Media Companies Strike Gold With Sponsored Content

But When Will the Mine Go Dry?

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A recent native ad for Cole Haan that appeared on The New York Times website.
A recent native ad for Cole Haan that appeared on The New York Times website.

Media companies say they've struck gold in the form of content marketing -- during the third quarter, at least.

Recent quarterly earnings reports show that the practice of disguising ads as non-commercial content -- whether that content is an article from a professional newsroom or a Facebook post from your aunt -- is driving revenue gains at a variety of media companies, from The New York Times to LinkedIn.

Whether it's called native advertising or sponsored content, it appears this practice will stick around for a while, or at least through the next set of earnings reports.

"Content advertising is not a fad," said Peter Minnium, head of brand initiatives at the Interactive Advertising Bureau, an organization that conducts research and establishes standards for digital advertising. "It's actually a core part of the maturation of digital advertising."

The Times reported a 16.5% increase in digital-ad revenue during the third quarter -- the three-month period from July through September -- compared with the same time last year. Fueling the increase, which nearly offset declines in print advertising, was its native-advertising product Paid Posts.

"The biggest drivers are the launch of, and positive growth of, our Paid Post business," Meredith Kopit Levien, the Times' exec VP-advertising, said during a call with investors last week explaining the company's quarterly results.

Paid Posts rolled out in January and will have attracted more than 30 advertising clients by the end of the year. The advertisers -- which Times President-CEO Mark Thompson called a "dream list" of clients -- include Chevron, Goldman Sachs, Netflix and Cole Haan.

With the Times reporting strong digital gains from native advertising, its perhaps no surprise that another newspaper, the U.K.'s Guardian, which has sought to build a U.S. business online, introduced a website redesign last week with plans to offer its own native-ad products in the near future.

New-Media players
While the Times leaned on native-advertising to boost revenue slightly, new-media organizations like LinkedIn, Facebook and Twitter rode native advertising -- or what it likes to call sponsored content -- to dizzying heights.

LinkedIn reported third-quarter ad revenue of $109 million, a 45% increase over the previous year. Sponsored updates, an ad product that allows companies to post articles on the pages of LinkedIn members that don't already follow the company, drove the sharp increase. It accounts for 31% of LinkedIn's ad revenue, the company said, up from just 7% last year at this time. Sponsored updates are the fastest growing business in LinkedIn's history, according to CEO Jeff Weiner.

Advertising sales at Facebook grew 64% compared with the prior year to $2.96 billion. Two-thirds of that revenue came from mobile, where the ads appear within the flow of content and are labeled as "sponsored." Similarly, Twitter's ads also appear within the flow of content. While Twitter's earnings report worried some investors because of its slowing growth in users, the social network's ad revenue jumped 109% to $320 million.

And the blogging platform Tumblr is hoping to reach $100 million in revenue by introducing autoplay video ads within users' feeds. The product, which Tumblr introduced last week, is called Sponsored Video Posts.

But native advertising is not benefitting every media property. Tumblr's parent company, Yahoo, for instance, has seen its pricey display ads falter as advertisers flock to its cheaper native Stream Ads, which appear within the flow of content. This has sparked a chain reaction at Yahoo, where search advertising now outpaces that of display.

Yahoo's most recent hire, Kevin Gentzel, as its head of North American sales, suggests native-advertising might get a second look. Mr. Gentzel was chief revenue officer at The Washington Post, where he helped grow the company's native-ad business. He also spent more than a decade at Forbes, helping to introduce the magazine's content-marketing product, BrandVoice, one of the first of its kind in traditional media.

The IAB's Mr. Minnium, who has led the organization's research on content marketing, said content-marketing will likely become a core part of all digital advertising in the future, along with brand-building ads in video and display and conversion ads that entice people to buy a product or service.

Mr. Minnium also cautioned that this quarter's darling could become a Wall Street whipping boy if the companies' mining native-ad dollars stumble. Content marketing, he said, needs to iron out at least a few wrinkles before it matures further, including measurement, targeting and content creation at scale. "There are real watch-outs," he said.

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