Last week one of the world's biggest publishing companies for both online and print, Conde Nast, announced a major shift in focus -- one that is squarely directed at reducing the company's dependency on advertising dollars, which currently account for 70% of its margins. According to the New York Times, Conde Nast's CEO, Charles Townsend, stated, "We have been so overly dependent on advertising as the turbine that runs this place, and that is a very, very, risky model as we emerge from the recession."
Conde Nast's point of view isn't at all unique among the world's largest publishers, nor is it unreasonable for them to want a more balanced revenue strategy. However, moving away from a heavy reliance on advertising dollars to greater dependence on selling content to consumers is an even riskier model. Publishers looking to charge consumers for (or more for) their content are making two bold and unproven assumptions:
Assumption No. 1: Consumers are loyal enough to your brand to overcome their desire to consume free, or highly subsidized, content.
Among Mr. Townsend's quotes was that "people pay $180 per month for a cable bill," which gives him some confidence that people would pay for Conde Nast content. It is impossible to ignore the glaring differences between Conde Nast and a cable company, including that cable companies have geographic monopolies, own the connection to the home, and although people generally disdain them, cable delivers hundreds of channels of content and often the home's broadband connection. Even if Conde Nast could somehow bundle all of its offline and online content into a single offering (there is a rumor that they will try to organize all of their online audiences into an ad network), it would pale by comparison to even the smallest cable company.
Assumption No. 2: Advertising prices are going to continue to free-fall.
In contrast to consumers not wanting to pay for content, advertisers are keenly aware that they have to pay for advertising. But advertisers don't often have the loyalty to publishers that the publishers wish they did. The days of "Mad Men" are over; we are in the age of Math Men. At the end of the day, advertisers need to see significant return on investment for their ad dollars. And advertisers will pay more, and are right doing so today, for placement with proven return on investment. This trend of higher-priced ads from publishers with a track record of ROI for marketers will continue with the advancement of advertising targeting technology.
There is a lot of innovation in targeting, particularly in the online ad space, that is providing advertisers with better performing campaigns. Advertisers can target highly valuable audiences that large publishers -- like Conde Nast -- might have spent years attracting. Combined with the advent of more efficient ways of buying media, like Real Time Bidding, some publishers are seeing pricing for segments of their traffic increase by more than 90%.
Publishers that understand and master how to sell this growing demand of audience-based advertising will see their ad revenue go up significantly while retaining advertiser loyalty. No one is suggesting that advertising alone will cover Conde Nast's online and offline content costs (which are high compared to many other media companies) but it argues that online can make a more significant revenue contribution than it has in the past and almost certainly higher than the risky move of asking their readers to pick up the slack.
There is no doubt that publishers should be thinking about new strategies to make sure that they can continue to grow and be profitable -- but improved advertising needs to be their major focus. Major publishers which invest in the infrastructure that will allow them to sell audience-based advertising will be best positioned to capture the growing dollars associated with audience-based advertising. Large publishing companies in particular have an advantage to better monetize their advertising by leveraging the unique audience they spent years building in conjunction with their ubiquitous brands. If they lose that audience because of charging for content, they might do more damage to their revenue than good.
|ABOUT THE AUTHOR|
Rajeev Goel is CEO of PubMatic, which helps publishers manage their ad inventory. Previously he was senior director of product marketing at SAP and has a background of advising technology clients and launching start-ups.