Monday Note

Web sites will soon fall into two categories: high audience low yield, low audience higher yield. Such a divide will impact digital advertising.

This Autumn, whomever you talk to will tell you this: internet advertising yields are taking a dive. CPMs (cost per thousand page views), now down to single digits, keep falling. This you hear on both sides of the Atlantic. Economic conditions, concerns with the level of debt (both private and public), business-hostile tax policies (see Jean-Louis’ Monday Note on French Entrepreneurs Revolt), the upcoming fiscal cliff in the United States, the fragility of the Eurozone are all pointing in the same direction. Even Google’s cash machine is showing weakness.

In such times, advertising budgets are usually the first ones to get the ax. Slowing down an industrial production line can get complicated, but slashing an ad campaign can be done with a mouse click. In the Fall, when everyone struggles with next year’s projections, a marketing director is inevitably tempted to hit the delete key to embellish his/er spreadsheet (remember: we are all short-termists.)

According to ZenithOptimedia’s recent forecasts, Eurozone ad expenditures will end this year in the red: -3.1% overall. But all countries are not equal: Just to illustrate the reactivity of advertising expenditures to economic conditions, consider three regional economies badly impacted by Europe’s downturn:

Italy:       -6.5% in ad spending vs. 2011
Spain:       -12.2%
Portugal:    -12.2%

And just for the sake of it, let’s award a special prize to the Greek economy: its advertising expenditure will be down 33.2% this year and it will be off its 2007 peak by… 63%! This shows how the ad market reacts and amplifies an economic crisis. (For 2013, Zenith predicts +0.9% growth in the Eurozone, but has since it downgraded its entire Western Europe 2012 projections from +0.4% in June to -0.7% in September. As a result, no one seriously believes Zenith’s projection for upcoming year.)

For digital media, such a trend will be the underlying cause of three evolutions:
- A rise in paid-for-performance advertising
- A rise in alternate formats beyond traditional display — for better or worse
- And a split between volume-driven and quality-driven digital properties.
To an extent, the third trend is a consequence of the other two. Let’s give it a closer look.

First, this graph:

A quick disclaimer: To avoid offending anyone, note there is no scale, nor any proportions between media outlets. The point is to map out clusters among various brands, to see who sits where relatively to others.

On the top left part of the chart, high audience but low yield: The Guardian (£40-50m in revenue for a stunning 60+ million uniques visitors), Business Insider, The Huffington Post and TV networks web sites. However, they have different ways of gathering huge audiences: The Guardian does it thanks to its fantastic journalistic machine and its unabated investment in digital (read this interesting story in last summer’s GQ); as for the Huffington Post, it has elevated clicking-techniques to an art.

Business Insider has become a class in itself. In the last two or three years, it drifted from a good tech/business blog to a compilation of eye-grabbing-headlines (a rather profuse one: I counted more than 90 items on BI’s home page this weekend.) Having said that: it remains interesting reading, and its crew sometimes gets scoops. But the entire editing is built on grabbing attention. And it works beautifully, so to speak. Here are some examples of stories and how they score:

12 Long-Dead Brands That Are Ripe For Resurrection:
55,000 views
Stunning Images From The Best Wildlife Photo Competition Of The Year:
78,000 views
19 Chinese White Collar Criminals Who Were Handed The Death Sentence :
104,000 views
There Is Simply No Other Plane In The World Like Air Force One :
650,000+ views
These Pictures May Give You Nightmares About Canada’s Oil Sands :
1.17 million views

Buried deep inside this accumulation of SEO-dreams-come-true items, there are some serious stories, but their scores are paltry:

Here’s The Big Mystery With Google’s $8 Billion Mobile Business :
7000 views
Jeff Bezos: People Who Are Right Are People That Change Their Mind A Lot :
6400 views

Well, you get my point. Again, I’m not judging here. With incredibly hard work, Henry Blodget and his team have built a great franchise, and I’d wish more business sites would learn — just a little bit, say 5% — how to stage business news and catch readers. And to be fair with Business Insider, let’s underline that its must-read 139 slides about The State of the Internet, attracted nearly 5 million viewers in three weeks.

Coming back to the chart above: on the bottom left, web sites like Slate or Salon (there are many others) enjoy strong reputation, loyal readership… but — as unfair as it sounds — tiny ones. On the upper right corner, we have the exception(s), lead by the New York Times: high audience, high ARPU (about $160m-200m in advertising revenue, recently supplemented by a $60-100m in subscription revenue that didn’t exist 15 months earlier.)

Let’s wrap up with advertising formats. Bottom line: ad agencies and their clients will always seek to blur the distinction between editorial and commercial contents. In that respect, the future lies, again, in the Business Insider model, which pushes the envelope pretty far (in my own, probably conservative opinion.) On this weekend’s home page, you can see how BI morphs its editorial team into sales reps with this story : 15 Tips For Getting The Perfect Tailored Suit, an advertorial for a wannabe hip Manhattan tailor. The package looks entirely like news coverage and it comes into two stages. Linked to the We-Give-You-Great-Tips treatment, you get the full monty: The secret suit shop underneath Mazza’s swank Chelsea sports bar, complete with a 20 pics slide-show and a glowing profile of the owners. The two stories gathered more than… 100,000 views (including mine — note that I linked to the stories because I’m pretty sure you’ll click on it…) But it’s pocket change compared to the rather straightforward Here’s Why Peter Luger Is The Best Steakhouse In New York City which collected an amazing 244,000 views. (Business Insider wins on both ends: for the advertorial — Henry, please, don’t tell me you do that for free — and the ads surrounding it.)

With very few exceptions, the editorial independence of lifestyle and consumer sections is now long gone (this includes “respectable” legacy media.) But this obvious violation of the separation between Church and State is bound to percolate into more pernicious “brand content” (see this earlier Monday Note) for more serious subjects than food or clothing. That’s where the credibility issue will set in.

– frederic.filloux@mondaynote.com

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