Deep Dive Into Facebook Finds Dim Revenue Hopes for News Sites | Street Fight

Deep Dive Into Facebook Finds Dim Revenue Hopes for News Sites

Deep Dive Into Facebook Finds Dim Revenue Hopes for News Sites

Facebook is getting a lot of pixelated ink these days, but not much is about the social platform’s lopsided revenue relationship with news publishers and whether the short-ended publishers can get a better deal. The most revealing analysis is what’s coming from the  World Association of Newspapers and News Publishers (WAN-IFRA), whose 3,000 publishers (18,000 publications) include some key U.S.-based companies, like the New York Times, Associated Press and Google.

WAN-IFRA’s mission, besides promoting and defending press freedom, is to show news publishers how they can innovate their way to success in a digital world where Facebook and Google, together with the other global platforms, scoop up two-thirds of advertising revenue compared to the news industry.

In this Q & A, Grzegorz Piechota, a research associate at Harvard Business School and Oxford University in the U.K. and digital strategist for news media companies worldwide, talks about his recent deep dive into Facebook for WAN-IFRA and what his findings may augur for publishers in their quest for more revenue from the platforms, especially at the local level:

How many publishers have a real revenue strategy in their relationships with Facebook?
Too few. Seven out of 10 publishers acknowledged in the WAN-IFRA survey that they primarily use Facebook and other digital platforms as distribution channels for their content. This might work for a handful publishers who don’t need to make money in digital, such as media funded by states, oligarchs or nonprofits. For the rest, digital platforms are direct competitors – for audiences’ attention and for advertisers.

Facebook is not some dumb pipe. For over 2 billion users, it’s the biggest “newspaper” in the world. For 6 million advertisers, it’s a niche targeting machine gun.

The model most publishers follow in their relationship with Facebook is, as you say, to build scale off the social platform and revenue will follow. What’s wrong with that?
This revenue is by far not enough. An old assumption of the publishing industry was: the higher the reach, the the revenue from advertising. Rules of the game have changed.higher

Firstly, Facebook and also Google have aggregated audiences at a scale that redefines the term “mass” in “mass media”. Secondly, both platforms have built superior advertising technology that has changed the way advertising is bought and displayed.

As of today, Facebook and Google have out-competed all content creators in digital advertising sales, and, according to different studies, they capture 60-77% of the money spent in the U.S. and 89-99% of the market’s growth.

Going after the same money, using the platform as a vehicle, is like trying to win at the casino. Some venture capital-backed upstarts such as BuzzFeed can perhaps afford to take a gamble but I don’t think it’s a proper play for local and other news publishers whose content emphasizes straight news over entertainment.

How have the big platforms disrupted the news industry?
In three ways: Platforms have 1) unbundled the news media’s products and services, 2) disintermediated access to audiences for amateur content producers and brands and 3) let audiences decouple content consumption from watching the ads that funded that content.

To fix the news business, publishers should address the root causes of disruption.

What exactly should the publishers do to regroup?
Publishers should find somebody else to pay for the content they produce. Changing the business model is usually the best response, according to our studies at Harvard.

Today 82% publishers worldwide focus on making money with digital display ads. Just half of publishers try to sell subscriptions. A third experiment is with e-commerce driven by content. Branded content is the only innovation that is widespread.

When I analyzed the best practices such as the New York Times’ revenue diversification strategy, I saw that reader revenue and branded content offered news publishers greater returns in the short term than do the platforms’ monetization programs, and even greater returns than digital advertising in the long term

How is the New York Times doing with digital subscriptions compared to its advertising driven largely by Facebook, Google and the other platforms?
In 2016, the Times made more money from its 1.8 million digital subscriptions ($232 million) than from all its 122 million non-subscriber visitors ($208 million).

Paid content is not really about monetizing the reach but the smaller number of heavy, deeply engaged users. Total monthly reach is often a mirage – up to three quarters of news site visitors are usually fly-bys who visit once and never return. In 2016, every Times digital subscriber was worth at least 75 times more than a non-paying visitor: $128 vs. $1.70.

Last Thursday saw the shutdown of two highly respected local news publishers centred in the neighborhoods of New York City – DNAinfo and Gothamist. The sites attracted 9 million unique visitors, but that wasn’t enough to generate the level of advertising they needed to make their model work. Your thoughts?
I think local media are key members of the community, and I am sad to learn about the fate of DNAinfo and Gothamist. But what struck me was that those 9 million unique visitors generated only 15 million visits a month, or less than two visits per user over a month. That’s not enough. Acquiring, growing and retaining heavy users should be the pillar of any publishing strategy, regardless of whether the business is driven by advertising or subscription revenue.

WAN-IFRA’s Grzegorz Piechota

Out of 6 million monthly visitors, the Boston Globe has currently 90,000 digital-only subscribers. The newspaper presented me a model in which the Globe could be a profitable digital-only business with 200,000 subscribers and no revenue from ads.

There is a lot to be learnt here from Facebook and Google. They push a “freemium,” self-service advertising model to local businesses worldwide. Entrepreneurs can create Pages on Facebook or Sites with Google, publish simple content by themselves, and invite existing customers to follow them for free. They pay Facebook only when they wish to reach new potential customers, who can be targeted in multiple ways, or guarantee the visibility of their Pages in the News Feed or, with Google, in search results through cost-per-click AdWords, with the option of demographic targeting.

How can publishers make better decisions about their platform strategy?
Facebook and other platforms attract publishers through various incentives (e.g. free publishing tools, analytics, trainings, production fees). They promote their own KPIs as universal (e.g., engagement metrics related to users activities on the platform), and nudge publishers with changes in algorithms (e.g., making video content more prominent or fighting clickbait headlines).

It works like wonder, as the top U.S. news publishers distribute content on up to more than different platforms, from Alexa to Instagram and Snapchat, to WhatsApp. But what’s good for the platform might not be the best for the publisher.

To make better decisions, managers need to have clear business objectives (e.g., clarity on whether the site pursues advertising revenue or subscription). In my report on Facebook, I present different tools to align platform strategies and tactics to publishers’ business models. When doing cost-benefit analysis, I suggest careful evaluation of criteria such as value for the business and to the customer, learnings, or set-up and on-going costs.

You write in your report the ultimate answer is not for publishers to leave Facebook but to “rebalance” their relationships with the platform. How can they do that?
To monetize engagement with Facebook and other platforms, news publishers need to build sound business outside of those platforms, and use them mainly to acquire customers or to expand reach of their branded ad campaigns. Instead of doing a free work for Facebook, publishers can hire Facebook to work for them.

That requires a shift of focus, from following incentives offered by the platforms to business innovation on their own. Even the most prominent digital pure players in distributed content, such as BuzzFeed, are developing business models outside platforms ( e.g., e-commerce).

What about major news publishers — with all their content, don’t they have the leverage to bargain their way to better deals with Facebook?
No publisher, no matter how reputable or big, has much bargaining power with Facebook. Imagine if the New York Times or Washington Post threatened to abandon Facebook to get a better deal. What happens? Nothing. The Times publishes something like 250 pieces of content daily and the Post, counting articles it aggregates or which are written by robots, about 1,200 pieces daily. But Facebook publishes 2 million pieces of content for U.S. users every day. So together, a Times and Post blackout would affect less than 1/10th of 1% of Facebook’s content.

What do you think about the new monetization programs that Facebook is offering the publishers, in particular subscriptions?
It’s great that Facebook tries to improve its monetisation programs, but I am afraid it’s unrealistic to expect the revenue share from platforms is ever going to make publishers fully sustainable. WAN-IFRA members reported Facebook contributed on average 7% of their digital revenue, with the median only 3%. A quarter of publishers said they had never seen any money from Facebook.

Some publishers in Europe and in the U.S. believe they might force platforms to share more revenue through collective bargaining, or lobbying for regulatory action. Publishers are right to demand more for the value they provide, and some platforms such as Facebook seem to share lower percentage of their revenue with content producers than other platforms such as YouTube, or Spotify. Anyway, as my calculations show, even if you force Facebook to share all its revenue, it’s not going to fund the news industry worldwide.

In the end, it’s not Facebook that is the biggest disruptor to the news business. Consumers are. They prefer to access content aggregated from many sources, curated by algorithms, and they hate irrelevant and disruptive ads. Publishers may kill Facebook but consumers are going to find another way to get what they want.

Tom GrubisichTom Grubisich (@TomGrubisich) has written “The New News” column for Street Fight since 2011. He is also working on a book about the history, present, and future of Charleston, S.C.