For advertisers and publishers, the lifetime value of a customer (LTV) has been crushed by the introduction of digital. The spiraling decline of print has led to a drastic decrease in the number of subscription-based revenues for publishers, who rely heavily on this dependable revenue stream to partially cover high overhead costs. While online subscriptions have worked to keep many publications afloat, operating budgets have been slashed in order to give rise to the new social order of digital publishing.
Just yesterday, reports surfaced about Time Warner selling its publishing arm Time Inc., which is in the midst of laying off six percent of its global workforce. A report today by Fortune, a Time Inc. title no less, cites several anonymous sources who claim that Time Warner is indeed in talks with a buyer to sell most or all of its publishing unit. Time Inc.’s full-year revenues in 2012 were $3.4 billion, down about 7 percent, and operating income tumbled 25 percent to $420 million.
Fortune describes the talks as “formative.”
Traditional newspapers and magazines have been forced to either close their doors or make the leap of faith to digital in order to mitigate the rising costs associated with remaining in print. Even Newsweek has said farewell to print last December, leaving only Time as the last of the major news weeklies still in print publication, since U.S. News and World Report ceased print subscriptions two years ago.
The change in media format and evolution from print to website to mobile is leaving publishers in a tailspin, who are still cautious about how to effectively monetize and take advantage of these relatively new methods of delivering content to consumers. The rise of digital is taking publishers from high LTVs and super glossy print ads down to moderate CPMs on display, and now even lower CPMs on mobile.
The revenue stream has now dwindled to a trickle.
While advertisers and proponents of mobile publishing understand the inherent potential of mobile as being a virtual billboard in consumers’ pockets, several obstacles need to be overcome before it can be perceived as a truly sustainable medium for publishers. Mobile advertising started off as a completely new medium when introduced just a couple years ago in the form of text-based small screen ads with super low CPMs and low LTVs.
Last year, well-known venture capitalist and former Wall Street analyst Mary Meeker gave her annual presentation on Internet trends, during which she revealed a startling statistic based on her own research: The effective cost per thousand impressions (CPM) for desktop web ads is about $3.50, while the CPM for mobile ads is just $0.75.
The alarming fact is that the mobile publishers make much less revenue per user on mobile than with desktop display and the printed page. This declining revenue stream is forcing publishers to innovate and create an entirely new advertising business model to increase LTVs or else find a way to produce mobile content proportionally cheaper than on desktop display.
Some of the best ads on television are successful because they evoke an emotional response or a clear connection with the viewer, but so far this type of engagement has not been able to be replicated on mobile.
“Everything you do on your mobile phone is inherently personal,” said Ilicco Elia, head of mobile, LBi. “For an advert to stand out in that environment it needs to be as personal and as relevant as everything else you do, otherwise it will seem out of place.”
Advertisers have attempted to create more immersive mobile ad experiences, but with mixed results. Poor ad concepts on mobile like text banners and inline text will simply just not cut it, and demonstrate the limitations posed by the lack of screen real estate.
“The biggest challenge is choosing the right content for a small screen,” said Matt Champion, media services director at Fetch Media.
Unless brands and agencies are able to find new ways to capture and hold people’s attention on mobile, this format will be perceived as a imperfect environment resulting in low CPM performance by advertisers. We are all waiting for that optimal mobile form-factor to appear that will offer mobile ad experiences to reverse the LVT decline across mediums. This problem was not solved after repeated attempts during the first transition from print to desktop. Until the technology is ready, publications should contemplate delaying consumer demands to move to a mobile-only ad format.
Maybe the lesson here is that forcing users from print to the web sparked the premature cannibalization of the medium, and now the push to migrate the same content to mobile is resulting in the same cannibalization of desktop. As publishing giants continue to sink, life preservers in the form of mobile innovation and ad dollars are desperately needed to help rescue these flailing business models.