as industry notables like Vox, the Guardian and the BBC announced cuts, serving as a sobering reminder that there’s still no definitive end in sight to COVID-19’s impact.

Sobering reminders aside, not all trends have been negative. Some publishers, such as those in the news, food and parenting verticals, have benefitted organically from increased traffic and engagement as a result of quarantine and adaptation to work-from-home life, while others have smartly curated content tailored to info-seekers in these changing times.

Yet there is a looming threat to even the most successful publishers: financial exposure to high-risk channel partners and sequential liability. 

Sequential liability could ride the second wave

The underlying idea of sequential liability is straightforward: the company paying a publisher for advertising inventory can delay the funds until they get paid first. The complication, though, is that the programmatic chain is populated by middle players, and middle players sometimes end up with the money, not the publishers at the chain’s end.

Initially designed to protect agencies from the risk of advertiser non-payment, in today’s programmatic ad ecosystem sequential liability has expanded to apply to DSPs and SSPs, ultimately leaving publishers at risk of nonpayment should upstream partners fail. This is exactly what occurred last year when first Sizmek, and later Netmining, went belly up and clawed back millions in owed revenue to partners and publishers.

With ad tech companies operating on razor-thin margins already squeezed to the brink, a second wave of coronavirus could set off a devastating chain reaction of sequential liability. Notably, a number of tech companies, including several DSPs, SSPs and ad management firms, recently received Paycheck Protection Program loans; some following prior announcements of headcount reductions, further indicating signs of financial strain.

Ensuring publisher payment requires proactive steps

Buy-side credit risk poses a top liability for publishers. Yet publishers lack visibility into their upstream risk exposure and must take proactive measures to understand where their demand is coming from — and, better yet, whether their direct partners ensure payment.

Questions publishers should ask their programmatic partners or ad management providers to protect themselves from clawbacks and lost revenue include:

1. Which DSPs contribute to demand and how much ad revenue flows through each of them?

2. What happens if one of those DSPs, or another upstream partner, fails?

3. What protections are in place to ensure the publisher will be paid for all revenue booked?

4. Will each of the publisher’s partners contractually guarantee payments and agree never to clawback revenue, regardless of whether their channel partners pay?

5. Do the publisher’s partners offer any form of insurance policy against sequential liability and, if so, what is the cost to the publisher? Is the publisher already paying for this insurance via withholdings or other revenue adjustments without realizing it?

Publishers should take a partner’s unwillingness or inability to address these questions directly as a sign their revenue is at risk. 

Even if that direct partner is financially stable, a failure from a partner one or two steps up the chain could result in nonpayment being passed on to the publisher via sequential liability. It’s up to the publisher to then consider what is financially at stake and whether continuing with that relationship is worth the risk. That’s a level of caution recommended for all times and circumstances, especially now as the industry navigates the continued impacts of COVID-19.