That’s not the most telling number of our time, but it’s a great proxy, and another eye-opener in the shift of power in “media.” You know, the media — in the old world of network TV, newspapers, and Madison Avenue, and the new world of everything we’re lucky enough now to have instant access to in news, information, and entertainment, and in all that squishes between those once-separate categories.
We’ve heard a new round of concern about the business of news this week, with the release of the 2013 State of the News Media. The report is an annual marker in diminishment, deeply documented, and a quiet beacon of an annual warning about, as it is put this year, “a continued erosion of news reporting resources” (“Pew’s Amy Mitchell on the Challenged State of the News Media”).
Among the findings this year is that the news industry is “Losing Out on New Digital Ad Revenue.” It notes that “just as news organizations found themselves squeezed out of the first wave of digital ad revenues, the two areas that seemed to bring a promise even a year ago now seem already moving outside the reach of news: mobile and local.
Wait a minute. Mobile and local — just before the long-awaited promise of money arriving in both — are beyond the grasp of newspaper companies? Unfortunately, lots of numbers tell us that may be true.
In fact, what the past year has given us is another point of reckoning, of coming to grips with the reality of today’s marketplaces. That reckoning has resulting in the instant adoption of metered paywalls — part high desperation, part hopeful strategy — across the U.S. and other continents, now even including insistent holdout The Washington Post. It has also quickly pushed publishers to find third, fourth, and fifth legs of revenue — all as they privately acknowledge their role as traditional ad sellers is seriously challenged.
I’ve been tracking the fortunes of what I’ve called GAFA — Google, Apple, Facebook, and Amazon — in a couple of reports since early last year. The new Outsell report “GAFA Dominance: The Tentacles Grow” drills down on reach and grasp. “Tentacles” sound menacing, but they’re really just something the rest of the animal kingdom learns to adapt to over time. That, in fact, is what news companies are doing — adapting to the great growth of Google, Apple, Facebook, and Amazon. They are finding ways to use the new ecosystems to find living niches of their own.
This week, let’s look deeper into the newsonomics of GAFA’s dominating impacts on news companies — all news companies, whether print- or pixel-defined.
First, some definitional acronymics. GAFA isn’t a great acroynm for the four companies whose market power has become overwhelming, but it’s hard to do better with those four letters. Certainly, the four are joined by many others in changing the media landscape. But they are clearly the most ascendant and are, in their categories, world-leading dominators. They compete fiercely with one another, but they also team up where it makes sense: Google recently agreed to pay Apple about $1 billion annually to become the default search service on its products, for instance.
Let’s look first at some numbers that tell us about their dominance and then briefly survey how news companies are trying to find business in their wakes.
The Google/Gannett comparison is a tale of two trajectories I’ve used for the past five years. For 2012, Google’s revenues outdistanced that of Gannett — the largest U.S. newspaper company, and the second largest globally — by about 9-to-1, $50 billion to $5.3 billion. The bigger story is profit: an almost 14x difference, $10 billion to $789 million. It’s more than mere billions: It’s the power to hire, to acquire, to gather more data, to make sense of more data, and to make more money off the making sense of the data than anyone else. And the gap grows, literally, second by second.
That reversal of fortune can be told in other big, telling numbers:
The Big Five’s share isn’t just massive: It’s growing, at the rate of one to two percent a year. That means that publishers — legacy and digital-only — are competing with every other ad seller on the planet for about a third of the ad pie that’s left over after the big guys take theirs.
Add it all up, and the publishing world is coming to grips with its lesser place in the world. FT.com’s managing director Rob Grimshaw puts a number — two percent — on that place:
In particular, the explosion in social media means that publishers have seen their share of advertising real estate on the web badly squeezed. Analysis of 2011 figures from DoubleClick shows that news publisher sites account for less than two percent of page views on sites that carry ads globally. Social Media accounts for 50%. Portals account for 15%. Its a challenging competitive position to say the least and since 2011 the share of ad real estate for news publishers has likely fallen further. [emphasis mine]
All of which helps explain the downward pressure on digital ad pricing; even newspaper companies, as part of their own marketing services pushes, are now “re-selling” somewhat-targeted Facebook as low as 80 cents per thousand impressions, and telling their customers it’s too good a deal to pass up.
But that’s just the ad piece, seen largely through the G and F of GAFA. The two A’s haven’t big major players in the ad game — yet, though Amazon is getting into it now. It has built out its own platform for advertisers wanting to target its 152 million customers, and it has a lot more shopping and buying data than anyone else. Until that becomes a marketplace reality, it’s the customer relationship power of both Amazon and Apple, combined with each’s market dominating products, that increasingly forces publishers to take notice of and work with them.
The products are each category killers. Amazon owns an e-commerce system light years ahead of any competition, with 39 percent market share just in the U.S. On top of that business, it has bulled through with the Kindle, now emerging as a significant seller of media in addition to its core book selling. Add in its new same-day delivery service in 12 major U.S. markets, a program that may well alter the retail ad landscape, and Amazon’s business interests increasingly intersect with publishers.
Apple’s mix of iTunes, iPhones, and (especially) iPads has made it a primo place for “discovery,” newer and younger readers familiarizing themselves with news and magazine content, and being offered the chance to pay for it.
In their own huge sandboxes, each of the GAFA companies seems unassailable at this point, and that appears to have changed publishers’ minds about how to deal with them. Publishers are playing both defense and offense.
On defense, they’re looking to own their direct customer relationships. They’re frantically trying to lock up relationships with readers, through all-access subscription and membership. They’re trying to double down on their local merchant relationships, for both ad sales and marketing services, in hopes of keeping the GAFA monster away.
On offense, they’re testing ways to leverage the awesome customer reach the GAFA companies are willing to share at the right price. An increasing number of newspaper and magazine publishers have embraced Apple’s Newsstand. Yes, they have to give up 30 percent of revenues and get only some of the customer data they’d like, but it’s a price of getting new customers such established pay players as The Wall Street Journal have decided they’re willing to pay. Anyone who can sell lots of subscriptions — Apple Newsstand, Amazon, or Google, as it prepares its extension of Google Play for subscriptions — will be embraced as a “partner.” Expect Facebook to get in the subscription-selling game within 18 months. Of course, it’s already in a loose alliance with publishers as they sell those Facebook ads in their local markets.
Which brings back to Google. It’s the company that has been the bête noire of publishers. U.S. publishers have largely made their peace with the company’s snippet engine, though European publishers in general and the Germans most specifically are still focused on Google News’ impact on their business. (That attention is misdirected. It is Google’s global market domination of lead generation through search that might pique regulators’ attention — but that domination is hard to sort out using the traditional lens of antitrust and market concentration laws.)
The U.S. accommodation is most noteworthy in the arena that’s cost the newspaper industry so dearly: ad revenue. Many have come around to Google’s frenemy argument on ad serving. They use the suite of products around DoubleClick for Publishers to manage, target and sell advertising (“The newsonomics of Google’s ad singularity”) Why, given Google’s competition for ad dollars? It’s simply the most efficient way to make a little money of their own, they tell me, and that will inevitably include “mobile” and “local.”
It’s a join-‘em-if-you-can’t-beat-‘em strategy. We see that same relationship with Google around less core products, like Google Hangouts, for community engagement, and with Google Consumer Surveys, as a way to test paywall alternative monetization.
In sum, the news industry has matured and come to acceptance with its loss, its reduced place in the world. In a strong sense, one war has been lost. Maybe, they had a shot at getting a big piece of the biggest change in advertising spending in two generations. But they missed it. The reckoning hasn’t been an easy one, but it feels like it is settling in.
There’s a new sense among legacy publishers — wary, constantly testing co-existence. And that’s probably a good thing to do when yesterday’s babies have grown to be giants in your midst.