The summer of 2015 will be remembered as the moment a perfect storm hit national newspapers.
The print advertising market, which still remains the lifeblood of income for most publishers on the path to digital sustainability, has been down unprecedented levels of as much as 30% in some weeks over the past six months.
Most of the UK’s top 10 newspaper advertisers have stripped their budgets: the biggest, Sky, has cut its spend by 20% in the first nine months, according to unofficial figures. Second ranked BT has lopped 18% off its national newspaper ad budget so far, Asda is down 47% and the once ever-reliable Tesco is down 39%.
“It’s a pressure cooker for newspapers,” says the chief marketing officer of one of the UK’s biggest advertisers. “It has reached a breaking point where buying a traditional print ad is no longer the answer. It isn’t that print doesn’t work, there just has to be more focus on what spend is getting the reach, quality and audience cut-through.”
As if the scale of this threat were not enough to set off alarm bells in commercial departments across the industry, the issue has been exacerbated by an equally alarming slow-down in the rate of growth of the digital ad revenues that publishers have been relying on to replace print revenue declines.
An example is the world’s biggest newspaper website, Mail Online. With well over 200 million monthly users it should be an attractive buy for advertisers, yet it saw growth slow to single digits over the summer.
The snapshot provided by the publicly-listed company, which will miss its £80m digital revenue target this year and stands little chance of making the £100m goal next year, is typical of the slowdown seen across national newspapers.
David Pemsel, the chief executive of Guardian Media Group, is one of a number of senior industry executives who point the finger at Google and Facebook.
Pemsel, echoing Daily Mirror publisher Trinity Mirror, sounds a warning over the commercial outlook for this year, noting that the internet giants are hoovering up digital ad spend at a “far faster rate than previously seen”.
“There are numbers out there to say that year-on-year digital increase is around 30%, 29% of that went to the [internet] platforms, and 1% of that was shared amongst everybody else,” he says. “Facebook … has become a proxy for mobile, and at the same time slowly over time managed to sort out its video strategy as well, which in summary means you’ve got the perfect storm.”
Research by eMarketer has estimated that Google and Facebook will this year take half of the total UK digital display advertising market, well over £1bn.
Publishers have attempted to build advertising scale to help compete against the attractiveness of Facebook’s 1.4 billion mobile-led audience.
For example, the Guardian, Financial Times, CNN and Reuters recently launched an alliance to pool advertising to attract more brands using programmatic, or computerised, selling.
“Publishers don’t have that right to people’s attention that they once had,” says Scott Moorhead, the head of digital trading at media agency Havas. “They have to work hard and there are so many options grabbing people. We have seen exponential growth in video. And you have to get mobile right. We are as advertisers desperate for more video and quality environments. It’s perfect placement.
“With programmatic we buy audience, not a specific media owner, and Facebook does a good job providing that. But they are not necessarily stealing money from publishers. It’s not surprising that in the last month or two we’ve never had so many traditional publishers get in touch with us.”
Perhaps the biggest fear is the belief that, unlike in the global advertising recession in 2009, when all ad media suffered but eventually bounced back, the dramatic changes seen over the past few months are here to stay.
“The most clearcut thing is that this is structural not cyclical,” says Dharmash Mistry, the former senior Emap executive and partner in private equity firm Balderton. “That is the killer point. It is not an ad sales thing saying it will come back at Christmas, or next summer. Not unless you’ve innovated fantastically and can show demonstrable return on investment in the demanding digital world.”
The upshot is that in the crowded and competitive UK national newspaper industry there is likely to be more consolidation, or at least the merger or partnership of rival sales houses, as the market continues to be squeezed by the internet giants.
While the traditional and digital media owners battle it out for advertisers’ marketing budgets, brands are raising a whole host of concerns about the previously unquestionable benefits of online advertising.
There are an estimated 200 million people globally using ad blockers (12 million in the UK), according to PageFair, a number that is likely to jump considerably following Apple’s recent iOS update that allows iPhone and iPad owners to download apps to block ads.
So far there has not been a noticeable impact on the UK ad market – the Internet Advertising Bureau’s most recent figures showed no major slowdown in the growth of digital advertising in the first six months.
WPP’s Sir Martin Sorrell and Unilever marketing chief Keith Weed, who controls a £5.1bn annual ad spend on products from Lynx to Dove globally, have raised a number of digital concerns, including the proportion of video ads that are really being viewed.
“I have real concerns about measurement,” said Weed, speaking earlier this year. “It’s like having billboard ads underwater, it’s a complete waste of our money.”
Ad fraud once again hit the headlines in September when independent research found that Google’s YouTube charged marketers for ads viewed by “bots”, computer programs that mimic the behaviour of internet users.
However, it is not all doom and gloom for newspapers struggling to carve a digital future just as the efficacy of the medium itself is being scrutinised.
Sorrell, whose Group M media buying arm controls bn of global ad spend on behalf of clients, has on numerous occasions in recent years argued that advertisers should slash newspaper spend.
No longer. He argues that as measurement techniques become refined across all media, there may just be a case for ad spend to swing back to traditional media.
“The measurement hurdle for offline [media] may be too high and online too low,” he says. “At the same time, newspaper engagement data in Canada, Australia and the UK suggests that the quality of consumer engagement may be better than people think. All this suggests that traditional media, including newspapers and magazines, may be in a better position to offer better value than we thought.”
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