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The advertising recession is definitely here

I probably don’t have to tell you that the economy is extremely weird right now.

On the one hand, we’ve been beleaguered with high inflation that’s remained persistent despite the Fed’s aggressive moves on raising interest rates. Public companies have consistently missed earnings estimates, and most surveys place consumer sentiment at extreme lows. It also doesn’t help that we’re staring down the barrel of a GOP-induced default on our national debt, which would likely trigger a global recession.

At the same time, the unemployment rate remains historically low, and monthly job reports continue to be rosy. Low-income workers have experienced wage increases that outpace inflation, and the GDP appears to be still growing. 

But regardless of whether one feels optimistic or pessimistic about the state of the economy right now, I think there’s one thing we should all agree with at this point: the advertising recession is definitely here.

For a few months there, many of us hoped that marketers were taking a temporary wait-and-see approach in case there was a sudden pullback in consumer spending. But what started as a couple of down months has persisted for several quarters, and even with retail spending still strong, it’s clear that ad sales aren’t coming roaring back anytime soon.

Digiday published a recent overview of media earnings reports, and while earnings overall were a mixed bag, nearly every single company reported a significant dip in advertising revenue:

Publishers reported declines in digital ad revenue from about 9% to 30% — worse than the 3% to 27% drop in ad revenue year over year reported for the fourth quarter of 2022. Executives continued to cite macroeconomic conditions and a soft ad market as major challenges to their businesses.

Even companies that have historically excelled at maximizing their ad and affiliate revenue — like DotDash and Future — are seeing declines. That’s a clear sign that this is a sector-wide problem that’s affecting just about every publisher across the board.

And it’s not just the media that’s seen an ad slowdown. YouTube recently revealed it’s experienced three straight quarters of declining revenue, and other tech earnings have been similarly dour. This isn’t just some temporary blip.

There are probably a few media operators reading this right now who are breathing a sigh of relief — mostly because it confirms that they’re not solely to blame for their recent struggles. But whatever comfort you take in knowing you’re not at fault, it still doesn’t change the fact that the media industry is still largely dependent on advertising as a business model. That spells a rough ride ahead for publishers, regardless of the health of the overall economy.

When I initially floated the idea of writing about an advertising recession on social media, many of you came back with the same request: that I provide some practical tips on how to survive it.

Well, I’m not going to pretend I have some silver bullet that will ward off all macroeconomic pressures, but I do have a few thoughts on how a publisher can shield itself from the worst outcomes:

Reader revenue is more important than ever right now

While it’s unlikely that subscription growth will make up for a loss in advertising dollars, I haven’t seen much evidence yet that publishers are experiencing the same dropoff in subscription revenue as they’re seeing on the ad side. The Digiday report I referenced above came to the same conclusion: 

Publishers’ digital subscription businesses fared much better in Q1 2023. Almost all of the publishers — Dow Jones, Gannett and The New York Times — with subscription offerings in this report saw growth in this area. 

It seems clear that the average consumer still has enough money in their pocket to continue their media expenditures.

So now is a great time to double down on your subscription offerings — focusing not only on acquiring new subscribers, but also on retaining already-existing ones. And given that newsletters play such a key role in subscriber retention, that means you need to pay even closer attention to your email strategy.

Two recent case studies have underscored the importance of newsletters in reducing subscriber churn. The first came from Adweek and covered New York Magazine’s subscriber-only pop-up newsletters, like the one centered entirely around the final season of Succession:

Combined, the investment in newsletters has yielded both a boost in list size—up from roughly 500,000 in 2019 [to over 1 million today]—as well as a 10% improvement in annual digital subscription retention in 2022, according to Priyanka Arya, the senior vice president of consumer revenue at Vox Media …

… the pop-ups generate far higher rates of engagement than standard email products.

Succession Club, for instance, which reaches 23,000 subscribers, has an average open rate of 80% and clickthrough rate of 50%, according to Arya. Queries, a newsletter exploring copy editing and grammar, boasts an 80% open rate.

The second case study came from the World Association of News Publishers and focused on The New York Times’s subscriber-only newsletters:

Today, more than a year and a half after The Times launched their subscriber-only newsletter programme, they are seeing a clear link between the subscribers who receive the newsletters and their retention rates.

“We are seeing that the people who have these newsletters do retain better,” [Paige Collins, Senior Product Manager] said.

While she said she could not go into specifics, she noted that in general people who don’t receive any newsletters are the hardest to retain. People who receive one free newsletter are a little more likely to keep their subscription than people who don’t receive any. People who get two free newsletters retain better than those who receive just one.

However, if a reader gets even one subscriber-only newsletter, they are much more likely to retain their subscription than those receiving a couple of free ones. And if a person is receiving two or more of the subscriber-only newsletters, they are even more deeply engaged, and therefore, much more likely to keep their subscription, she said.

Most publishers I speak to are still underinvesting in newsletters — at most using them as glorified RSS feeds that link back to their web content. If ever there were a time to finally launch that editorial newsletter product you’ve been considering, it’s now.

Marketers will value ROI

Brands almost always cut their marketing budgets during economic downturns, but they don’t eliminate them entirely. They do, after all, still need to bring in new customers.

But with limited spend, marketers will be more focused than ever on the channels that produce demonstrable ROI, which means that publishers need to double down on channels that deliver measurable results.

I’m on record as saying that display advertising is almost completely useless at driving brand awareness or sales, and it should surprise no one that publishers that heavily index on programmatic ads will be hit hardest during this recession. They should instead focus on building out editorial products that are directly linked to sales.

For B2C publishers, that means expanding their affiliate and ecommerce offerings. They should utilize their reach and brand to push their audience toward product purchases and then take a commission off those purchases.

For B2B publishers, it means focusing on lead generation services like free webinars and live events — products that allow them to collect attendee contact information and turn it over to the sponsoring vendor.  

Approach platforms with even more skepticism

If there’s anything the last half decade has taught us, it’s that publishers should be extremely cautious when investing resources into creating content for tech platforms.

Do these platforms offer tremendous reach to outside audiences? Of course. Can they even sometimes directly drive revenue? Sure.

But we’ve learned from experience that these platforms can choke off distribution at the turn of a dime, and they’ll probably become even more capricious in this regard as the advertising market continues to sour. While I was writing this, the news broke that Meta had laid off most of its media partnerships team — as clear a sign as any that the company isn’t prioritizing its relationships with content creators moving forward.

Publishers will never be able to wean themselves off completely from these platforms, but now is an especially good time to examine how you're allocating your time and resources to them. I know it’s a cliché at this point to say that publishers should own their audiences, but the outlets that emphasize metrics like homepage visits and newsletter subscribers really will be the ones that are best equipped to weather a recession. And it’s those that rely on the empty calories of programmatic advertising and driveby traffic that will be the hardest hit. Which side of that divide will you be on?

What do you think?

Speaking of webinars

I’m hoping to launch a webinar series later this year. If you run a company in the publishing or marketing space, this can be a great opportunity to get in front of my audience. Check out my sponsorships page to learn more.

This YouTuber used his channel to launch a tech company

In some ways, Rahul Pandey’s career as a YouTuber has been pretty typical. After several years working at large tech companies like Pinterest and Facebook, he started uploading videos that gave career advice to other engineers who are trying to break into the industry. Then once he built a significant following, he left his full-time job in 2022 to focus on this type of educational content full-time.

But where he differs from other YouTubers is his choice of business model. Rather than going the typical route of securing brand sponsorships, he instead co-founded Taro, an online community platform where engineers can collaborate and share career advice. The company monetizes through a monthly subscription, and to date it’s mentored thousands of engineers through its community.

In our interview, we discussed how Rahul built his channel, why he launched a tech platform, and what his future on YouTube now looks like.

Watch our discussion in the video below:

If video embeds don’t work in your inbox, go here.

Quick hits

“Semafor has booked more than $10 million in revenue in 2023, split between advertising and events, which have been a larger-than-expected contributor to the company’s business” [NYT]

Even though Apple and Spotify launched their own paid subscription platforms for podcasts, many publishers are still sticking with third party services, mainly because they allow a more direct relationship with subscribers. [Digiday]

It's incredibly easy for copyright trolls to file bogus claims against YouTube channels. It seems like it wouldn't be too difficult for YouTube to disincentivize this sort of behavior by deleting the channels of persistent copyright trolls whose claims keep getting overturned. [Passionfruit]

Events giant Informa “put an enterprise value on Industry Dive of $525 million. That would make Industry Dive’s value at over two Vices and five BuzzFeeds.” [The Rebooting]

TV and podcasts have developed a symbiotic relationships where each naturally feeds into the other. It's a great way to keep fans engaged from week to week as they await new episodes. [The Guardian]

ICYMI: How The Future Party grew its newsletter to 150,000 subscribers

The Future Party hosts dozens of events a year and works with some of the largest luxury brands in the world. It also publishes a daily newsletter that reaches 150,000 people.