The media industry is undergoing tremendous change and as organizations move to digital, one of the biggest business model problems is rooted in a lack of diversified revenue opportunities and the steep decline of traditional advertising rates.
As Jack Shafer notes in an article on newspapers liquidating assets, “Profit margins are way down, its stock prices have collapsed, daily circulation has fallen about 30 percent over the last 20 years, the percentage of adults regularly reading newspapers has been falling steadily since 1999 (especially among younger adults), and advertising revenue, which stood at $50 billion in real terms in 1984, fell to $23.9 billion in 2011.”
Just take a look at this chart showing the drop in profit margins for newspapers:
With declines in print audience, stock prices and profit margins, savvy publishers are moving to digital. But digital ad rates are much lower than print ad rates, so publishers are forced to shed costs and reorganize their business to be much leaner.
Digital First Media CEO John Paton has been a leader in this area and his work in turning around Journal Register Co. and now Digital First Media has been closely watched by everyone in the industry.
Paton has taken an aggressive stance on turning around his ship, directly acknowledging print dollars are becoming what he has called “digital dimes.” His solution to fixing the digital business model: Start stacking the dimes.
Monetization beyond advertising: The future of mobile commerce
This week, Canadians are being treated to a host of events and interactive demos as part of the North by Northeast Festivals and Conference (NXNE). Now in its 18th year, the event has grown in popularity among music fans but has also become somewhat of a staple for anyone working in interactive digital media. Be it mobile, gaming, media or advertising, NXNE Interactive (NXNEi) has become an annual hub to check the pulse of digital media’s future.
This year, Digital Journal is happy to say it will be taking part in NXNEi, and we’ve teamed up with some major industry players who are looking to rethink digital monetization and explore opportunities beyond just advertising.
For this year’s event, we were approached by our friends at Polar Mobile (the company who made our smartphone apps) to ask if we’d be interested in running a content experiment. The idea: Polar Mobile has teamed up with The Hive, a full-service creative advertising agency based in Toronto, to offer a new type of content experience where brands merge with content and eCommerce functionality to make a truly immersive and engaging experience for every party involved (details on how to download the Web app is at the bottom of this article, and we’d love to hear your feedback).
While advertising is the defacto way publishers monetize via handsets, Polar Mobile and The Hive are rethinking traditional approaches and are looking to the future to encourage publishers to think bigger, and look to build revenue channels beyond advertising.
Why? Well this chart says everything:
According to a report by ABI Research, advertising was actually the smallest source of mobile revenue. In their report, in-app advertising represented $258 million in global revenues for mobile apps in 2011. By comparison, in-app purchases totaled $3.6 billion, and pay-per-download purchases accounted for $3.9 billion in global revenues for mobile apps.
For those of you keeping count, that means advertising made up a mere 3 percent of total mobile revenues globally in 2011. On the flipside, in-app purchases and pay-per-download revenues showed strong and growing demand.
At NXNEi, Polar Mobile and The Hive will discuss mobile’s future and make a case for building transactional experiences into digital offerings. Both companies believe publishers should focus more on eCommerce opportunities, and less on advertising as mobile audiences grow.
“In the nearly five years Polar Mobile has been serving media companies, we have witnessed shocking shrinkage of value in the industry because of how quickly their advertising businesses lost value,” says Marlon Rodrigues, Director of Marketing. “With the seismic shift of consumer media consumption increasingly moving to digital, and a significant and growing portion of that traffic now coming from mobile devices, it’s time to rethink our notions of what a successful digital media business model can look like.”
Rodrigues believes the stars are finally lining up for publishers to generate healthy revenues from digital, noting that this is the first time in mobile’s history that all the technology pieces are available to easily enable in-app transactions. Furthermore, he says consumers are finally showing signs they are willing to buy physical goods from a digital platform, opening up a new revenue stream that only a few have toyed with in digital.
“Our demo at NXNEi will show an optimal path for how content companies can add real purchasing transactions to their monetization mix and add a brand new revenue stream to their business,” Rodrigues says.
Digital media and mobile
While digital opportunities continue to grow, Polar Mobile is putting tremendous focus on mobile platforms. While publishers’ mobile offerings have continued to grow in popularity, ad spending has not caught up.
“Mobile offers a special opportunity for all businesses because of the confluence of technologies that are simultaneously becoming available on mobile platforms and the demonstrated propensity for consumers to buy services from their mobile devices,” says Rodrigues. “Additionally, each device is personal and always Internet-connected, which enables media companies to build relationships with their audience over the course of a day and many years which opens doors to future monetization opportunities.”
Rodrigues believes transactional experiences could provide better opportunities for publishers for a few key reasons. The first: Advertising in mobile is constrained to a tight price band that is governed by a market price for inventory because most people don’t truly know how to value mobile ads. Once technology and partner fees are paid out, it leaves little for the media company.
“With transactions, there is no cap to the value of the inventory being displayed because it is contingent on the underlying products,” says Rodrigues. “Media companies can provide a more valuable service to their readers and brands, with an actual closed-loop transaction, while earning a share of the product sales they enable.”
Mixing content with the ability to buy goods directly from the page is not a new idea. But the mobile play is.
“Like all good ideas, this one is actually an old one,” says Rodrigues. “It is simply being adapted to the new mobile market and taking advantage of the readiness of the consumers to buy in mobile, the technology to make purchasing easier and the ability to properly merchandise products on a mobile device.”
Brands and mobile
Publishers aren’t the only ones trying to crack mobile and digital – brands are also facing similar challenges in trying to engage users with relevant and attractive experiences. Joining Rodrigues at the NXNEi presentation is Sabaa Quao VP Strategy, Emerging Platforms, at The Hive.
“Brands are spread thin trying to meet customer expectations to be present on multiple platforms,” says Quao. “Not only must brands be present to increasingly fragmented audiences, the hell of digital is that everything is measurable. So as the experiment is ongoing, there’s no escaping the pressure of defining and meeting KPIs and business objectives in a marketing environment that is shifting at lightning speed relative to any other time in history.”
With only a fraction of online audiences clicking on ads, brands also need to rethink how they reach audiences.
“If advertising doesn’t work, the timely exercise is to dive into an earnest exploration of your customers’ mobile experiences,” says Quao. “How exactly are your customers using mobile relative to your product or industry category? Rather than reimagining the brand presence in mobile, get out there and find out, hypothesise and test. Once you’ve come away with some insights, I say prototype like mad and put it out there for real. The cost of exploration is low, while the cost of doing nothing is high.”
Out of all of the content available today, Quao believes only about 25 percent of it relates specifically or directly to a brand’s product. And that needs to change, he says.
Quao believes advertising will gain creative, strategic, and practical insights from transactional experiences. “We’ve built some tests of transactional experiences into the mobile presentation of our talk and we will be refining that, assessing actual behaviour, and testing our learning out with some of our real clients at every opportunity we get.”
Interested in being part of the future?
Rodrigues and Quao will be presenting their vision at NXNEi tomorrow at 9:30 a.m. ET in a presentation titled, “Content is king but transactions are everything.” Polar Mobile and The Hive have built out a mobile Web app powered by Digital Journal content. The app demonstrates the type of transactional opportunities they discuss in the presentation. The session’s description reads:
Digital content publishers are facing the daunting proposition of earning money from their mobile apps, when many of them never made meaningful money when in their first foray into digital – the desktop web.
Meanwhile, brands and retailers are increasingly confronted by a world where attention and time spent is moving away from the traditional destinations of tv, print and radio and into increasingly more complex digital environments. In these digital environments, brands are attempting to reclaim mindshare by investing in social, online and mobile destinations. Really what they’re doing is producing content without knowing it.
In fact, content producers and brands are on opposite sides of the same road. One is trying to create content and experiences to earn advertising money that sells products, while the other has products and advertising money and is seeking the right content against which to place their brand.
This is not a panel discussion, this isn’t even a demo. Marlon and Sabaa are simply going to sell you on an idea. Bring your mobile phone, and bring your credit card, and be prepared to buy something. You will leave this presentation convinced that only 2 things matter: content, and content that leads to transactions.
To take part in this session, you can follow me on Twitter @chrishogg where I will be live-tweeting parts of the event, and access the demo here on your iPhone or iPod Touch.
We encourage you to get the mobile Web app and tell us what you think about mobile’s future revenue opportunities.
