‘Not enough money to go around’: US digital-media publishers curb international expansion

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During a call with the sales team of a U.S. publisher in June, the team at agency Essence asked a couple of routine questions about how the publisher could target European audiences.

“We asked a few different questions and they gave non-compliant answers. They might be GDPR compliant but if their sales team don’t know what they can and can’t sell anymore then it will definitely turn off the buyers,” said Jahanzeb Alvi, digital commercial director Europe, the Middle East and Africa at Essence. “If you’re giving answers that are so basic that the whole team from the account managers know they are not compliant, it shows how unprepared U.S. publishers are for European legislature.”

To be fair, Europe’s data protection laws are still murky, differently interpreted and fully understood by very few people. But wonky data laws are just one of many hurdles for U.S. publishers to scale in order to conquer international expansion — and those hurdles are stacking up.

Over the last five or so years, a number of U.S. digital media darlings journeyed to the U.K. and beyond, fuelled by venture-capital funding with sights set on global expansion to match projections of hockey-stick growth. But the reality is tough going. 

This week, BuzzFeed announced the sale of its German bureau to Ippen Digital, the joint venture is similar to its agreement with Yahoo in Japan, where the editorial team retains its independence. BuzzFeed now has five owned international bureaus. Business publisher Quartz had to close its London office space after ad sales halved in May, cutting 40% of its global workforce. Over the years, HuffPost has closed a handful of international bureaux, like in Germany in March 2019.

Publishers say they remain enthusiastic about international expansion: HuffPost has 12 global editions and 60% of readers come from outside of the U.S. Bustle Digital Group, launched in the U.K. 2018, made several hires this year and has grown to 4 million unique monthly users with positive ad revenue momentum, the publisher said. Vox Media is hiring for its second international operation The Strategist UK, bringing the total to six staffers on international.

But the difficulties from the ongoing coronavirus pandemic mean agencies and analysts are braced for more retreats, and the visibility of publishers to U.K. agency buyers is low. While the reasons vary, just as the models of expansion did, there are similar hardships that impact all publishers. Mainly, advertising-funded models are not flexible enough when that revenue stream dries up. And digital behemoths like Google and Facebook suck up the majority of digital advertising growth. 

“Everybody is fighting the existential truth that there’s not enough money to go around,” said Dan Wood, managing partner at Mediacom. “With the dominance of Google, Facebook and Amazon, the rest are left to pick through the carcass for what remains, and it’s getting even more challenged. That’s the reality of the digital ecosystem that we’re in.” 

Cost-cutting mode 

While advertising trends are broadly improving — global digital ad spending will achieve 2.4% growth this year, the lowest on record, according to eMarketer — they aren’t doing so quickly enough to mitigate the losses. There has been a £50 million ($65.65 million) swing in 2020 profit expectations for BuzzFeed, according to reports. When making those tough decisions, media companies will lean toward closing non-core domestic operations. 

“None of these digital media business models are insulated, they’re too dependent on discretionary client spend,” said independent media analyst Alex DeGroote. “It’s unclear if investors will be prepared to invest in these businesses if losses spiral, so cost-cutting is the only way.”

This pandemic-charged downturn differs from the earlier financial crises of 2001 and 2008 since every economy is battered, so any gains from growth in other regions are immediately hampered. But economies aren’t impacted equally. In the U.K., mobility is poor relative to other European countries, according to The Economist’s ‘Sick man of Europe report’. With that, recovery will likely lag compared with others.

Platforms over publishers

At its height, Vice noisily purported to be the voice of youth culture. Now, brands are falling over themselves to align with platforms, namely TikTok, not just for its innovations in social video but for reaching a broad spectrum of younger audiences. 

“The claim of anyone publisher to say that now is just not credible,” said Wood. “What we can say about younger audiences is that they refuse to define themselves by any media brand.”

Due to a rise in domestic social-first digital publishers over the years — such as LadBible, JOE Media and Jungle Creations — taking a more localized lead in publishing branded content for channels like Facebook, the clout of Vice and others isn’t what it used to be, say agency executives. Despite that sentiment, Vice announced in June Vice World News, a global expansion of its news offering across TV, digital and audio. 

U.S.-borne publishers have also lagged in developing formats and series that can repeat, say execs. “If a client calls me up looking to launch a content piece or looking for partnerships, some brands get really excited, but they only do it once and not again,” said Alvi. “They are good ideas but how many times can you repeat it?”

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There have, of course, been wins. BuzzFeed impressed media and agency executives by launching a pair of Tasty-branded food products with brands Nestle and McCormick in 2019. But product creation and licensing is more complex than a media buy, and clients find these examples conceptual and hard to deliver. And now, when agencies have to be even more shrewd about where they place clients’ money, a return to booking more of these deals is a long way off.

Local content at a premium

The power of local content and commercial teams shouldn’t be underestimated, but it’s not without investment. “The biggest issue with VC-funded U.S. publishers is content,” said Alvi. “They all had great content but plastered it all over thinking they could get global audiences based on U.S.-led content. But the U.K. audience was less than 10%.”

The U.K. seems a natural step into global expansion because there’s no language barrier. But adjusting ad budgets for a much smaller market can make the margins untenable. Hiring people in the U.K., France or Germany comes with up to three-month notice periods, in terms of redundancies. A U.K.-based agency executive contacted for this article recalls how U.S. publishers complained about tightly bound restrictive European employee laws. 

“It’s easy to hire people but hard to trim the fat,” the exec said.

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