Media Briefing: How publishers’ commerce businesses can undercut their ad sales and overall revenue

Media Briefing: How publishers’ commerce businesses can undercut their ad sales and overall revenue

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In this week’s Media Briefing, media editor Kayleigh Barber looks at a growing frustration among publishers’ ad sales teams that they are losing clients to their commerce counterparts.

Commerce vs. advertising

The key hits:

  • As publishers go after commerce revenue from affiliate partnerships with brands, advertisers are seeing them less as a brand awareness vehicle and more as another avenue for driving direct sales.
  • Some publishers complain this can lead to less money coming in from certain clients that formerly existed as advertising clients. 
  • For smaller clients with lower budgets, being able to secure attribution from those deals is more valuable than splashing out for a brand awareness campaign, while still getting in front of that publication’s audience. 

Commerce is becoming a more established slice in media companies’ revenue pies as part of the ongoing effort to diversify business models. But as publishers form dedicated commerce teams to forge affiliate partnerships with brands and sell products like guaranteed placements or branded reviews, publishers’ ad sales teams are fretting over losing clients to their commerce counterparts. 

During a working group discussion at the Digiday Publishing Summit in Vail, Colo. — which are held under Chatham House rules, meaning Digiday could share what was said while maintaining the executives’ anonymity — publishers revealed shared angst that some advertisers weren’t renewing ad campaigns because they were scoring significantly cheaper deals for commerce placements at the same publication.

“Has anyone seen their commerce teams sell deals that look like your normal sponsor deals for like a tenth of the price?” said one executive. “You get this other team that has a whole other side of connections, and you look at the overlap between these brands and then you start seeing one deal not renewed. And then you go look at the commerce content they ran in November on Black Friday [and their] biggest performing article made [the company] $4,000 but last year, [that client] bought a $150,000 package for [Black Friday].”

The problem is “hitting a head right now, especially after the pandemic,” thanks to e-commerce skyrocketing and publishers chasing after that revenue, said David Spiegel, a media executive who previously was chief revenue officer of G/O Media and before led sales at Vox Media’s New York Magazine.

“That’s the challenge of having different revenue-driving functions that can satisfy the same partner in different manners,” Spiegel told Digiday in a phone interview. As DTC brands focus on direct-to-consumer sales versus retail placements, this challenge accelerates, he said, because they’re exploring more avenues to place links to products in exchange for a commission fee, giving publishers an opportunity to become a retailer in some regards. 

But that also puts publishers in the position of only being seen as an avenue for generating sales, versus a brand awareness destination. 

Problem 1: Small budgets and client motivations 

Of course, a lot of this issue is going to hinge on the client itself. Some brands have limited budgets, so commerce teams offer cheaper alternatives to large ad buys. Others, however, are seeing an opportunity to get the best of both worlds with the commerce offerings from publishers to get in front of those audiences through a specific product link and spending the rest of their budgets on a splashy experiential campaign or broad social media push.

“It’s certainly a topic of conversation internally for us,” Eve Epstein, svp and general manager of Leaf Group’s home lifestyle brand Hunker, recently said over a video call. “Where I think there is potential for some of that overlap is with some of the smaller DTC brands or independent brands that don’t have huge budgets to begin with [and] tend to be very performance-oriented.” 

These brands either don’t have the luxury of allocating $3 million to a brand awareness campaign or reaching a minimum spend of $50,000 for a branded content deal, but they can afford a guaranteed placement in an editorially curated product round-up post, Epstein said. She would not share the average cost of a guaranteed placement. Brand awareness “is not necessarily something they come to digital publishers for,” she added. “And that is probably where the biggest possibility of that overlap or that conflict could occur.” 

Problem 2: Internal silos limit communication 

But the other factor contributing to this problem comes from teams being siloed within publishers’ and advertisers’ organizations.

“If you have a client where their affiliate marketing business is separate from their brand marketing business, those two channels are relatively separate. Unless you’re commanding significant scale on either side, you’re never going to be able to connect the dots for the client,” said Spiegel. 

The more walls there are on the publisher side, the less communication can occur between teams to discuss the history of relationships with each brand and the rates they previously paid. 

“We have a brand affiliate team and we have an affiliate team that is focused on just affiliate content, and we also work in lockstep with our advertising side of the business to really make sure that we’re not eroding direct deals,” said another exec in the DPS workshop.

Epstein agreed that “aggressive communication” is the most important strategy for avoiding this issue. Once a brand approaches Hunker looking for affiliate opportunities, her team immediately asks the sales team for the brand’s history with Leaf Group. From there, she said understanding both current and prior goals are helpful in explaining to a potential client why a hybrid deal that includes both upper-funnel brand awareness and lower-funnel affiliate opportunities can be mutually beneficial in achieving the client’s goals.

“The more traditional organizations that have not rolled e-commerce or affiliate into the [purview of] chief revenue officer and have it sitting in a separate world are really selling themselves short,” said Spiegel. “They’re setting up a lower-cost model that’s performance-driven and doesn’t offer the benefits that a publisher really brings, which is that combination of brand marketing, awareness, and recommendation to purchase.” — Kayleigh Barber

What we’ve heard

“I find that Reels really cuts off the video that I’ve made and something is wrong with the editing feature.”

Instagram influencer Katie Sands who is this week’s guest on the Digiday Podcast

The Rundown: The New York Times’ Q1 2022 earnings report

The New York Times is making progress on its goal of accruing at least 15 million subscribers by the end of 2027. This is fortunate because the publisher’s advertising business has hit a rough patch that the company expects to only intensify in the second quarter.

“It was our best start to the year in terms of subscriber growth since the launch of the digital pay model in 2011, except for Q1 2020, which was when the pandemic started. We added 387,000 net new digital-only subscribers in the quarter, including new subscribers to The Athletic after the acquisition on February 1st,” said The New York Times president and CEO Meredith Kopit Levien, according to a copy of her prepared remarks released alongside the company’s Q1 2022 earnings report on May 4.

The key details:

  • Total revenue – $537.4 million, up 14% year over year
  • Subscription revenue – $372.0 million, up 13% year over year
  • Advertising revenue – $116.3 million, up 20% year over year
  • Digital advertising revenue – $67.0 million, up 13% year over year
  • Digital-only subscription revenue – $226.8 million, up 26% year over year
  • Total paid subscribers – 9.1 million, up from 7.6 million in Q4 2021
  • Digital-only paid subscribers – 8.3 million, up from 6.8 million in Q4 2021

The good: Subscriber growth

Of course, it helps that the news publisher’s purchase of The Athletic added 1.1 million subscribers to give the Times a tally of 9.1 million total subscribers by the end of the first quarter of 2022. The Athletic wasn’t the only boost to the Times’ subscription business, however. 

The Times attributed a year-over-year doubling in its subscriber conversion rates “in large part to continued enhancements to our use of machine learning to determine when to ask non-subscribers to pay,” Kopit Levien said in the prepared remarks. She did not disclose what exactly that conversion rate is, though.

When it comes to subscriber retention, the publisher’s 19 subscriber-only newsletters seem to be playing an important role. The newsletters have helped to lower its subscriber churn rate, with “almost a third” of the Times’ news subscribers receiving at least one of the subscriber-only newsletters, Kopit Levien said.

Finally, the Times is moving forward with its subscription bundling plans. In Q1, the Times added Games subscriptions to its U.S. print subscription product, which “had no impact on subscriber numbers,” per the company’s earnings report. And in the second half of 2022, the Times will add The Athletic “into a broader Times bundle,” according to Kopit Levien. Additionally, the Times made some tweaks to how it markets its subscription bundle in Q1. While Kopit Levien did not detail those adjustments, she said, “As a result of these optimizations, bundle subscriber additions in Q1 were the highest ever for a single quarter.”

The bad: Digital advertising disappointment

The advertising picture in the Times’ earnings report is less rosy. While overall ad revenue and digital ad revenue each increased year over year, the latter amount fell “below our expectations,” Kopit Levien said. She attributed the shortfall to several factors, including tech companies spending less on advertising, advertisers pulling back budgets because of Russia’s war with Ukraine “and a broader climate of macro-economic uncertainty.”

The ugly: Digital advertising outlook

The digital ad slowdown is unlikely to be surprising nor unique to the Times. In light of the Russia-Ukraine war, rising inflation and the ongoing supply-chain challenges, other publishers have privately expressed wariness as to whether the bounce-backs their ad businesses experienced from the second half of 2020 through 2021 would settle down in 2022. It seems their worries are becoming reality — case in point: P&G reduced its overall spending in Q1 — and are unlikely to abate anytime soon, based on the Times’ second-quarter outlook.

The Times projected that its Q2 digital ad revenue will hardly grow and may even shrink. Excluding The Athletic, the publisher forecast its Q2 digital ad revenue to be “flat to down low single-digits,” per its earnings report. Overall, when including The Athletic’s expected 2% to 4% year-over-year digital ad revenue growth, the company is expecting Q2 digital ad revenue inch up by “low single-digits.” — Tim Peterson

Numbers to know


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