person looking to the horizon from the edge of a dock
Publishers are grappling with the challenge of creating alternatives to ad-based operating models. PHOTO: Stijn te Strake

Tom Standage, the deputy editor and digital strategy head for The Economist, has become very bearish about digital advertising. 

Earlier this month, when Medium CEO Ev Williams announced the company was eliminating 50 jobs and changing its business model to reflect the company's original mission of creating quality content, Standage linked to the post and Tweeted the following:

A 'Broken' Model

Williams probably agreed — but for more ideological reasons. Digital advertising, he explained in a post, is eroding the quality of published content. The "broken system is ad-driven media on the internet," he added, "simply doesn’t serve people."

Standage though, bless his heart, is all about the numbers. "The majority of the magazine’s revenue (65 percent and rising) comes from circulation," he wrote in an article published in the UK’s Press Gazette. 

Publishers need to accept that print, or display advertising is dying, he wrote. And they must also swallow another bitter pill: Replacing declining print revenues with online advertising "is a fantasy, and incumbent print publishers who try to move to a digital-ad model are mostly doomed to failure."

Now, let’s get this out of the way upfront. Whether it takes digital ads or not, The Economist is in a rarefied position. It has a stellar reputation for journalism, and people happily pay for the pleasure of reading the magazine both online and in print.

Another point to note is that the digital ad space is positively booming, according to industry figures. A few weeks ago it reported that for the third quarter of 2016, internet ad revenues reached $17.6 billion, a 20 percent year-over-year increase and a 4.3 percent increase over the second quarter of 2016. “Digital has become a critical part of advertisers’ marketing strategies,” said David Silverman, a partner at PwC US, which helped prepare the report.

Unhappy Publishers, Discontented Advertisers

But clearly something is amiss with the digital advertising space. Publishers gripe — and with good cause — that they are losing money to fraud. Late last year, for example, White Ops reported a Russian ad bot network was bilking publishers of up to $5 million a day. 

Their biggest beef, though, has been with Facebook and the inroads it has been making into their revenues.

As for the advertisers, they complain — and rightly so — that they cannot tell if their ad was even seen by a human. After all, who can forget Google’s eye-popping finding two years ago that 56.1 percent of ads on the internet fall in this category? 

Facebook, Instagram Get Publisher Friendly

But just as publishers ... well, some publishers ... are indicating that maybe, just maybe, they might a business model that isn’t based on digital ad revenues, the digital ad community strikes back hard with new digital ad initiatives that are looking far more publisher friendly. 

In recent days Facebook and Instagram have rolled out new digital ad platform initiatives aimed at publishers. This week several media outlets reported that, according to unnamed sources, Facebook will begin testing mid-roll ads in videos on its platform to help media companies generate revenue from their video audiences.

Facebook has been testing such ads for Facebook Live, but this new initiative would extend mid-roll ads into regular videos.

Instagram, for its part, plans to allow brands to advertise in Stories, a format that was launched in last August that lets people and brands post short photo or video stories that disappear after 24 hours, according to comments Instagram's vice president of business James Quarles made to CNBC this week. Brands can use five-second photos or 15-second video clips that will automatically play with sound, he said.

In addition, Quarles said that brands will be able to use Facebook's measurement tools and thus get information about a user's interests and demographic. In truth, all Facebook needs to do is solve the revenue piece to make publishers happy, 451 Group analyst Sheryl Kingstone tells CMSWire. 

Advertisers are already star struck with the media. “For them, it is all about getting that audience piece and Facebook is very good at that,” she says. “They are very good at the digital journey and are developing stronger ad network as a result.”

Chatbots in Your Inbox

At the same time as these new advertising options rollout, publishers are also taking the initiative to explore how they can connect with their readers directly by offering them a new channel, namely chatbots. Will they lead to The Economist’s happy situation, where the majority of its revenue comes from paid circulation? Probably not. But publications such as The Guardian feel that the channel is at least worth exploring.

Last year the UK publication created a couple of prototype chatbots and quietly promoted them on its social channels. By November the paper felt ready to release its Guardian news bot “into the wild” as it said in its post

Readers can get their morning briefing when they want it, the editors explained. “Once you’ve said hello to our bot, it will ask you whether you would like to subscribe and when you would like it delivered. The next day, look out for your morning briefing ... You can change the time, change the edition or unsubscribe at any time. If you’re a jet-setter, the bot will do its best to send the briefing at the appropriate time zone.”

Media Consumption Grows On Multiple Screens

If that sounds like it is mobile friendly it is because it is. 

Indeed, our love affair with the screens in our lives is another reason to feel positive about digital ads — once the kinks are worked out to publishers’ and advertisers’ satisfaction. "Increasing media consumption on interactive screens will surely lead to even more investment in the digital landscape," said PwC’s Silverman, when the latest robust digital ad figures were released last December.