Social referrals to news sites collapsed. Search referrals are holding but may soon follow. If publishers wish to control their destiny, they should invest more in online distribution.

Today, publishers spend two to eight times less on online distribution than on print delivery, depending on estimates. This difference partly reflects the higher cost for physical distribution over online distribution. 

But it doesn’t account for dependence on tech platforms to reach audiences and deliver content, weakened bargaining power, lost customers, and missed opportunities in product-led growth.

“In media business, value is principally materialised when content is consumed, not when it is made,” observed Oxford professor Alex Connock in his 2022 book.

Traffic panic

Silicon Valley Ditches News, concluded The New York Times in October 2023, describing the long and complex publishers’ dance with tech platforms.

What’s new:

• Facebook-referred traffic has declined 55% since January 2022. In the first half of 2023 alone, pageviews fell 40%, according to analytics company Chartbeat.

• In comparison, Google-referred traffic held with relatively small, 1% to 5%, ups and downs across the world regions since the beginning of the year. 

As Google, Bing, and other search companies are rolling out AI-generated answers to queries, instead of lists of Web site links, the traffic from those links is at risk too, per INMA analysis.

This matters because globally only one-fifth of consumers (22%) get their online news mainly through direct access to Web sites or apps, based on a Reuters Institute’s 2023 survey in 46 countries. 

The rest is accessing news “sideways.” Social is the top gateway for nearly one-third of consumers (30%). Search is second, with one-fourth of consumers choosing it (25%). 

Declines in referred traffic directly impact publishers’ business — reduce reach, advertising inventory, and conversions to subscriptions.

(The risk is not evenly distributed: e.g., North European brands see more than 50% direct traffic, East Asian brands see most traffic from search and aggregators, and Latin American brands see most traffic from social media.)

A hidden cost of platforms’ power

Traditionally, media sectors had unique distribution mechanisms — newspapers had their home delivery or kiosks, TV had broadcasting or cable networks, and radio had its frequencies.

On the Internet, where all media compete with each other, distribution is shifting away towards the tech platforms where mass audiences aggregate like social or search engines. 

Google, Meta, and other intermediaries enhanced publishers’ reach and profit pool, allowed cost-effective brand building and content delivery, inspired innovative storytelling formats, and offered some new revenue streams.

However, these benefits came at significant costs, as Harvard Professor Thales Teixeira and I explained in a 2019 book. The traditional link between content discovery, consumption, and monetisation was disrupted, challenging the conventional publishing business models.

Publishers’ relationship with platforms soured when they demanded fair payments, algorithm transparency and guarantees, and governments around the world got serious about regulating Big Tech.

The myth of zero marginal costs on the Internet

Columbia Professor Eli Noam estimated in 2019 that across all offline and online media, the distribution chain had about 41% share in the industry’s revenue.

It was highest for physical content media at about 48% and lowest for online media at about 25%. Anecdotally, three INMA members estimated their 2023 costs allocated to distribution at 30% to 40% for printed newspapers and at 5%-10% for online sites.

Should we expect digital distribution spend to be that low?

In digital markets, “information is costly to produce but cheap to reproduce,” famously observed in a 1998 book by Berkeley professors Carl Shapiro and Hal Varian.

This idea inspired many. The enthusiasts believed the Internet eliminated not only reproduction but distribution costs, promising free prices for everyone, viral growth, and endless scalability for businesses. 

This is what entrepreneur Reid Hoffman called in his 2018 book “blitzscaling”, a Holy Grail of the startups. This is why British journalist Chris Anderson declared in 2009: “The Web has become the land of the free, not because of ideology but because of economics.” 

But in reality, “cheap” is far from “free” — and without distribution, media products are unseen, unheard, and “arguably worthless,” as argued by Oxford Professor Connock.

Platforms’ distribution secrets

With social traffic declining, news media executives are learning that relying on “free” distribution puts at risk the very sustainability of publishing. 

At the same time, platform executives have been investing billions in distribution for decades: from developing features attracting new and returning users, to piggybacking on existing networks, and to slotting fees known from retail. 

Similarly to breweries or dairy plants paying supermarkets to feature their drinks prominently on shelfs, Google paid as much as US$10 billion per year to ensure users of Apple Safari and other browsers see Google search as a default. 

Google’s deals were revealed by the U.S. Justice Department’s antitrust case. They lock up between one-third and one-half of all search traffic in the U.S.

How much is US$10 billion for Google? Per the 2022 annual report, it’s 8% of annual cost of revenues or 6% of revenues from Google Search. And this accounts only for slotting fees. 

In the report, the cost of Google’s distribution agreements are reported combined with advertising revenues shared with publishers using Google Network. Together with the costs of data centres, product research and development, and sales and marketing, they account for 64% of annual revenues.

The Web, it seems, is not the land of the free even for its giants. And it’s not free for news publishers, for sure.

Greg’s Readers First newsletter is a public face of a revenue and media subscriptions initiative by INMA, outlined here. INMA members may subscribe here. 

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