November 30, 2016

Credit CEO Mark Zuckerberg and his lieutenants for belatedly acknowledging the fake news problem and inching toward assuming other responsibilities that go along with publishing, even if it’s algorithmic publishing.

Pardon a churlish thought, however — is that modest progress diverting attention from the company’s bigger and devastating impact on the business of journalism?

With a little help from advertising analyst Gordon Borrell, I’m estimating that Facebook has sucked well over $1 billion out of print advertising budgets for U.S. newspapers just this year.

And that’s at a time when newspapers have seen that figure (once $43 billion a year) fall well below $15 billion.

The Facebook ad juggernaut may next be poaching from local TV ad budgets as it builds out video audience. And Facebook remains a formidable competitor to magazines and any digital startup, profit or nonprofit, for whom digital ads are an important revenue source.

On Nov. 2, the day the Cubs won the World Series as the presidential race was nearing a conclusion, you most likely missed, as I did, Facebook’s latest quarterly earnings report.

Here are some of the painful numbers:

  • Revenues were more than $7 billion, nearly all of that advertising, just for the quarter.
  • That represented an increase of just over $2.5 billion — 59 percent — from the same period in 2015.
  • Multiply out to four quarters, and that’s $10 billion in growth over a year.

Only half comes from the domestic market (though the company has comparable impact now on publishing abroad).

So of $5 billion growth in the U.S., how much came out of newspapers’ print advertising spend? Borrell estimates $1.3 billion, about 6.5 percent of the industry’s total revenue including circulation and other activities.

The Wall Street Journal’s account of Facebook’s earnings highlighted that it is nearly impossible to attain percentage growth that high as the base of operations has become so huge.

Indeed, Facebook executives said that they expect the pace of growth to slow by mid-2017. Facebook is nearly maxed out in the number of ads it will load for a user, they explained.

That in turn, however, will make the company more all the more aggressive in strategies to expand the time users spend on site and compete for new and younger users against the likes of Snapchat.

Borrell summarized results of a survey over the summer, which I wrote about in September, connecting the dots on Facebook’s impact.

Of 4,600 local advertisers who use newspapers, Borrell found, 79 percent said they were cutting print advertising in newspapers to fund digital spend. Just over half said that they were cutting “a lot” rather than a little.

On many dimensions, the local advertisers indicated satisfaction with their Facebook buys — effective, easy to place, comparatively inexpensive.

A typical small business, Borrell wrote me, now spends between $1,000 and $2,000 a year on Facebook ads.

So what are the implications for the news business?

More of the same dynamic is expected, but I’m not yet ready to say the sky is falling in. Rather the scales now tilt more steeply toward a strategy for newspapers and other serious news players to develop alternate revenue streams to print ads and digital banners.

Those include proven winners like events and digital marketing services, together with specialized premium ad opportunities — exclusive sponsorships, native and valued local targeting.

Put another way, a clickbait-enhanced bet on growing raw traffic numbers looks more and more like doubling down on a losing hand. Except for the biggest news players, trying to take on Google and Facebook at a game they dominate seems futile.

A silver lining of sorts is that editorial quality and responsiveness to readers’ biggest local news interests is coming back in style.

If Zuckerberg and other Facebook execs are feeling heat from critics inside the news industry in recent months, just wait. Fake news and related issues concerning news feed recommendations and censorship are not going away.

I do see the case for Facebook and the other platform companies as creative disruptors, and it may be a net plus that their current surge is shaking up the ad industry, as the Financial Times recently reported in detail.

But the hollowing out of news capacity is unmistakable, and Facebook’s Instant Articles and other initiatives to help those who generate significant content, distinctly modest.

I’m not holding my breath for Zuckerberg to be seized by a sense of responsibility. Or for the slumbering Justice Department Antitrust Division (under president Trump) to make a bold move into the 21st century by looking at the Facebook/Google duopoly on mobile digital advertising. Still, one might hope.

Maybe the prudent course for now is to see Facebook’s might as a given. I asked Ted Williams, the digital-ad-savvy entrepreneur who launched Charlotte Agenda and now a second site in Raleigh, for his take. He replied:

Facebook is a beast and it’ll gobble up many more local ad dollars. Their targeting, reach and ad products make them an important part of any media buy. We never, ever want to compete against FB; we’re just a niche buy for certain advertisers. We’re very different than buying Facebook — and we never advocate for people to take their FB budget and spend it on us.
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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
Rick Edmonds

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