How The Ad-Supported Media Industry Is Being Shaken Up By Subscription Models
Over the past two decades, the world has seen an overwhelming number of industries disrupted by innovative technology companies. From Uber and Lyft dismantling the taxi industry, to Netflix conducting a complete overhaul of cable TV — it is clear that if an industry fails to innovate, they won’t last long.
At the core of this disruption are Amazon, Apple, Facebook, and Google — colloquially known as the Big Four Tech Companies. Combined, these four firms make up a market capitalization greater than any sovereign nation’s GDP with the exception of Japan, China, and the US (Silver, 2020).
Of these four firms, two have become the dominant players in the world of advertising — Facebook and Google. These two tech giants will soon do to the ad-supported media industry what Uber did to taxis, Amazon did to brick and mortar bookstores, and what Netflix did to cable TV.
But why is this? Well, we live in a world where the most valuable commodity is no longer gold or oil, but rather, something ever more abundant — data. In 2019, data surpassed oil as being the world’s most valuable resource (b. Agrba, 2019). More so, Facebook and Google alone have a market cap about $200b larger than that of the combined value of the top five non-Chinese oil companies (Agrba, 2019). This is likely due to the fact that Facebook and Google (and its subsidiary YouTube) make up the three most highly trafficked websites in America (Alexa, 2020).
Most of the world no-longer pays for its entertainment with its wallet — it pays with its eyeballs. But the question remains, what are the impacts of this trend?
Structural Decline of the Advertising Industrial-Complex
As stated previously, most of the world no-longer pays for its entertainment with its wallet — it pays with its eyeballs; by being exposed to ads. There’s only one problem with this: the world hates ads.
In 2018, Verizon’s Digital Media unit revenues decreased by nearly $5 billion and Mic, which had previously been valued at $100 million, fired the bulk of its employees and was ultimately sold for $5 million (Thompson, 2018). This leads to the following conclusion: The bulk of revenues generated by the ad supported media industry will flow towards two companies: Facebook and Google. What’s more; this is already happening.
Google’s revenues grew from $110 billion to $136 billion from 2017 to 2018 (Clement J. , 2019). In the same timeframe, Facebook grew its revenues from $40 billion to nearly $56 billion respectively (Clement J. , 2019). If I were Buzzfeed or the Daily Hive, I’d be running for the hills. But fortunately, there may still be hope for these companies.
How Ad-Supported Media Can Adapt
Probably the easiest way for ad-supported media to adapt to this trend, and avoid decline, is to adopt a subscription-based model.
Getting people to pay for something that they used to get for free sounds counter-intuitive, but it seems to be working in some cases. For example, in 2016, Candy Crush grew its revenue by more than 35 percent simply by deleting its ads and adopting a subscription model (Gilbreath, 2017).
This concept was summed up nicely by Sebastian Knutsson, the Chief Creative Officer of King Games when he said, “If you interrupt with ads [People] play less”.
An increasing number of companies are turning away from ad-supported media. For example; Amazon, Hulu, and Spotify are adapting well to this trend by shifting their businesses to subscription-based models.
Companies can no longer expect advertisers to pay for space on their webpage, app, or platform if they want to be around in the future. The world used to pay for the internet with their eyeballs, now the world wants to skip the ads and pay with their wallets. Scott Galloway was quoted saying “In the near future, there will be more advertising professionals taking time off to spend with their families”. If companies want to avoid this bleak future, they’d better put their eyeballs to use, and see the writing on the wall.
