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The needed maturation of the media business

There was a bit of a sheepish tone to the publishing CRO’s admission: “Our Q2 is going to be better than last year’s,” the exec said. “I’m really proud of that. It’s been painful, but we’re more insulated because of the maturity of our diversified business model.”

It’s a refreshing change to hear that amid the doom and gloom that’s permeated media the past 10 weeks, with a particularly awful past week, marked by deep cuts at Vice Media, BuzzFeed and Quartz. In speaking with publishing executives from companies both stuck in triage mode and those who see their businesses for an upturn when the economy does spring back, there’s a common theme dividing the winners and losers: maturity.

Last week, I praised boring media models. A related concept I hear is maturity. That starts with business models. Not to pile on the big money-losing digital publishers making cuts right now, but how long were they going to tout big top-line growth while they elided the part about losing money? It calls to mind John Houseman’s classic Smith Barney ad: “They make money the old-fashioned way, they earn it.” Said one publishing exec at a top digital publisher: “Our eye is less on revenue, more on margins and profitability.” Better late than never, I suppose.

The publishers who lacked the maturity to skip the buzzy newfangled programs from platforms — no, this time the revenue will come — are paying the price. Those that made sure to identify a there, there — in the form of making money — are better off. “What we haven’t done that is frustrating in good times but thank God in bad times is you don’t see us hiring 25 people to take a flier at Snapchat three months after Discover was announced,” said the CRO. But of course, platforms were just the dealers. The real drug was the big numbers. “The whole industry chased scale instead of depth and intimacy,” said a top exec. “You need to reorient your business to depth.”

That’s because the nature of the media business is undergoing an accelerated shift. The constant refrain I hear can be summed up this way: Ads way down, subs way up, commerce doing well (in many areas). The immature businesses over-indexed in a single way to make money, most disastrously in advertising. How could anyone not know at this point that when the economy gets shitty, advertising is the first to cut? No CFO is reading the case study about Cadbury gaining share thanks to a TV ad featuring a gorilla playing the drums. The optimistic CRO counted eight different business lines, some hit hard (like direct-sold advertising) but others doing very well. 

Even within advertising, those who matured beyond railing against programmatic are better positioned. This publisher has seen programmatic revenue go up, despite overall yield going down, thanks to traffic surges. But those gains aren’t possible without setting up the infrastructure needed. If you haven’t done the grown-up work of getting in place a solid preferred marketplace, there’s no efficient alternative to provide to a key direct advertiser in need to cut costs.

“I do wonder if direct will ever come back as strongly as it did before,” said a top product executive. “A lot of advertisers are playing around with programmatic. Will it ever go back to what it was, or has that time past?”

One major media company publishing executive sees a need for publishers to think harder about what value they’re providing. Publishers have to talk in abstractions around brand and context and inevitably “premium,” but the economic function of advertising is, ultimately, to drive sales. The weight of what a publisher does has to be oriented to driving sales, and those closer to transactions will undeniably fare better. “There’s no brand advertising anymore in any category,” said a leading business-side executive at a large digital publisher.

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“The nature of the ad side is changing a lot,” said the product exec. “The ad side was about representing the value of the media brand and [audience]. What we’re seeing is all marketers become direct sellers. We have to be adept at matching buyers and sellers. We’d outsourced that to retargeting companies.”

Here’s the catch: To do that, companies need a mature data infrastructure. This isn’t the pizzazz many media execs love. This is the grind. It’s like how politicians love to go to the grand opening a fancy new subway station, but they often neglect doing upgrades to the signaling that is causing horrible delays. Ultimately, neglecting the basics catches up with you.

“One of the things hanging over my head is there are a lot of publishers not thinking of their data strategy,” said the CRO. “If enough publishers don’t do that, there might not be a reason for advertisers to consider publishers as data partners.”

That’s a hit now, but it will be more a hit coming out of this crisis. The other side is somewhere out there, and what I keep hearing is how those cut first from plans (and often, companies) are the low performers. The high-performing publishers also feel the pinch, but they’re not dropped. As the economy begins fitfully to reopen, advertising is beginning to return. Whether it will return to anything close to a normal level by the second half is the big question — “How are advertisers thinking about budgets in the back half of the year?” the CRO asked me — but what is clear is that when that point is reached the low performers will likely remain dropped. The high performers will gain disproportionate share when the economy’s on/off switch is finally flipped.

“I’ve learned the hard way when you come out of a downturn the team that’s intact and perform at a higher level, you can really gain share on the other side,” the CRO said.

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