Facebook delivers deathblow to ad-driven media models; how publishers can fight back

Facebook was always going to screw over its media partners. We were fools for ever believing otherwise. Now that it may be happening, the media industry, particularly newspapers, will be forced to face the reality that the era of ad-driven media businesses is dead. And they will have to think seriously about what comes next.

This is the reality: Facebook and Google have established a digital advertising duopoly. For 2017, eMarketer projected the two giants would control 63.1 percent of digital ad spending in the U.S., outstripping the original 60.4 precent the firm had previously predicted.

When it comes to online advertising, Facebook and Google are sucking up all the oxygen. Even as the overall spending on digital ad dollars increases, the pair are getting larger percentages of it. Everyone else, thousands and thousands of others, are basically left with crumbs.

“Advertisers are increasingly demanding more granularity in targeting capabilities to reach consumers,” Monica Peart, eMarketer’s senior director of forecasting, said last year in a statement. “Google and Facebook have positioned themselves at the front of this demand curve by being the ad publishers with some of the best-in-class targeting abilities in the digital ad market. With Facebook being able to provide targeting based upon consumer interests and Google capitalizing on where those consumers have been through searches, both companies ensure their lead among digital ad publishers.”

For years, as publishers scrambled to deal with the impact of the internet on their business, they made the mistake of listening to self-anointed experts who preached that asking people to pay for content was a non-starter. These purveyors of internet utopianism insisted that it was the height of idiocy to believe people would pay, because the internet was all about wanting stuff to be free. I know, because I said the same thing, many, many times over the years.

What these Paleolithic publishers needed to do was learn the lessons of Google, and then Facebook, to understand how things really worked in the internet age. So many of them tried to do just that. They invested in search engine optimization. Later, they poured resources into trying to master the intricacies of Facebook.

For a while, all this effort created the illusion that there could be winners in the game. The social era gave rise to brands like Vice and BuzzFeed and Mashable, which soared on a crest of rising traffic by perfecting the internet-era headline. But it turned out that their real talent was raising round after and round of venture capital, not actually creating a solid business.

Then BuzzFeed missed its revenue target last year and said it would lay off 100 people in November. Last summer, Vice announced layoffs after raising $450 million in venture capital. And Mashable was sold to Ziff Davis for $50 million, far below its $250 million valuation from a March 2016 investment round.

It was becoming clearer by the minute that the ability to build an ad-driven media business was illusory. Facebook’s decision this week to prioritize content from friends and family over news content should serve as the final deathblow to almost two decades of delusional thinking.

Same as it ever was

I was working as a business and technology columnist at the San Jose Mercury News late last decade when the newspaper was approached by Facebook, which was interested in figuring out how to work with journalists. It’s hard to remember now how much smaller Facebook was back then.

It was only about five years after its founding, and about three years after it opened to the general public. I only joined Facebook in 2007. I was more than happy to participate in this journalism experiment, curious to learn more about Silicon Valley’s hottest startup.

The first piece of advice we received was that columnists like myself should use special tools to create separate pages that would be separate from our personal accounts. So I spent several months nurturing a Facebook page that people I had not “friended” could “like,” posting my columns and other thoughts, trying to engage readers. It certainly wasn’t a blockbuster, but I approached it in the spirit of always needing to try new stuff.

Several months later, Facebook came back to us. The team had decided it would be best to scrap separate pages. Instead, they offered to move the several thousand followers I’d amassed over to my main personal account, where there would now be a “follow” button.

“Huh,” I thought. “Okay.”

This was a taste of something Facebook had already done to developers. And it was something the company would continue to do. In 2007, just before our little journalism experiment, Facebook had opened its platform, allowing developers to write little applications we could add to our account. This prompted a flood of spammy, wall-clogging crap. So Facebook changed the rules and augmented its algorithms to clamp down on junk and encourage higher-quality stuff.

It was the right move, but it was also a slap in the face to the many developers who had jumped on the bandwagon.

Not longer after our Mercury News experiment, Facebook formally went public with its media ambitions. After launching a media outreach program in 2010, it created “Facebook for Journalists” in 2011 to help us understand this new world and find new audiences.

Along the way, Facebook kept changing the rules. During this era, Facebook’s success was fueled in large measure by the virality of social games, particularly those created by Zynga. At one point in 2011, Zynga accounted for 19 percent of Facebook’s revenue, thanks in part to a special, symbiotic relationship between the two. But Facebook CEO Mark Zuckerberg was already rethinking this relationship, worried that it was ruining the experience for too many users.

“A lot of users like playing games, but a lot of users just hate games, and that made it a big challenge, because people who like playing games wanted to post updates about their farm or frontier or whatever to their stream,” Zuckerberg told Adweek in 2010. “They want all their friends to see their updates, and they want to get all their friends’ updates. But people who don’t care about games want no updates. So we did some rebalancing so that if you aren’t a game player you’re getting less updates.”

By 2012, Zynga was a smaller chunk of Facebook’s revenue, and the social gaming company was seeing its own growth hit a wall. People were writing about “Why Zynga Failed,” and its special deal with Facebook ended.

But media companies were too caught up in the Facebook wave to stop and think about the larger implications. Facebook would continue to change the rules for its news and algorithms as publishers scrambled to adjust.

Eventually, this morphed into the era of clickbait, and then fake news, as more nefarious players figured out how to write headlines that led to empty or false content. And this would spiral into the controversy surrounding the 2016 U.S. presidential election, denials from Facebook that content on its platform had influenced the election, grudging admissions, and then the mea culpas.

Worried about its fraying media relationships, Facebook launched a “Journalism Project” in January 2017 to “focus on improving its current storytelling formats such as Live, 360, and Instant Articles … The company said it would work with third-party organizations to promote ‘news literacy’ and help users decide which sources are trustworthy and would also continue to work on curbing hoaxes,” according to Reuters.

But after a rough year, and more blows to its reputation, Facebook just did what it always does: shift direction. This time it was to de-emphasize news content from pages. After years of trying to engage news organizations and use their content to build its business, Facebook has thrown up its hands and opted to toss its media partners under the bus.

What’s next

It’s true that nobody knows just how much this most recent move will actually impact the news biz. It could be a catastrophe, or its effect could be minimal. And heck, it wouldn’t be surprising if in six months Facebook does yet another U-turn and decides it wants to be all about high-quality, professional content. But in reading all the reactions from news execs and companies that advise media on internet strategies, I found it revealing that the observations boil down to: Wait and see.

Revealing, because it highlights the degree to which the news business has become wholly dependent on others’ platforms. We have put our destiny in the hands of Facebook and its ilk, tried to pretend they were our allies, that our interests were aligned, and now we have no choice but to just wait and see what happens. We are at their mercy.

The dependency is born out of the chase for digital ad dollars. But this dependency on others, and this desperation for advertising, must end.

Facebook and Google have won this game. And no matter how much Zuckerberg pays professional photographers to trail him around at home and take soft-focused pictures of his family, no matter how many cows Zuckerberg milks on his tours to get to know “real people,” no matter how many heart-tugging letters Zuckerberg writes about wanting to make the world a better place for his kids, Zuckerberg’s main job in life is to make more money for his publicly traded company. Period.

And, to be honest, he has done a fantastic job at that. His willingness to change direction, to listen to his instincts, is truly amazing. The decisions he’s made, which have often cost Facebook in the short-term only to be justified over time with more growth and profits, were often not obvious and highly risky. I say, without irony or sarcasm, that I admire his business cunning.

Today, Facebook is not just a business, but one of the most powerful, influential companies on the planet.

For media companies, it’s important to recognize Facebook for what it is: an adversary. A competitor. There should be no more delusional thinking that chasing traffic via clicks from Facebook is going to solve the media business model. Facebook is devouring digital advertising, and those clicks are benefiting Facebook to a much larger degree than they’re benefitting publishers.

So what to do?

In the face of such a massive power, finding a way forward can feel daunting. When one throws Google into the equation, it seems like all paths are cut off. But that is not the case.

The first thing publishers and broadcasters must recognize is that they are not without leverage in this relationship. Consider this chart from NewsWhip for one month last year:

 

Given that Facebook has over 2 billion users, news organizations are hardly dominating. But these numbers are not nothing. They are substantial, and valuable. And they represent how Facebook has, until now, built a massive advertising business on the backs of other people’s content. What referrals and traffic news organizations get from this deal pales in comparison to the ad money Facebook is making.

Fortunately, European publishers are ahead of the curve on this issue. They have been increasingly vocal about the need to force Facebook and Google to pay for content that appears on their platforms.

In 2016, the European Union began reviewing a series of proposals to allow publishers to demand payments from Google and Facebook for use of their content. A letter published just this week from several major publishers makes a straightforward argument:

Free access to the news is one of the great supposed victories of the internet, which many members of the European Parliament will strenuously defend in the name of noble democratic principles. However, in reality, the concept of free news is a myth. At one end of the chain, actually reporting to inform the public costs a lot of money. At the other end, news consumers are highly valued as an audience that generates advertising revenues. Between the two, some
 players have won. And some have lost heavily …. neither Facebook nor Google has a newsroom. They have no reporting or production networks, national or international. They have no teams of reporters in Syria risking their lives to show the true face of war. No permanent bureau in Zimbabwe to tell the story of Mugabe’s departure. No journalists in Cameroon. Nor Myanmar. No video reporters. No photographers. No editing teams to plan, edit, check, and double-check the accuracy and impartiality of the stories sent in by reporters on the ground.

Mostly, these arguments have been met with sneers and derision in the U.S., where techno-utopianism still hasn’t been completely snuffed out. Oh, those Europeans are so anti-innovation!

But events over the past year, capped by Facebook’s latest decision, demonstrate just how sensible this thinking really is. Let Facebook and Google have the digital ad market. It’s lost to publishers. Instead, the EU is considering a royalty model, one that essentially extends the rights enjoyed by musicians and record labels to publishers. And the government is moving into the picture because of the imbalance of power between publishers and the digital platforms.

Crazy? Nope. In fact, Facebook has signed a flurry of deals with record labels in recent weeks — with Sony, Universal Music, and others. Bloomberg had reported previously that Facebook had set aside “hundreds of millions” of dollars to pay for these licensing deals. (Side note: Facebook, per usual, doesn’t seem too worried about what this might do to long-time partner Spotify.)

Why shouldn’t news content be able to get the same deal as music content? Even if traffic from Facebook drops, any royalties would be better than the big fat nothingburger they get served now.

The other good news for publishers is that subscription models are starting to gain more traction. The scoffing is over. Big publishers like the Financial Times, New York Times, Washington Post, and Wall Street Journal continue to see solid revenue gains from subscriptions. The same is true for more local and regional players. People in general are getting more conditioned to paying for everything from software to video streaming by subscription. Paying for news no longer seems like an outlier.

“As a long-standing publisher of quality journalism​,​ the FT welcomes moves to recognise and support trusted and reliable news and analysis. But a sustainable solution to the challenges of the new information ecosystem requires further measures – in particular, a viable subscription model on platforms that enables publishers to build a direct relationship with readers and to manage the terms of access to their content,” said FT CEO John Ridding in a statement after the Facebook announcement.  “Without that – as the large majority of all new online advertising spend continues to go to the search and social media platforms – quality content will no longer be a choice or an option. And that would be the worst outcome for all.”

This willingness to experiment with paying for content is one of the reasons I’ve been doing more of my own non-tech writing on Medium. The platform backed away from ads and instead moved to a model that pays writers based on engagement and quality. I’m certainly not getting rich from it. But at one point last year I thought: Why post some of this stuff for free on Facebook when I could expand it a bit and post it on Medium where I might get a couple of dollars for it?

None of this should be taken to mean that the burning issue of the news business model will be solved anytime soon. There is no single panacea. Newspapers will likely continue to struggle and fight for their existence.

But the first step should be to fundamentally reinvent relationships that have created an unhealthy dependency. Facebook is never going to change. It puts its own self-interest first. It’s time for publishers to wake up and do the same.