MONETIZATION AND THE GROWTH OF AD BLOCKERS

Lessons from Retail — Part 3 — The Contradictions of Content Monetization
A system that’s moved from monetization-at-scale to fragmented monetization

In our last article, we discussed the fragmentation of the media sector, exemplified by the move away from Owned & Operated networks to traffic driven by third-party syndication on a handful of popular sites. I argue that this is the reality that publishers (and content creators in general) must continue to come to terms with if they’re to stay competitive in a marketplace that’s ruled increasingly by the likes of Facebook, Google, and Snapchat, among others. The big issue, though, is how publishers can rend ad revenues away from these tech behemoths. To do this, we must devise a way to game a system that’s moved from monetization-at-scale to fragmented monetization based on the revenue goals of those third parties.

Understanding the monetization equation. Today, monetization is based on a simple formula:

M = (Tr x Ti) + Q where M is monetization, calculated via RPM (revenue generated per 1,000 page views of a site); Tr is traffic and Ti is targeting Index; Q is content quality.

In theory, the more targeted and relevant your content is, the better your monetization results will be. And, the more stable the system, the better this equation will function at scale. Because our sector is always evolving, numerous factors can influence the balance of the variables, and hence, the end results derived from the monetization equation:

Traffic is determined by plans set out by a marketer as well as the level and quality of delivery that a network is able to achieve. In practical terms, Traffic is organized around three layers of ad sales:

  1. Private Premium Sales: Closed internally by you and your sales team (generally, 30% of total);
  2. Network Premium Sales: Completed through networks and third parties (generally, 15% of total);
  3. Remnant Sales: The wholesale proportion of your impressions (generally, 55% of total).

Each of these layers’ abilities to deliver against a marketer’s plan will influence the quantity and quality of traffic that’s achieved. With the exception of private premium ad sales, this is mostly determined by people and parameters that lie outside of a marketer’s organization, and therefore, this can be a point of instability in the monetization process.

Targeting is multifaceted and depends on the player who’s valuating it: On the one hand, Targeting relates to a publisher’s ability to create verticals that offers a balance between high-bid density (demand) and large-scale audience visibility (supply). The goal is to ensure that a given niche vertical will maximize the monetization equation. An example of this is the New York Post’s strategy with brands like Page Six, Internet Action Force (IAF), and Decider, where new and aggregated content caters to very specific target audiences.

In contrast, Targeting from an advertiser’s perspective is influenced to a great degree by technology and data, and particularly, how well the platforms on which the content is served are set up to slice and dice their audiences to home in on specific, most valuable segments. Again, because Targeting is dependent on marketing planning in combination with technical specs and the quality of a marketer’s data (which is often augmented by second- and third-party data), this is also a point of instability in the media monetization equation.

The third variable, Quality, is difficult to define. If you asked each publisher, they’d likely all say that their content is of the highest quality. In this case, though, the most important definition comes from the consumer. Specifically, do they believe that content is of high enough quality to keep them engaged and interested in the brand over the long-term?

Beyond these three main variables, other factors can also introduce varying levels of instability, such as the degree to which buyers and sellers follow IAB and other industry standards, or in the case of many of the biggest syndication channels — the Facebooks, Googles, Snapchats, and Apples of the content distribution marketplace — do they make up their own rules for how content will be served and displayed. And when one, two, or all three of the variables that make up the monetization equation get out of balance, the most common end result is audience attrition and likely, revenue loss.

Based on the syndication activities of today’s media sector, monetization gets further complicated by various third-party arrangements, so that the equation becomes something more like this:

M = [ (Mo&o) + (% Synd 1) + (% Synd 2) + … ] where M is monetization, Mo&o is the revenue earned from Owned & Operated sites; Synd is the network upon which content is distributed.

The question then becomes how to forecast and plan in the absence of cross-industry standards and economies of scale? It’s a no-win situation for publishers, who must continue to seek out distribution channels for their (and often, their clients’) content. But less revenue means cutting corners, and one area of cut-corners that’s seriously hurting the industry is the quality of the content being produced.

Proliferation of ad-blocking technology.

Remember that quality is a key variable in the monetization equation. If quality is unstable, it affects the ability to successfully monetize content over time. And we need look no further for the effects of poor quality — and targeting, for that matter — than the recent proliferation of ad-blocking technology. Labelled by Forrester as “one of seven greatest privacy challenges for marketers in 2016,” ad blocking is quickly becoming a go-to for consumers who are fed up with brand messaging that they deem intrusive and all-too-often irrelevant. Rising adoption rates point towards a troubling trend that’s set to rock media publishers and distribution channels alike: By mid-2015, one study estimated a whopping 198 million active ad-blocking software–users worldwide, with a cost to publishers of $22 billion for 2015. Along these same lines, The Wall Street Journal cited that monthly users of AdBlock Plus software in the US grew 44% between April and October 2015, totalling 13.2 million people who had used the solution in the US during October alone. And in Canada, the IAB claims that ad blocking has led to a 30% decline in overall ad traffic over the past two years.

If these numbers tell us anything, it’s that consumers feel that ad blockers re-introduce control over their own data privacy (or at least, consumers have a sense of control, because it’s really the ad blockers that are deciding what consumers see). This is where the balance between free content access that’s offered by many ad-serving platforms — including the web’s most popular sites and aggregation hubs — in the name of reaching as many users as possible is clearly hurting many publishers’ revenues.

The new syndication play and its monetization dangers. If monetization relies upon traffic, targeting, and the quality of content, and universally, we can argue that much of the content that gets served these days plays to the lowest common denominator of quality in the name of trying to reach as many users as possible, then our era of third-party syndication is skewing the monetization equation and making it seriously challenging for publishers to get their money’s worth from the system.

There’s very little room for content creators to succeed in the face of unpredictable distribution standards, where different business monetization models fragment traffic, and wishy-washy targeting is leading consumers to disengage from brand messaging by leaps and bounds. Under such circumstances, content creators will slowly disappear, and in the absence of good content, many of the distribution operators could decline in quality and likely, probably disappear as well.

What’s a network with a great platform, but no content Quality? From my perspective, disrupting the media industry without thinking about monetization is not creating value. Ultimately, instability in one variable creates instability in the whole. We’re already witnessing the effects of instability in the longevity of key media companies that have thrived for many decades. It’s only a matter of time before other media outlets feel the pressures of unstable monetization strategies, and the Canadian media landscape is forever changed as a result.

What’s a network with a great platform, but no content Quality?

In Part 4, we’ll explore the team structure that’s necessary to keep media organizations afloat in an industry shaped by omni-channel distribution and fragmented monetization.