Magazine publishers are at different stages of a transformation cycle, but a variety of external and industry factors are massively accelerating change.

Often described as the transition from page to screen, in reality transformation is a deeper redefinition of each brand’s community and purpose, and the use-case benefits it delivers.

Online advertising is evolving into a space where trusted consumer media can exploit their advantages of community engagement and premium context, rather than indiscriminate traffic.

Online advertising growth at big tech firms has flatlined, with real-term declines at Meta and YouTube. The weakness is concentrated in higher funnel ads.

Advertising is a leading indicator. A hardware slowdown is coming, services growth is stuttering, and businesses will want to save on cloud services.

Investors are hostile to attempts to spend through a downturn, but competition from TikTok and developments in AI demand targeted investment, while Meta is pot-committed to the metaverse. Tech giants are looking for savings elsewhere.
 

60% of Chinese online ad spend is directly driven by ecommerce, compared to 40% in the West. The gap will close as content and ads move closer to transactions.

General search engines are not central to the customer journey in China: Baidu fell below 10% of online advertising last year, compared to Google’s c.55% share in the UK.

The Chinese model now has a vector to the rest of the world in the form of TikTok, whose parent company ByteDance added more retail GMV in China than Alibaba last year. TikTok wants to grow video shopping in the West, targeting a huge $470 billion in transactions by 2027.

The pandemic years boosted many businesses selling services on subscription in the UK: work-from-home gave people more time and money to widen the services they enjoyed in the home, such as gaming, entertainment and music, also boosting engagement with trusted news

The cost-of-living crisis dented the number of subscribers to OTT SVOD and news services in Q2 2022. Broadband and mobile are must-have; bundles of services (e.g. Sky’s pay-TV and broadband or mobile) are more resilient; yearly and multi-year contracts prevent churn relative to monthly contracts; and services that cater to passions (e.g. football) are always need-to-have

Subscription (or supporter) media and news services reaped the demand for trusted news through the pandemic, but now face a tough challenge to their toplines from the economic downturn—and also to transition to a sustainable business model for media audiences, while advertisers are also feeling the heat

Meta suffered its first year-on-year revenue decline in Q2, as long-standing challenges crystalise and an economic slowdown in the US dents display ad spend. 

In response, Meta is retooling its products to neutralise threats from post-social competitors like TikTok, and trying to minimise the impact of data restrictions. 

The long-term pivot to the metaverse is Zuckerberg's next big bet, but funding it depends on core business strength. 

YouTube’s tepid quarter signals a two-track online ad economy with advertisers protecting search spend as an essential cost of sales while cutting online display.

YouTube faces a challenge to strengthen its brand and direct response ad products while sacrificing some income to Shorts, its answer to competition from TikTok, which we estimate added three times as much ad revenue as YouTube in H1.

Beyond the short term, brands need to generate new demand, and that cannot be accomplished at the bottom of the funnel.

Some prominent news media—notably the Financial Times, Guardian and New York Times—generate most of their consumer revenue online, shining a light on the industry’s long-term sustainability

Many newsbrands are also moving towards two-thirds reader funding, one-third advertising, emphasising that their business, not just their operating purpose, is journalism; where relevant, the legacy of the advertising boom period (1980s to mid 2000s) is finally shaking off

Perhaps most importantly, an extraordinary decade of transformation has instilled executive and cultural confidence at the top end of the market. Realising the same outcome for popular, local and magazine media will require even more radical transformation—but positive  signals are emerging

The Times and the Sunday Times have posted a record operating profit of £44.7 million, the highest (in nominal terms) since 1990, doubling a strong 2020

All the Times’ online metrics are going in the right direction, partly reflecting a favourable news agenda, but also a renewed energy, imagination and working rhythm galvanised by a new team and structure                                            

Reader economies are gathering momentum, at least among the quality press, and there are also hopeful signals among local and magazine media. Signs of reader subscription fatigue are supply-side rather than demand-driven—publishers should double down on their mission and purpose

The local press is in an existential crisis: relentless decline in revenues since 2004 has rebased the scale of the sector, but there is little if any consensus about what to do next, despite broad agreement that the implications for democracy are deeply troubling

Incumbents have focused on incremental innovation with limited success, and have failed to adapt their digital strategies from those created 20 years ago, despite overwhelming evidence that they do not work, and never will

We argue for radical innovation, switching the industry’s focus from advertising to communities, building new use-cases while also sustaining print media for as along as possible, both to buy time but also to develop a multimedia roadmap for utility, entertainment and public good services

The number of people willing to pay for online news now roughly matches print paid circulation, and will soon be substantially greater, with publishers increasingly demonstrating that their strategies are influencing industry outcomes

Our thesis is that subscriptions work in some cases, but that a more systematic reader-first approach benefits all cases, recalibrating management focus to media’s core purpose

Effectively implementing such an approach is a more radical, transformative development than is sometimes assumed. The winners will deploy sophisticated, bespoke audience acquisition and retention funnels and undergo detailed appraisals of the trade-offs necessary for optimal user experiences