Member Newsletter
Over the years I’ve written about structural problems in the digital news industry, often driven by the growth of platform monopolies and other issues. Just in the last few months and even in the last few weeks we’ve seen a new round of publications shuttering or pivoting to publication zombiehood. So why is this happening? Why is your favorite news site suddenly going under? If you’re listening you’ve probably heard the story in general. But I wanted to share some numbers with you that I think will make it much more concrete.
(I think we can add something to the equation here because for a mix of business and personality reasons, we’re willing to share very granular dollar figures that very, very few other publications are willing to share.)
This chart which I just made shows the exact dollar amounts TPM brought in over the previous eight years through programmatic or “third party” advertising. As I think is pretty clear, if this is your business, you’re dead. You don’t have a business.
Now let me add some context. But just to break the suspense, there’s really nothing I’ll say that makes this any less bleak than it looks.
There are two broad categories of advertising for digital publishers. There’s direct advertising and programmatic advertising. The former is where you’re directly selling ads to advertisers. Agencies can and usually are involved. But still you’re trading on the specific needs and goals and attributes of particular publications and particular advertisers. The advertiser or someone working on its behalf is making a decision to advertise on a particular site and usually purchasing a portion of inventory, sometimes customized, in advance. The sales process itself also plays a big role. I’m focusing on the programmatic part of the ad business because it’s as close as you get to a pure commodity market for advertising, where you can see the state of that market with all those other factors filtered out.
Now, there are a few caveats. The first is that our number of page views and thus ad inventory is smaller today than it was in 2016. That is in part because social networks now direct a lot less traffic to publications. (We’re actually much less affected by this than most other news sites since we were never very dependent on social traffic.) Another caveat is that we are now heavily focused on memberships. So we restrict access to maximize our subscription business. That reduces page views and thus ad inventory. We also sell a subscription tier that has no ads at all. But on balance what you’re seeing up there is the collapse of the ad market rather than anything we did.
There’s one final issue which is that, in the nature of things, as this revenue stream bottomed out, we focused our efforts more on ones that were growing. But to avoid any confusion, it wasn’t like we thought, “Oh we really didn’t need that $1.7 million.” Believe me, we really, really needed it.
The other point is that the decline of social media distribution is kind of part of the same story. A big part of this collapse is the growing monopoly power of the social platforms. Reducing traffic they send to publishers is another part of their evolution. So that part of the story doesn’t qualify the ad collapse story. It’s actually just another part of it. And the other qualifiers I mention are largely our reaction to the ad collapse. So really, that chart is every bit as bad as it looks.
And just to underline the point: that number up there was a central part of our business.
Now, you might be asking: “How the hell are you still in business, Josh?”
Basically, good timing. At the end of 2012 we launched our membership business. We started really trying to grow it in 2014. By the time you see that drop off starting in 2017 and 2018 we actually had a decent amount of momentum with our subscription business, and then it was a race to build the subscription business at least as fast as the ad business was collapsing. I remember telling a colleague, “We’re going to have to swap out the engine while we’re in flight.”
If you look at that graph you can see that if your business was ads and remained ads you’re toast.
What may not be as clear is that if you figured out that subscriptions were necessary in 2018, as many publications did, you’re probably also toast. Because you simply can’t start a subscriptions business on a dime, unless you have access to a lot of capital to build it. Most of these publications don’t have access to that kind of capital. And the key point is that the VC infusions that most of these digital publications were based on for very good reasons did not want to buy into subscription businesses. The potential growth and profit margins, the upside, just don’t merit it.
So again, why did your favorite publication go under? Look at the chart. People often assume the cause is mismanagement. And having watched this industry for a quarter century I can tell you that there’s a huge amount of that. But when you have a business model crater this totally and this fast it’s going to take the sloppily run and the well run businesses down together. To survive you needed to see what was coming in advance, have a publication that could make the transition to a very different business model and have a good deal of luck.