The coronavirus pandemic has exposed ad-supported publishing for what it is — a gamble. Publishers have bet that advertisers want to advertise whenever, and on whatever, readers want to read.
It’s not necessarily paying off right now.
“There might be a long tail of publishers that you might not see six months from now,” Matt Trotta, general manager of North America at EX.CO, told Built In.
Amid stay-at-home orders and coronavirus concerns, readers have flocked to digital media in unprecedented numbers, but many brands have slashed their advertising budgets. (Related: the advertising industry has been gutted by layoffs.) And while readers crave hard news on what’s going on, current events — tens of thousands of deaths in the United States alone, record unemployment and political turmoil — have been dire.
To avoid affiliating their brands with, say, young people having bizarre, coronavirus-induced strokes, many brands have blocked programmatic ad placement on coronavirus-related stories. In February, “coronavirus” was the second most commonly blacklisted keyword on the Integral Ad Science platform. By the end of March, marketers’ sentiment had softened; more than half of marketers, an IAS survey showed, felt that advertising on coronavirus content was only a misstep for specific sectors, like food or travel.
Still, these days “ad-supported media” feels like a bit of a misnomer. In our current crisis, advertisers have veered more frugal than supportive, and publishers have faltered. Their ad revenue has fallen off a cliff — down about 25 percent from where it was last year, one anonymous publisher told Digiday — and ad-supported publishers, from local alt weeklies to online outlets like The Outline, have shuttered.
Not all ad-supported media is on equally unstable footing, though, Trotta said. Better-positioned publishers have diversified their revenue streams.
“They are hurting, but they’re not hurting as much,” Trotta said.
Diversifying, in publishing, could mean selling subscriptions as well as ad placement, or supplementing an in-house ad sales team with revenue from affiliate links and adtech partners, like EX.CO.
Adtech Revenue Guarantees, Meet the Coronavirus
EX.CO offers publishers two core adtech products. One is a platform that can reformat both unpaid and branded content in interactive, engagement-boosting ways — as a poll, say, or a trivia tile. The other is a video player, Channels, which publishers like CBS and Marie Claire embed on their sites.
The video player can play either publisher videos or EX.CO videos, like slideshows of the day’s top headlines. It alleviates pressure on publishers to sell ads. EX.CO’s sales team handles ad placement in the player, and publishers get a cut of the revenue — they attracted the audience, after all.
Another perk for publishers: EX.CO backs Channels with a revenue guarantee.
“We’re saying we really believe in your audience ... [and] we have unique advertising demand that wants to align with your audience,” he said. “So we’re going to guarantee you X in revenue to maintain this player on your page.”
Specifically, Trotta explained, the company promises publishers that they will receive a certain amount of revenue per video play, in contracts that last either six or 12 months.
EX.CO isn’t the only company to offer revenue guarantees. It’s just one of a variety of sales tactics, like free trials and money-back guarantees, that boost buyer confidence. Other adtech players offer revenue guarantees, too, or performance guarantees.
In theory, these guarantees should bolster ad-supported publishers right now, as their industry becomes an increasingly risky gamble. In practice, though, adtech companies can’t pull in typical ad revenue right now, and some have revised their commitments to publishers.
One way of doing this: invoking force majeure, literally French for “superior force.” Many business contracts feature force majeure clauses, which free all parties from their obligations in the case of an unforeseeable, bizarre event, often termed an “act of God.”
On the surface, coronavirus fits the bill, but courts will have to decide if it really does. Precedent isn’t clearly in favor of contagious disease as force majeure. Writing about force majeure in the age of the coronavirus, Fast Company notes that the Moroccan government tried to invoke such a clause in 2015 to postpone hosting a soccer tournament, the African Nations Cup, as ebola swept West Africa. They incurred a hefty fine anyway. It didn’t work.
While there’s legal risk in claiming force majeure right now, and a reputation risk in breaking contracts, there’s also financial risk in losing money on partnership contracts as the U.S. abruptly plunges into a recession.
EX.CO has opted for the latter risk, though.
“We always put the publisher first,” Trotta said. “That’s at the heart of what we do.”
The Anatomy of a Kept Promise
Why can EX.CO uphold its existing revenue guarantees? It helps that, like the most successful publishers right now, the company has diversified its revenue streams. EX.CO has multiple products, plus venture backing from investors like Disney. In 2017, the company raised $50 million in Series C funding.
“By having a diversified business model, you’re kind of protected from the bad days and you’re able to celebrate the good days,” Trotta said.
Not that the company is leaning into advertiser subsidies. To close the gap between what they guaranteed before the pandemic and the current economic reality, EX.CO has been testing new products, like Channels videos assembled in real time based on API data. Trotta hopes new formats can command higher prices.
Ultimately, though, EX.CO is looking beyond its immediate bottom line, and aiming to lay a foundation for the future.
“I think it will build trust,” Trotta said, of upholding EX.CO’s existing guarantees. “We’ve always been about long-term partnerships.”
The two actually reinforce each other; trust can lower customer churn, which improves long-term stability even more than an influx of new customers, some growth experts say.
EX.CO is already seeing payoff. It’s still building revenue guarantees into its new contracts, too, which has set it apart from other adtech providers and sparked publisher interest, Trotta said.
“I think to be able to go out in this market ... and still be able to have a conversation about a minimum guarantee is pretty impactful,” Trotta said. “I’m on the phone more talking to more publishers now than I might’ve even been before.”
Still, uncertainty reigns right now, and even investing in building trust isn’t a sure thing. Long-term, it remains to be seen how much customers value integrity during a crisis compared to factors like price and convenience. It may be that a legal force majeure remains elusive, but a de facto force majeure takes hold, where clients don’t hold companies to typical standards during this pandemic.
Amazon, for instance, has all but abolished its two-day Prime deliveries during shelter in place, effectively breaking its contract with subscribers. Yet the company has still seen a huge surge in demand, and its stock prices have risen more than 50 percent since mid-March. The breadth of selection and robustness of the company’s supply chains have more than made up for slow delivery, at least for now.
Obviously, though, Amazon and EX.CO have very different business models. Amazon delivery operates in the B2C space; EX.CO’s Channels is a B2B offering. Amazon has an impressive quantity of customers — roughly 112 million at the end of 2019 — while EX.CO focuses more on partnering with and supporting publishers. That’s what ad-supported media needs, especially right now.
It’s not a zero-sum game, either, in Trotta’s mind. By supporting publishers, he says, he supports advertisers too. No, advertiser and publisher interests aren’t perfectly aligned right now — but that doesn’t mean they’re diametrically opposed either.
“The most valuable thing for a brand,” he said, “is really a great audience.”