Troy Norcross 21 March 2016

Categories Advertising, Content, Customer Experience, Technology

"It’s the death of the Internet as we know it."

At Mobile World Congress last week Nick Hugh, Yahoo!'s VP and GM for Advertising in Europe Calls Out Mobile Ad Blocker for 'Destroying the Ecosystem'... and he's not alone.

Rather than rehash a lot of the existing rhetoric including:

• If consumers really start using ad blocking tools then publishers won’t have any way to monetise their content. (Unless they charge a subscription)
• Consumers will never pay for content (Unless it's the FT or Netflix)
• Adblocking is just a blip - Your regular Internet will be back online shortly (Unless you look at what Napster did to digital music)
• What we really need are better ads and then everything will be fine (I don't think so and you can read more on why HERE)

Rather than rehash these points, I want to take a theory that we do move towards a two-speed Internet where the consumer's choices for quality content are either pay for an ad free (or at least ad light experience) via subscription or turn off your Adblocker.

What are the market dynamics of forcing consumers to choose between paying for a subscription or sharing their attention with advertisers?

First: Which publishers can even play in this space?

Consumers expect that they should get everything for free and if you try to charge a subscription for content then you’re finished. There have been a number of newspapers that tried to apply subscription pricing, and a few of them are succeeding, but the majority are not. Why do you think that Is?

I believe that the reason is based on a consumer's perception of two things 1) the value of the content and 2) the accessibility of the content - which is directly related to the value. If a consumer believes that they can find the same or reasonably similar content somewhere else on the great big Internet then they will simply bounce off the paywall and go somewhere else to get their content.

And how do I know that - well because that’s what I have done myself. I grab the headline and put the headline into my favourite search engine and see what else comes up. Usually I can find a related article - maybe even one that references or quotes the original article - that provides me the essence of the content. In some cases there won’t be multiple sources.

In some cases the topic is so niche that only one person or group carried the story. And then it comes down to the value of the story vs. the cost to access the content.

If the content is interesting, but not vital, then the barrier should be low. I might turn off my ad block for just this one article on just this one occasion. I promise you I’ll turn it right back on as soon as I’m done reading though. The button to turn ad block on and off in my browser is way to easy to just click on/click off.

If the content is very important and very scarce then I might consider paying for it on a per article basis. This is what Conde Naste / GQ is doing.GQ is charing 25 cents to read a single article. (What they don’t tell you is that you need to deposit at least $2.00 into a Cointent account before you start.)

So - the quality of the content makes a difference - as well as scarcity.

Ok, But Consumers Won't Pay for Content. Right?

We’ve been told for a long time that consumers “won’t pay” - but there is more and more evidence that they will play for great content.

Look at the huge growth of Netflix. Netflix is a (currently) ad free model that is purely run on subscription. And Amazon Prime Video runs much the same way. Apple iTunes Video runs on a per product basis. And it’s not just video content it’s also mobile apps. There are plenty of apps that offer in-app purchase to add features including turning off the ads.

Seriously though, so many of the apps I see have ads placed in the path of the user interaction that they lead to false clicks all the time. Good for generating revenue, bad for user experience and bad for long term advertiser value.

The point I am making is that indeed there are some people who will pay for content and to make the ads go away. But what about the ones who don't value the content so highly?

So What About the People Who Won't Pay But Who Will Look at Ads?

One of the main talking points between the Apple ecosystem and the Android ecosystem is that they lower value customers use the Android platform. They simply don’t spend money for apps and they don’t make the in app purchases. This means that the consumers advertisers can reach for many Android apps spend less and are potentially less valuable.

The same logic can be applied to online content that is now running to a subscription model.

Once a publisher puts up a paywall and charges, then only those who have the financial means to pay for the subscription will do so. This leaves the rest of the users either missing out on the content or turning off their ad block tools so that they can see the content.

Over time this degrades the value of the advertising audience and so begins a death spiral of the value of banner ads - or should say “so continues” the death spiral.

The consumers who are the most valuable to the advertisers pay for the subscription and experience the content in an ad free way. The rest of the consumers who consider the content to be of lower value are likely also lower value to the advertiser meaning that the audience value is reduced - and thus the revenue available from banner advertising is reduced. 

And with less banner revenue the banners either go back to being more aggressive or the push to pay subscription becomes more aggressive and there you have it - a race to the bottom on banner value.

Bottom line

Some consumers will pay. The rest will watch ads or go away and the value of those consumers who remain may be less than those who pay. Resulting in a spiralling decline in revenue for publishers who force consumers to choose between watching ads and paying a subscription.

 

Come to our conference on 14 April in London to hear more about a balanced future for media.