Advertising
Helping to achieve profitability
This text is part of a comprehensive look at the Brazilian news environment.
“Advertising” has been a magic word for journalism for a while. Anderson, Bell and Shirky, from the Tow Center for Digital Journalism, note that more than 75 years ago the publisher Henry Luce said “If we have to be subsidized by anybody, we think that the advertiser presents extremely interesting possibilities.[1]”
For digital journalism, advertising is also a promising revenue source. According to the State of Media 2015, an annual report produced by Pew Research Center about the media industry in the US, the money spent with digital advertising has been consistently increasing from the past years. From 2012 to 2013, the rise was as of 17%, and 18% during the following year. In 2014, the value spent in digital ads was USD 50.5 billion — which is equivalent to Luxembourg’s GDP. This surge was pushed by the sector of mobile ads.
When Sirkkunen and Cook analyzed the 69 media organizations in seven different countries, they found that advertising, indeed, was the most used revenue stream among them.
“Where other sources of revenue were identified, it occurred in addition to advertising,” they say.
In this sample of Brazilian new ventures, advertising-based models are not so predominant. They represented an important revenue stream to only two out of ten vehicles, being both startups.
Display, Google, related ads and 50 million unique visitors
Catraca Livre
The first type of digital ad to be employed, starting in 1994 with Wired.com, formerly HotWired, was the banners or display ads. Since then this has been the most common type of advertising used by media organizations, even with new kinds of ads having increasingly having more importance. Only in the US, according to the State of Media 2015, in 2014, display ads amounted to USD 10.9 billion. Among the ten cases studied, display ads are used by two: Catraca Livre and Papo de Homem. The first is largely using different kinds of ads, which are the main responsibles for its profitability.
In seven years of existence, Catraca Livre has a collection of superlative numbers and prizes. In its origins, the website based in São Paulo aimed at sharing information about free or very cheap cultural experiences throughout the city. Over the years, its scope has become broader, including sharing economy, innovation, sustainability, and education — anything that would promote “communication for empowerment”.
Today Catraca Livre has 4.6 million likes on Facebook (and growing), and 50 million unique visitors. In 2014 it had a revenue of R$ 5 million (USD 1.7 million), and a net profit of R$ 1.5 million (USD 500,000). Aside the numbers, the website was considered in 2013 one of top 100 social innovations in the world for the guide Social Tech, organized by the English organization Nominet Trust 100. Their experience and their impact in citizen’s life were studied by the Harvard Business School, and they won several journalism awards aimed at Brazilian initiatives. Last year, the website expanded its operations to 11 more cities, the ones that hosted the World Cup 2014 soccer games: Belo Horizonte, Brasília, Curitiba, Cuiabá, Fortaleza, Manaus, Natal, Porto Alegre, Recife, Rio de Janeiro, and Salvador.
Those huge numbers are partly due to a combination of editorial and business choices, the founder Gilberto Dimenstein believes. “We started with what I call ‘celebrity effect’”, he recognizes. The entrepreneur, who is also an award-winning journalist with three decades of experience in traditional media, explains that the first business model he adopted was 100% dependant on a dozen of sponsors.
“I had my reputation and a nice idea. The sponsors wanted to correlate their brands with the idea of living better in urban spaces.”
Soon, Dimenstein realized that the sponsorship model would not be enough and Catraca Livre started to use advertising, notably display ads (banners), which appeared in their homepage and in the articles. In parallel, Dimenstein’s team begun to experiment with social media. And they became a huge success in 2013.
“When we reached 15 million unique users and were considered by Facebook a benchmark on how to use social media, the importance of my figure diminished. People started to say: ‘there is a very good business here.’ And we were able diversify our revenue streams.”
Catraca Livre’s currently earnings are relying on a series of different types of advertisements, as well as sponsorships and e-commerce. “We had no other solution. We could never charge for our content, due to the nature of our mission. Ads were our only option.” Here is each revenue stream used in 2015 .
- Banners/Display ads: A spot on the website where brands can directly advertise.
- Google Ads: Catraca Livre offers a space on the website for Google to run their advertisings. There are five pre-determined spots on desktop and four on mobile devices.
- Related Ads (Outbrain): Outbrain is a company that has partnerships with media organizations worldwide, such as CNN and The Guardian. They define themselves as a recommendation and discovery content platform. In Catraca Livre, Outbrain provides a list of links to related content in the bottom of the articles. They usually appear under the label “Recommended to you” (“Recomendado para Você, in Portuguese) and redirect to articles outside Catraca Livre.
- Native ads: A new experiment of having articles sponsored by companies.
The next three revenue streams will be discussed in specific areas later in this research.
- Content on demand: Also a new experiment. The website is producing content to be used by other brands outside Catraca Livre.
- Sponsorship
- E-commerce
In addition to the positive financial results, Catraca Livre has a very strong brand. A research made by a third party institute, IBOPE, shows that 78% of the population of São Paulo (the city) and 42% in Rio de Janeiro (also the city) knows the website. “Catraca Livre’s valuation was estimated by different people with different values, always a number between R$ 3 million to R$ 40 million (USD 1 million to USD 13 million). I believe it worths about R$ 15 million (USD 5 million),” Dimenstein says.
These results have sharpen the interest of investors in buying the website, reveals the entrepreneur. Did he feel tempted to say yes? “No. I’m too young to stop working and too old to become an employee of someone else.” Dimenstein is the main owner of the website, but he has offered portions of the business to some employees. “Just for the most engaged ones.”
Native ads and the ethics behind them
Papo de Homem
“Native ads,” “sponsored content,” “branded content,” “advertorial.” There are several current ways of naming when a brand pays to have an editorial content of its interest published in a given media outlet. Despite being more and more common, especially after the success of the model with BuzzFeed, native ads are very controversial, since they blur the line between journalism and marketing.
On one hand, critics claim that native ads will kill the most untouchable journalism quality: its independence. In an interview in May 2014 to Digiday, the star blogger Andrew Sullivan raised his voice against ads in journalism in general, native ads in particular. In his opinion, if the content is good enough, users will be open to pay for it, as he was doing in his own initiative, The Dish[2], at that time. “The reputation of that journalism is going to be tarnished by the fact that you’re not sure if it’s done out of a commercial interest. I don’t think it’s sustainable,” he said. About native ads, he considered the strategy “not journalism, but public relations”. “A friend of mine once looked at BuzzFeed and said, ‘It’s doomed. There are no ads. How can it survive?’ I said, ‘You don’t understand. Everything is an ad!’”
On the other hand, media outlets are seeing this kind of ad as a promising approach to improve revenue streams. In December 2013, The New York Times announced it would start adopting the strategy in the following month. Admitting the controversy behind the decision, The Times assured that all paid content would be clearly labeled as such and the content would be developed by a specific team, not by the journalists in the newsroom. The publication was then following the steps of several other important stakeholders in the industry, such The Economist and The Atlantic. One month later, The Guardian joined the team.
To give an example of how it is being done, in June 2014, The New York Times published an special about women inmates, sponsored by Netflix in order to promote the new season of the series “Orange is the New Black.” The URL of this interactive piece starts with “paid content” and the sponsors are identified at the top of the page.
In Brazil, native ads are still an untapped market. Legacy media is resisting to adopt it, but some startups, as the mentioned Catraca Livre, are already using it. One of the most important voices in the defense of this kind of ad is Papo de Homem (Men’s Talk, roughly translated), a website that first aimed to be a space where “lucid and contemporary men” get together, but ended up being a website that not only men, but women as well, discuss the issues around ‘the masculine”.
“I don’t see other vehicles doing that and I don’t understand why,” says Guilherme Valadares, founder of Papo de Homem, who has lead since 2007 a national campaign to add transparency to the relationship between bloggers and brands.
When he started his blog, in 2006, the Brazilian blogosphere was considered a gold mine to marketers, the entrepreneur explains. “Some individual bloggers were really influential among thousands of followers. The advertising agencies identified them, offered some amount of money to have a certain content published, and then charged the promoted brand ten times that value,” recalled the entrepreneur from a time when Brazilians had discovered blogs and were in love with them.
“What all brands wanted was unidentified advertising,” resumes the journalist. So Papo de Homem and another website, Dinheirama, proposed a stamp that would recognize every sponsored content in a given platform. “In a week, we had a hundred other blogs on board, backing the initiative. We started to talk about best practices with other vehicles, we initiated online and offline debates,” he completes.
Those practices were improved and until today are part of the set of values of the organization. In practical terms, when a brand wants to promote a certain content on Papo de Homem, the publicity agency and the website meet. Both parts agree in dos and dont’s. Papo de Homem’s team creates the journalistic pieces, which are approved by the brand. When the material is published, it receives the label of sponsored content and the brand is allowed to publish a video in the bottom of the page.
“Our golden rule is: would we be publishing it if it was not sponsored? The answer has to be yes.”
The confidence that native ads should be an important part of Papo de Homem’s business model, however, was not there since the beginning. “I knew I wanted a type of ad that didn’t give to me an aspect of a cheap website, but I didn’t know exactly what to do,” says Valadares about his discovery process of the best financial plan for his initiative. “I had to learn everything, from business to technology, by myself. I’ve learned by doing it. I organized my business model making good and bad choices,” he admits.
Today Papo de Homem has 3.4 million unique visitors, an average of 6 millions page views/month, and also 460,000 fans on Facebook. Because they never had an initial investment, they achieved the break-even point as soon as the website became profitable. Besides native ads, its revenue streams also include the already discussed display ads, as well as content creation for brands and events.
With Catraca Livre, native ads are starting to be implemented and its founder, Gilberto Dimenstein, sees a lot of potential in this new revenue streams. “BuzzFeed is showing that it is possible and promising,” he says.
A slightly different form of having sponsored content is also in the radar of JOTA, a news website on the Brazilian Judiciary Systems. Still to be implemented, the idea is to have sponsorships to produce a series in a certain subject. “We may have an organization that defends intellectual property financing a sequence of articles that will be presenting and discussing the issue. The key here is that the sponsor has to understand that we will be doing journalism, maybe reporting on things that they don’t necessarily agree,” says the CEO Felipe Seligman.
[1] Post Industrial Journalism: Adapting to the Present, available on May 27, 2015.
[2] In February 2015, Sullivan announced that his blog would no longer be updated. He claimed health reasons for his decision.
