Wolves, wimps…. or frogs

Hey, News Media. Are we wolves, wimps…. Or frogs?

It is the digital intermediaries who are destroying the news industry, not any reluctance by advertisers, or disinterest of readers. If, as media-owners, we don’t have the guts to take these guys on regarding our revenues, then perhaps our story – and future  lies in campaigning for the wider impact on society.

From Watergate, to the Panama papers, our medium has shown the ability, brains, power and guts to topple governments, and change the world.

So why have we let a bunch of up-starts, some barely out of university, reduce us to a point of extinction?

It’s simple. We’re frogs.

Back around 1985, we found ourselves in a pot of cold water, into which a new generation of interlopers arrived, auto-magazines, property guides. We half-heartedly took them on, after all we were the news. They were just an irritation.

By the mid ’90’s we saw the internet as our own. We were the content. We were the news. The waters were warming. We remained oblivious.

One way or another we’re about to be yesterday’s news. And it’s not because those selfish readers suddenly won’t pay for content. They never really did. Do Sky, Fox or CNN survive on content revenue? Would BBC licence payers, pay only for a news service.

Readers paid for a package of content. And they paid for the cost of materials and distribution, which accounted for most of the cover price revenue. Then suddenly a whole new generation of willing digital news suppliers and distributors turned up who we – OK perhaps grudgingly – welcomed with open arms.

Ad Trading. Just who is the sucker here?

The word “antidisintermediation”, first crossed my screen back in 1998, The deliberations at the time boiled down to: “What the hell does that mean?”

Well, whatever it was, we sure didn’t respond well, and as usual things didn’t quite work out as expected. Back then we media owners were scared of being disintermediated, and that advertisers and consumers would soon be arm in arm, happily coexisting without us.

18 years on, things are far worse than that.

Instead of three in the bed and one falling out, there is now a dysfunctional bacchanalia of desperate swingers, all seeking their own gratification. What was once our party has been overwhelmed by a whole new generation of rampant gate-crashers, as this well-worn graphic from Luma illustrates.

luma_huge_universe.jpg

By my reckoning, by the time the advertisers’ pound arrives at the media house, only 27 pence XX is delivered in terms of ad effectiveness. And my sums are being generous.

This pitiful frog still doesn’t realise it must jump out the pot. Extinction awaits.

Let’s be clear about what is going on here………

If you do one thing today, other than drag your way through my rant below, find a minute to read a Linked-In post from Marcus Brook of Redfox Media,  a thought leader in understanding the relationships between businesses and customers, and the man who I genuinely believe has the solution to the news-media’s digital woes.

With a salute to Michael Porter’s Five Forces arena of market competition, let’s start by identifying the all the players who now congregate what used to be the simple value chain between an advertiser, the media, and the consumer.

First off the traditional media planner/buyers Their 15% commission (originally paid according to the strange notion that agencies were rewarded for bringing revenue to the publishers), are an established, if arbitrary wheel oiler, most of which is now rebated to the advertisers; a discount. Media buyers are transparently pressured to demonstrate the best ROI for their clients. We can all live with that.

The there is the myriad of new media entrants, from Google, Facebook, Twitter through the panorama of other tiny to humongous players. Like all successful businesses, their strategies and products have evolved over time, as market opportunities have opened.

Beyond this group, another generation of ad-servers, programmatic systems, content integrators, disseminators, and data guzzlers are land-grabbing for power and money. For exorbitant shares of revenue, they add little to Porter’s arena, while diluting the value chain where the medium bonds the seller to the buyer.

  1. The ad-servers such as Double Click (Now a subsidiary of Google/Alphabet) are distorting the triangular relationship between advertisers, the media and consumers. Worldwide they have sucked the value out of both an advertisers’ effective/efficient delivery of their message, and the publishers’ ability to make a fair return for the access they offer to potential customers, be it quantitative or qualitative.

Meanwhile programmatic algorithms probably dilute an advertising message’s effectiveness by at least half [Data to follow].

According to SmartInsights: “Across all ad formats and placements [The Ad Click Thro Rate] is 0.17% So, this is less than 2 clicks per 1000 impressions showing the difficulty of driving response from online ads”….. Never mind the notion that publishers get paid a paltry proportion of rate per click.

  1. Next up Ad-blocking. According to Pagefair during 2016 Ad-Blockers – a bunch of low tier coders, with a grudge – will suck out nearly a quarter of US digital ad revenue, and an eye-watering $41 billion of the $200 Billion global digital ad economy.

How about this conciliatory quote from CNBC: Ad blocking software makers such as Shina have been on the offensive and in February, the Israeli company’s chief marketing officer called its solution a “nuclear weapon” threatening the industry.” By that he means the news industry.

OK, a part solution is approaching, with more and more traffic being peer to peer, via mobile apps. This is well explained in Marcus Brook’s LinkedIn post.

“Ad Blockers only work in browsers. Only 11% of content consumed on a mobile device uses a browser, 89% is served in an app. Apps don’t support cookies, so the 3rd party ad tec, that is no longer in the publisher’s interest, doesn’t work in app.

Apps, stop ad blockers, don’t work with cookies and, with the explosion of mobile, deliver the majority of audience. Publishers build the app, publishers control the app, publishers are back in control.”

Apple  – along with other operating systems are now introducing ad-blocking software on devices so, on the one hand they’re taking revenue share for our content via the app store, and on the other depriving us of ad revenue.

Yet over-time we have all become so desperate for short-term gains in audience or revenue, that we’ve turned to anyone who promises us more jam today.

  1. The curators/aggregators. So it was no surprise that almost in unison Facebook were offering publishers “Facebook Instants” as THE news solution while Twitter created the “Twitter Moments” and “Apple News” Google responded with their “Accelerated Mobile Pages (AMP)” project. All of these promoted as “tools for publishers”, but in reality are tools for suckers.

Two weeks ago among the mails I received, were three – completely unrelated, on completely different matters – from CEO’s of publishers in three different countries. Each of them alluded to the challenge of Facebook, and the effect it was having on revenue. Duh! When was this not going to happen?

A week ago Facebook introduced an algorithm that blocks the blockers. Nice.

You can find a good analysis of it all here:

  1. Customer data. Then there is the not insignificant battle about who owns the customer data. The advertiser? The media house? Or one of the myriad servers or walled-garden players – Apple, Google, Facebook….

As Marcus describes it: “Ad serving is done by 3rd party tec in almost every web site on the planet. All of the data the 3rd party tec harvests is based on cookies. Cookies can only be served in a browser. This tec harvests subscriber data to determine the audience profile of the site. So the third party tec owns the knowledge on the relevance of the audience to an advertiser. This arbitrage is not in the publisher’s interest. Publishers need a solution that puts them back in control of the advertising that is served to their audience.”

In all the fog of this continually evolving, ever fluid phenomenon that is digital, one thing is paramount. He who owns the customer is king.

Yup! Once content was king, but sorry fellow citizens, he’s been deposed; by an unwelcome invader from an alien world…. and we need it back!

Customer knowledge, is a fundamental aspect of restoring the advertiser-media-consumer value chain, and regaining this control is essential if we are going to return to competing on the quality of our content.

As Marcus points out, most people download their app, whether free or paid-for, from an app store. And who own the app-stores? Once again knowledge, control, and value are sucked from the process.

So here is the math VERY DRAFT FORM:

[AWAITING FINAL CLARIFICATION]

As I say above, around a quarter of an advertiser’s investment ends up in effective delivery.

Rather than disintermediation pushing us out of the bed, a whole new generation of value and knowledge suckers have intervened to not only screw the media-owners, but the advertisers as well. News media are Tarantino’s gimp in a Sartresque nightmare.

The long awaited mobile revolution is certainly growing the news audience, but this will only result in real revenue benefits if publishers and advertisers work aggressively, in concert, stop all this crap, even if it means taking a hit in the short-term.

To-date, there has been little real action other than endless numbers of conference sessions, committees, discussion forums, lamenting the unfairness of it all…..  boo hoo sucks….., while cautioning against standing up to the bully-boys.

It reminds me of JK Galbraith’s brilliant description of how leaders responded to the economic crisis of 1929:

“To suppose that President Hoover was engaged only in organizing further reassurance is to do him a serious injustice. He was also conducting one of the oldest, most important – and least understood – rites in American life. This is the rite of the meeting which is called not to do business but to do no business. It is a rite which is still much practised in our time.”

Just as the banks failed in 1929 and 2007, so the ad-trading process is now threatening the equilibrium of the advertising econometrics, with a consequential impact on advertising’s role in the economic multiplier. No amount of prognostication is going to avoid the fact that too much of the digital economy is in the hands of too few, all at the expense of the news industry.

So what needs to be done?

Forget paywalls. They are a consequence not a solution.

One thing that ain’t going to guarantee survival is the pay-wall.

When The London Times introduced its own system back in 2010, I argued that ultimately it would fail. Notably News UK, subsequently introduced and then dropped their daft paywall on The Sun and CEO, David Dinsmore hasn’t discounted the idea of abandoning it on The Times.

Facts: While the Telegraph and Guardian’s digital services more than double their print readership – The Times manages max 6%.

Most significantly, while ratio between the Times daily to monthly print audience is line with its competitors, its digital audience falls way behind. In other words. The pay wall has cut its audience to around 2% of that of it’s competitors, with no demonstrable impact on audience loyalty.

The figures below are enough to demonstrate that the News UK model is unstainable:

It’s only a matter of maths and time. I argued that as digital audiences grew in breadth and depth so advertising revenues would grow with them. That this hasn’t happened is not because of advertiser’s reluctance to adopt digital communication, nor indeed place advertising on news media sites. The problem for advertisers and publishers alike is that the ROI value-chain has been screwed.

To anyone who says The Times is better off with a pay wall that delivers 5% of the monthly audience or 4% of the daily audience of the Telegraph, I say your maths is bolox, and if it’s not, sorry Rupert, are you really saying that it’s more important to restrict your editorial influence to a fraction of what it could be, because your sales folks won’t stand up to the value suckers. Come on!!

This has to stop. Not after the next conference, or learned paper. Now

The first step is for the news and advertising industries to collaboratively develop a new set of competitive trading protocols, with the following objectives:

  • Protect the customer data, that should be the preserve of the media owners and advertisers
  • Enable direct control of advertising planning and scheduling
  • Contain suitable coding so that advertising and content cannot be differentiated
  • Provide a transparent system, which minimises the cost of facilitation between the advertiser/media-buyer and media owner.
  • Ensure that the system is competitive between all players

The last time I suggested industry collaboration – ten plus years ago – to create a single point, digital news-stand, within which all publishers would compete, I was told that even discussing such monopolistic skulduggery was “Illegal”. Well, let’s get real here. We need rough-tough collaboration, and the likes of Google, Facebook et al, are in position to cry foul.

As Bloomberg reported: In the USA, Google and Facebook account for 64% of all internet advertising, “while smaller companies lost market share”. The quote continued: “Smaller companies will continue to operate in the shadows of the industry’s two dominant players”

In the past, governments were hell bent on stopping news media companies from expanding in the name of monopolistic practice.

Yet now we have two or three US based companies distorting the global advertising economy, and reducing the contribution advertising makes to the economic multiplier. We have Microsoft’s Windows’s dominating the world’s operating systems, with Google’s Android and Apple monopolising the mobile world. These three US companies, now control not only the world’s operating systems, but also the world’s financial system, commercial collection and ownership of customer data, the transacting of advertising, and the dissemination of news. Just imagine what one Donald Trump would do with that lot if he could.

Let’s not blame messrs Gates, Bryn, Page and Zuckerberg. Like Rupert Murdoch, who is continually criticised by his competitors for dominating the markets he serves, they are only where they are because governments choose to let them.

Airbus was created to stop the domination of Boeing. Bell Corp and ITT were broken up.

In Europe we have to recognise that three or four US corporations are no longer simply sucking out the value chain of advertising, but are threatening far wider areas of society. Not that in the US, their role is any less distorting.

News is on the brink of extinction. But the story is now far bigger than that. 17Perhaps a more noble cause is just what we need to get our act together.

If we news folks are capable of toppling governments, sending rogue businessmen to jail, making or breaking celebrities, surely we can stop this relentless domination – that is destroying our industry while affecting many other sectors of society.

Or are we just too scared?

© CHISHOLM 1608