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Revenue diversification back in focus with ad come-back

Revenue diversification
Via Unsplash

Subscription revenues have dominated publishing strategy trends recently. But the 30% growth forecast for the UK advertising market this year should remind publishers that revenue diversification can be a key sustainability driver. Ignoring advertising and sponsorship means leaving money on the table.

Takeaways
  • The UK advertising market is set to grow by 30% year-on-year, according to the most recent report from agency giant GroupM. Strong digital ad performance is likely to play a large part in the revenue boost.
  • GroupM’s growth prediction comes soon after the IAB’s latest Digital Ad Spend report put digital marketing spend for the first half of 2021 at £10.5 billion. That represents a year-on-year rise of almost 50% and an increase of more than 40% in 2019.
  • The good news on ad spend comes at a time when some publishers are starting to see the challenges inherent in much-vaunted subscription-only business models. Post-pandemic acquisition costs and the investment needed to fight increased churn are making revenue diversification attractive again.
The Athletic

Recent numbers from VC-backed sports news site The Athletic, have brought the stark challenges of building a sustainable media business off the back of reader revenues alone into focus.

  • The Information is reporting that, in 2020, with most sports suspended because of COVID-19, The Athletic had revenues of $47 million, but its ‘cash burn’ was $41 million. The company has told investors it will hit profitability in 2023, but analysts worry that its subscriber base can’t grow fast enough to deliver.
  • The site grew from 90,000 in 2018 to 1 million at the end of 2020. But Jacob Donnelly at A Media Operator says its growth has slowed considerably and worries it is churning subscribers almost as quickly as it is adding new ones. The problem is compounded by a 50% subscription discount that gives subscribers a whole year for just $35.
  • The company’s response, according to the Information, will include revenue diversification involving ramping up its advertising sales business. Currently worth $3 million, the company has told investors it expects its ad business to grow to $8 million this year and to reach $31 million in 2023.
Money on the table

Commenting on Twitter, the former subscriptions head for Digiday, Jack Marshall, said: 

Subscription revenue is great, but leaving ad/sponsorship money on the table just doesn’t make sense for a media business in 2021, especially when your writers/creators have access to a growing number of tools to monetize their output in a wide range of ways.

Responding to Marshal, news and tech consultant David Clinch said: 

Subscription/Reader Revenue strategy really needs to become Consumer Revenue strategy to include advertising, newsletters, events, streaming and more…all carefully calibrated and optimized to capture revenue in every form.

This approach is echoed in statements made by the new Conde Nast MD in Europe, Natalia Gamero del Castillo. She told Digiday that, while the business is keen to diversify its revenue base with increased reader revenues, it is hopeful for advertising. Although she didn’t give exact figures, she suggested digital ad revenues doubled in Q2 this year compared with 2020.

Over the next four years, she expects to see two thirds of the company’s revenues evenly split between reader spend and advertising: one third from readers through e-commerce and subscriptions; and one third from print and digital advertising. The remaining third will come from video licensing and advertising.

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