Getting a fairer share of online advertising is not the answer for news media
Newspaper advertising revenues have collapsed since 2007. According to one estimate, newspaper ad revenues have fallen by nearly US$100 billion, while online ad revenues have increased significantly. These online ad revenues, though, are mostly captured by Google and Facebook, which has created a dilemma for news media. They need people to read their content and they need these digital platforms because that’s where all their readers are. But the more their readers come to news content through Google and Facebook, the less ad revenues those news media receive. Many people see this as freeriding by these digital platforms.
Several countries are trying to find ways to redirect online ad revenue to news media by getting Big Tech platforms to pay for it; Australia has a proposal on the table, Canada are considering new proposals, and others are a range of regulatory alternatives. It sounds like a good idea at first. Platforms should pay their way; they shouldn’t benefit from content for free. But these proposals may just lead to further problems.
Online advertising is in crisis according to Tim Hwang, ex-Google employee and author of a new book called Subprime Attention Crisis. Focusing on online advertising as a way to solve the problems facing news media could exacerbate the current situation. Siphoning off a portion of online ad revenues from Big Tech platforms is not a good plan, either in the short- or long-term. To understand why requires understanding online advertising. And this provides insight into alternative ways to reinvigorate news media.
Hwang’s book illustrates how online advertising works and, more importantly, doesn’t work. Online advertising is driven by the buying and selling of ad space inventory, or what Hwang calls “attention assets” — basically, viewers watching a screen. Buying and selling is facilitated by ad exchanges, which are companies that manage the ad inventory market. Much of this buying and selling has become automated, with Big Tech firms like Google and Facebook representing both sides of the ad exchange — that is, both buying and selling ad inventory. Such automated, or programmatic, adverting is driven by the collection of personal data and the targeting of advertising based on these data. Most media firms now sell their ad inventory — basically, space on their websites — through this automated process but are reliant upon the Big Tech firms to drive traffic to their websites to maintain their ad revenues; and this is where the problems arise.
On the one hand, fewer viewers are clicking through from the Big Tech platforms to the content producers, meaning that their ad inventory is becoming less valuable. On the other hand, digital platforms — not just Big Tech but other AdTech intermediaries — are taking a significant cut of the content producers’ ad revenues when they do send people their way; close to 70 percent in some cases, according to Hwang.
Here’s the kicker, though. Hwang argues that digital advertising is about to enter its own “subprime crisis” for several reasons. First, ad inventory is increasingly sold in private digital enclaves, meaning that its real value can be hidden by those who control access to the data on its effectiveness. Second, the emergence of Big Tech firms as intermediaries has consolidated the ad market, leading to distortions in that market. For example, Facebook has been sued for overstating the viewer numbers on its platform by 60–80 percent. Finally, our attention is also declining and there are numerous examples of fraudulent practices — like click farms — to game viewing figures; all of which means that the real value of ad inventory is falling. For example, click-through rates on digital ads on Google and Facebook, according to Hwang, are now less than 1 percent. Online advertising is still seen as the golden egg that no one wants to crack, since doing so would cause a rippling crisis throughout the digital economy.
All of this means that plans to ‘tax’ the links to media stories by Big Tech or siphon off some of these ad revenues is not a sustainable approach to support the news media. Advertising effectiveness, advertising viewership, and revenues per view are all worsening over time, so it would make sense to stop chasing it before a crash. Instead, a more sustainable solution might be for news media to find an alternative way to pay for the quality content they want to produce. One suggestion would be to develop something like a “Netflix for Media” platform that they collectively control, and which creates a collective paywall for news media content. It would enable subscribers anywhere in the world to access all that news media content from a range of global producers, creating revenues for those producers and cutting Big Tech out of the loop altogether.