Tuesday, June 4, 2013

Morning Brief: Internet advertising shows strong growth in Q1 according to IAB report; hosting and download fees bit B2B publishers particularly hard

The Interactive Advertising Bureau (IAB) released its report for Q1 2013 Internet advertising yesterday, and it showed very healthy growth. First quarter digital ad revenue grew 15.6 percent to $9.6 billion in the first quarter of the year. As usual the trade media passed on the information with little perspective added.
“Consumers are turning to interactive media in droves to look for the latest information, to connect with their social networks, and simply to be entertained,” said Randall Rothenberg, President and CEO, IAB. “This first quarter milestone clearly illustrates that marketers recognize that digital has become the go-to medium for all sorts of activities on all sorts of screens, at home, at the office and on-the-run.”

“Internet advertising revenue continues to exhibit double-digit growth, even as the business matures,” said Sherrill Mane, Senior Vice President, Research, Analytics & Measurement, IAB. “This is an accomplishment that can be attributed to growing recognition by marketers that digital advertising is a critical part of all marketing in today's world.”

“These record-setting Q1 numbers are consistent with the continuing shift to digital and reflect the type of growth that the internet advertising arena has been seeing year-over-year,” said David Silverman, Partner, PwC U.S.
IAB press release

I've always had issues with ad revenue reports from third parties. As a print publisher I am all too well aware of the difficulties of counting ad pages where fellow publishers are offering discounted space, added value pages and the like. Then, to translate that into revenue only complicates things further.

For Internet advertising the things that complicate reporting are multiplied. For instance, how does one measure an ad campaign built off off of results? Take a situation, very common in couponing, where an ad is run under a certain amount of digital coupons are downloaded. If last month the ad ran three weeks to reach its limit, but only two weeks this month, is that a decline in advertising? Certainly the advertiser paid the same amount.

That doesn't mean that the IAB reports have no value. On the contrary, taken over the long term these reports probably nail the trends pretty well. If you think of the report more as an index, like the Dow, then the report is even better.

For B2B publishers, the issue of bringing their qualified circulation magazines to the Apple Newsstand remains top of mind – at least with those publishers that have not given up altogether. The big issue TNM often talks about is the need to qualify digital readers. Without a good qualification mechanism, publishers are forced to either give away their issue downloads for free, or else try and force through a paid circulation strategy for tablet editions.

But a secondary issue that quickly arises for B2B publishers is the cost vendors charge for issue downloads and hosting (generally, one or the other, not both). Costs can quickly add up for a magazine that, say, is able to deliver 20,000 issues to readers each month. With some systems, the download fees can read a level that dwarfs the advertised price of the platform itself.

For a paid publication, the revenue brought in by subscriptions mitigates the costs somewhat. But after Apple takes out its share, and then the vendor their share, the publisher suddenly awakens to the fact that they will receive barely half of any revenue generated by Newsstand sales.**

But for B2Bs, where Apple won't be taking any revenue cut, the vendor's cut is very dear and goes straight to the bottom line.

I think some of the major vendors realize this and are, therefore, honestly trying to help publishers with the issue of generating new ad revenue. Even the software companies seem to realize that a paid content strategy only works when vendor costs are low. To keep them high there will need to be a publishing model that more resembles print: a high reliance on paid advertising, with production and distribution costs being only somewhat mitigated by circulation revenue.

But I see a total disconnect between vendors and some publishers here. The paid content crowd have been pushing hard on the notion that readers will pay the bills, not advertisers, but it is hard to see how this adds up to a winning strategy for B2Bs and small publishers.

** One can see this struggle when looking at month subscription pricing: those pricing their books at $.99 are basically trying to cover costs, while those at $1.99 hope to see some sort of return, while those at the $2.99 level and above are looking for serious ROI.