Editor’s Note: All opinions in this post are my own, and do not reflect the views of my employer.
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In the late ‘90s and early ‘00s the music industry was a mess.
The predominant distribution model at the time, full album sales, was broken. For decades, the music industry did what dozens of others had tried before: bundle a few hits with several duds, slap a high price tag on the batch, and laugh all the way to the bank.
Sure, singles had existed since the vinyl era, but the profit margins were significantly lower for the businesses that had to manufacture and store the physical units.
Ticked off and tired of paying a premium for unwanted music, consumers flocked to illegitimate music platforms (like Napster and Limewire), that offered fans the ability to illegally download unbundled singles for free.
Along came Apple.
Then, on April 28, 2003, Apple introduced the iTunes Music Store.
A digital marketplace for music wasn’t a novel concept. Several tech companies, and even some of the record labels, had tried to make music catalogs available to users online. But these platforms were often clunky, expensive, and limiting — both in terms of the artists featured and the devices that could support the fragmented file types.
Apple had two big things going for it that no other company had: the iPod and Steve Jobs as a negotiator.
The iPod was already huge.
By the time the iTunes Music Store had launched, the iPod was already on its way to becoming one of the most popular devices ever sold. By July 2002 — just 10 months after it debuted —the iPod had already sold 600,000 units. By the following year, the iPod had passed one million units sold.
This meant one thing for the record labels.
Reach.
Each one of those million iPod owners was a potential customer for music sales. This created an opportunity to generate enormous revenues, the labels thought, if the volume of sales offset the losses incurred from the lower margins.
And boy, did Apple deliver on volume.
In its first week, the iTunes Store sold more than 1 million songs. Within five years, it had sold more than 4 billion. By 2013, Apple had announced its 25 billionth music sale.
But reach didn’t mean revenue.
At least not for the record labels.
Apple’s built-in user base gave Jobs leverage at the negotiating table. When the iTunes store launched in 2003, all 200,000 songs were available to purchase for just 99 cents — a bargain next to a $20 CD at Walmart or Best Buy. Additionally, Apple was able to negotiate a generous 30% transactional fee for every iTunes sale, further eating into the margins of the record labels.
By the late 2000s, music executives had started to complain that the current iTunes pricing model was one-sided — they wanted more flexible pricing and a cut of Apple’s iPod and iPhone sales. Jobs eventually gave in to the first request — allowing labels to select from one of three pricing tiers — but by that point, the damage had been done. By 2010, music sales had dropped by 32 percent. By 2014, they had more than halved when adjusted for inflation.
“I think they’re regretting they gave all that leverage to Apple […] The problem was, it created kind of a juggernaut.” — Kevin Conroy, former new-technology president at BMG (Knopper, 2009)
Of course, not everyone made out poorly. Apple continued to sell music at a staggering pace – and soon followed that offering with movies and television shows. Within years, it had become the world’s largest music retailer, and also the most valuable company in the world.
“His stock went from $8 billion to $80 billion and ours went in reverse” — Roger Ames, former CEO of Warner Music Group (Knopper, 2009)
Here we go again.
The publishing industry is currently in the midst of a similar crisis.
Just as the music industry experienced in the ‘90s, the once-standard unit of media consumption — the newspaper or program — has been unbundled into millions of individual articles, Tweets and YouTube clips. This unbundling — along with a swell of upstart media companies — has increasingly conditioned users to believe that media should be free to consume.
Social saviors?
One of the few saving graces for many publishers the past few years has been social media. Social platforms, like Facebook, Twitter, Reddit and Pinterest, have proven to be major referrers for publishers.
And at first, this traffic came free of charge.
The platforms were quick to explain that media was an important part of their ecosystems, and that users showed an hefty appetite to consume it (though some skeptics suggested that this traffic was artificially inflated to get media companies hooked).
As referral traffic grew, publishers scrambled to feed the beast — making significant investments in the form of product updates, ad buys and human resources.
And it worked — for a while.
Many publishers began reporting upward of 50% of their traffic being referred from social networks (Facebook frequently being the largest referrer).
But in late 2013, that started to change.
In August 2013, Facebook announced a major update to its algorithm aimed at limiting the reach of low quality or meme content. The result was a swift reduction in traffic to several publishers — most notably, viral content site Upworthy. Shortly after, other publishers began to report a steady decrease in the reach of their organic posts.
“Competition in News Feed […] is increasing, and it’s becoming harder for any story to gain exposure in News Feed.”
Pay to play.
Increasingly, businesses realized that to get exposure in the news feed, they needed to pony up. Brands and publishers alike flocked to Facebook’s ad platform, promoting posts in order to boost their overall reach.
“Paid media on Facebook allows businesses to reach broader audiences more predictably, and with much greater accuracy than organic content.”
Facebook’s next act.
Many assumed that this would be the new normal on Facebook; the businesses that could afford to promote their content would continue to benefit from the traffic firehose.
But in October 2014, New York Times columnist David Carr published an interesting note about Facebook’s hopes to create a better media consumption experience on the platform.
“[Facebook] has been on something of a listening tour with publishers, discussing better ways to collaborate […] One possibility it mentioned was for publishers to simply send pages to Facebook that would live inside the social network’s mobile app and be hosted by its servers; that way, they would load quickly with ads that Facebook sells. The revenue would be shared.”
This wouldn’t be the first time Facebook tried to host journalism within its walled garden.
In late 2011, the social network announced a partnership with several publishers to create social news apps (also called social readers) that lived on Facebook’s servers. At first, these publishers reported staggering usage. However, after just a few months, the partners began to jump ship, citing lower traffic volume after an algorithm change, and user privacy concerns.
More recently, Facebook has been pushing media companies to natively upload their videos to the platform, rather than posting links to YouTube or a first party player.
According to a 2013 study by social analytics firm Socialbakers, videos uploaded directly to Facebook reached a wider audience than links embedding a YouTube player.
Would Facebook throttle back the reach of links to other media sites in favor of content hosted on its own servers? It’s not incomprehensible.
A growing trend.
Facebook is not alone in its mission to become a one-stop shop for media consumption.
Last month, ephemeral messaging app Snapchat announced the launch of Snapchat Discover, “a new way to explore Stories from different editorial teams.” Discover showcases content from 11 launch partners — including CNN, ESPN, The Daily Mail and Vice — within the Snapchat experience. While much of the content is repurposed from the parters’ owned and operated properties, some publishers have started to release stories exclusively on the platform.
But why would a media organization invest resources to create content that will only be consumed within the walls of a tech platform? Simple.
Reach.
Snapchat reportedly has 200 million monthly active users. That’s nothing compared to the 1.4 billion monthly active users on Facebook (890 million of whom check the site daily), but the messaging app is growing rapidly, especially among the coveted millennial demographic.
That reach means two things to publishers: the opportunity to expose a new audience to their brands, and the potential to monetize those users.
But these brands might soon find out — just as the record labels did before them — that obtaining reach often requires compromising control.
What’s at stake?
Most media companies generate revenue in one (or two) of three ways: subscriptions, advertisements, or affiliate fees.
Each of these models works most effectively if consumers have a deep level of engagement with the publisher or networks’ owned and operated properties (a webpage or television station).
The New York Times for example — which is a subscription business (with some ad support) — has noticed a direct correlation between the number of articles consumed in a month and that user’s propensity to subscribe. Businesses supported by display advertising (banner ads) rely on users consuming multiple page views per session in order to generate more ad impressions. Television networks negotiate affiliate fees with cable operators based on a channel’s popularity and market power.
There are a number of strategies that media companies employ to increase user engagement on their properties. Retargeting, personalization, sequencing, and email & social marketing are just a few ways that publishers bring audiences back to their sites and keep them there longer. None of these tactics will be possible if media distribution is fragmented and consumed on non-owned platforms. At least not as effectively as it could be.
Will Snapchat make it easy to share content to Facebook or search for it on Google? Probably not. Will Facebook allow media companies to drop first-party cookies to inform recirculation engines? No. Facebook’s interest is in keeping users on its site longer — not helping any particular brand.
Furthermore, these platforms promise publishers the opportunity to participate in a revenue share agreement — most often with the platforms selling inventory on behalf of the publisher. Again, this puts control over pricing in the hands of the platform hosting the content. Just as the music execs quickly grew tired of Apple’s 99 cent pricing model, media companies may realize that they aren’t making as much money as they could be on their own properties (especially after the tech companies take their cut).
But BuzzFeed is doing it…
Many support the decision to publish content natively on social and messaging platforms by citing BuzzFeed’s “Distributed” group. BuzzFeed Distributed is “a team of twenty staffers who will make original content solely for platforms like Tumblr, Imgur, Instagram, Snapchat, Vine and messaging apps.”
This makes complete sense for them.
BuzzFeed is 100% supported by native advertising. The site creates content on behalf of advertisers in a way that mirrors the “native” format of the medium. On a news site, that might look like an article (or listicle), on Facebook, Vine, Instagram or Snapchat, it will look completely different.
As a result of this model, BuzzFeed doesn’t need a website to survive.
BuzzFeed’s advertisers likely don’t care if their content is consumed on BuzzFeed.com or on another social platform. In fact, many advertisers probably prefer to have their brands integrated into a popular messaging app or social network rather than buried among a heap of other stories (some of which might clash with the brand’s business interests).
If Facebook (or Snapchat) amplifies the reach of content posted natively — even better. That’s great for BuzzFeed, and great for their advertisers.
In conclusion.
I don’t mean for any of this to discourage media companies from experimenting on the social web. Facebook — and to a smaller degree, Snapchat — is the most dominant media platform in decades (and possibly ever). To not look for ways to capitalize on these platforms would be just as devastating as giving away the keys to the castle.
BUT.
It’s crucial to think long-term when calculating potential cannibalization. It’s easy to see these revenues as incremental in the short-term, but will that be the case in 10 years (or even 5)?
- What happens if Facebook and Snapchat do create a superior experience, and readers stop visiting owned and operated properties altogether?
- How would a paywall model function in a fragmented distribution system?
- What first-party data will be sacrificed?
- What impact will these platforms have on the advertising rates for publishers’ sites? Will sites still be able to command premium CPMs if advertisers can more affordably buy against its content elsewhere?
- What volume of traffic (at the lower margin) will platforms need to drive in order for media companies to sustain the overhead costs of creating content?
These are just a few of the important questions we need to ask ourselves before we get too deep. That time is quickly approaching.
This is the publishing industry’s iTunes moment, and I’m afraid we’re going to blow it.
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