Ad-Tech Expert’s Advice to Local News Publishers: Pivot to Digital Subscriptions

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Digital advertising is rife with controversy. Advertisers complain about “garbage” publishers. Publishers complain about the “ad-tech tax” in programmatic advertising that reduces their revenue yield to as little as 30% to 40%. Users complain about intrusive ads, especially “auto-play” videos that blare at them from stray placements on their screens.

Often in the middle of such controversies is Ratko Vidakovic, founder and principal of the Toronto-based ad-consulting firm AdProfs, which advises marketers, agencies, publishers and institutional investors on how to navigate through the complex industry landscape without getting entangled in its many roadside hazards.

Vidakovic writes sometimes biting industry explainers for AdProfs’ “This Week in Ad Tech…” and Third Door Media’s daily Marketing Land. In an article in AdProfs, he bemoaned “misaligned business incentives” on the advertising side: “Most agencies are compensated as a percentage of media spend, so there are few financial incentives for quality. It’s similar for ad tech vendors, where a big chunk of revenue [from programmatic advertising] comes from a margin in media spend. Many companies turn a blind eye to bad behavior and other quality issues, because it affects revenue.” 

In this Q & A, Vidakovic talks about the often rambunctious world of digital advertising and how news publishing fits into it – not always so well:

You describe ad technology as a “very murky industry with a lot of smoke and mirrors.” How do you help your clients find their way around?
It can be a hard world to navigate, not only for beginners but also seasoned professionals. I spent the last six years living and breathing ad tech, so I understand how the sausage is made, so to speak, and how the programmatic advertising ecosystem works in practice.

During my time in the industry, I kept noticing a lack of good education in the market. I learned a lot about the inner workings of digital advertising technology, but I wasn’t sharing it. So, seeing an opportunity, I branched out on my own a year and a half ago and started AdProfs.

The mission of AdProfs is to help educate the market, spreading knowledge as much as possible, to help a wide array of clients navigate their way through a complex industry landscape. The reception and support so far have been overwhelmingly positive.

The landscape you describe isn’t that hospitable to news publishers, who are capturing less than 1% of the growth in U.S. ad revenues, while Facebook and Google corner 99% of growth. Yet publishers score well above Facebook in user trust, according to a recent BuzzFeed survey. Can publishers capitalize on that trust factor to grow their meager share of ad revenue growth?
Publishers can capitalize on those numbers, but not to capture more ad business from Facebook. Publishers can use their elevated trust to produce remarkable, in-depth content that readers can’t get anywhere else, and charge for it via subscriptions — the key phrase being “remarkable content.”

Basic news coverage is completely commoditized, and a subscription model is not viable on commodity content. It can only be sustainable with unique, comprehensive reporting that cannot be found anywhere else.

This obviously requires a shift in mindset, but it’s the only way to successfully move to new business models.

You’ve written that advertising is a zero-sum game, where spending always tracks GDP, which appears to be stuck in the so-so 2%+ range. Should news publishers resign themselves to this predicament, or can they increase the size of their pie slices, like with “header bidding,” the supplementary auction where publishers have more control?
Tactics like header bidding can help news publishers squeeze out some incremental revenue from their digital properties, but the overall trend does not bode well for them. Most digital news publishing operations are grossly overstaffed as it relates to advertising revenue.

Most publishers are caught in a no-mans land where they employ too many people in relation to their ad revenue.

Squeezing a little extra ad revenue here and there won’t solve the fundamental business problem. The old business model is obsolete – as Ben Thompson of Stratechery has written – which means publishers need to either severely reduce head count, or move to subscription business models. Neither option is easy, but the right path is often the hardest one.

Is there any way that news publishers can stop the giant platforms like Facebook and Google from continuing to increase their slices of the ad pie?
The only real solution is to rethink the business model for news.

Do news publishers know enough about their readers’ attributes and behavior to convince marketers they have the right audiences for high-visibility premium placements that earn higher CPMs?
In the context of local news, I think reader attributes are less relevant to advertisers, given the lack of scale. Targeting based on audience attributes generally requires scale to make sense, which is why Facebook is so dominant.

I don’t think programmatic advertising is the right solution for local publishers looking to maximize their revenue. For local news sites that serve a specific community, the only viable advertising route is premium direct sales of site sponsorships, but even that route is tenuous and not likely strong enough to support most local news publications.

Intrusive ads – especially videos – appears to be a big factor in the increase of ad blocking – which PageFair said is being used by 309 million of the world’s 1.9 billion smartphone users – 16%. Do publishers share responsibility for the abuses that promote ad blocking?
Publisher have a natural responsibility for the ad units they run on their sites. I understand publishers are in a very challenging position, and the temptation to add intrusive or obnoxious ad units to their sites must be very high.

No publisher that cares about being a trusted brand would, for example, add auto-play videos or ghastly content recommendation widgets to their sites. But because those ad units bring in thousands of dollars each month, sacrifices in user experience are made for simple economic reasons. The rapid rise of ad blocking is the consequence of those seemingly straightforward economic decisions.

You’ve mentioned a couple of times the digital subscription option. Should local news publishers make an outright pivot and put more energy and creativity into converting their readers to digital subscribers?
Yes. Local news publishers simply cannot compete with Google and Facebook when it comes to scale and distribution, which is what many advertisers want. What local news publishers can offer is highly focused reporting and investigative journalism that cannot be easily replicated, thereby justifying paid subscriptions.

Subscriptions should be the core focus for any local news publisher. Focusing on advertising — especially the programmatic variety — would not be at the top of my priority list if I were a local publisher.

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.