From CPM to CPA to LTV

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On this week’s episode of The Rebooting Show, I spoke to Rich Routman, CEO of The Sporting News, perhaps the first company that took 137 years from founding to its Series A. Also: more on publisher doom loops.

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How The Sporting News pivoted to affiliate

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The ad business is a treadmill. You sell a deal, then when it expires, you start from zero. It is a constant challenge of keeping the wheel spinning. Oh, and when times get tough, clients go dark, no matter how many Ad Age op-eds are written about how advertisers should keep spending during a downturn. The CFOs aren’t buying that. The structure of the business has long incentivized raw impressions

“No one can really tell you in digital media outside of a subscription business what user value is,” Rich told me on this week’s episode of The Rebooting Show. “They can tell you the cost for every thousand users that they serve impressions to, but they can't tell you what LTV  is going to look like.”

Publishers have tried to create side hustles that engage in the truest of all digital media business models: arbitrage. In this version, they arb their news reputations in order to slide catalog content in search results. Never mind that they don’t have much credibility in many of the areas. If there’s margin to be had, you’ll find clumps.

But sports is different. The legalization of sports gambling in the US – 33 states and Washington DC so far – means that sports media is one of the most valuable categories. Sporting News, founded in 1886, closed a $15 million Series A last week on the premise that it can use its brand and sports content to steer fans to sportsbooks and other subscription services. This gives sports media the opportunity to shift from selling impressions to becoming marketing services companies that take a share of the revenue generated by the customers they convert.

The Sporting News has gone from nearly all ad-driven to now generating 40% of its business from affiliate and revenue-sharing arrangements tied to performance. This provides a stability and predictability to the business, allowing it to mitigate the ups and downs of the ad business. What TSN is doing is interesting in that it is striking deals in which it takes a long term interest in the value of subscribers it is driving to these services rather than a one-off bounty.

“If we drive customers to a sports book, why would I take a $200 bounty when the person that we drove over the next five years is gonna lose X, Y, and Z? I'd rather be aligned with that customer value.”

I find that shift interesting because the truth of the big audiences the last wave of digital media bragged about was that they weren’t worth much, mostly because they were fleeting impressions without commercial intent. The corollary to software is eating the world is performance marketing is eating the ad world.

There aren’t many categories as readymade for affiliate as sports media, but publishing brands that commit to commerce in categories that make sense can build more resilient businesses.

Other highlights:

The easy money days of sports betting are mostly over. “The land grab days of these big sports deals where publisher A is going to get a category-exclusive deal with this bookmaker for $10 million a year have gotten extremely rare. Most of them didn't work. What you're also seeing is sports betting operators want to become media businesses, and media businesses want to become sports betting operators.”

The BuzzFeed Effect on similar digital media businesses raising money: ““If these businesses cannot perform well as public businesses, it made people very cautious. There’s a ton of digital media businesses that while they've grown revenue and they've grown audience, they haven't been able to pave a path to becoming really profitable businesses.”

The focus on efficiency has made digital media boring: “A lot of people are just doing the same things and trying to trim cost structure right now. And I would say the last couple years have had a lack of innovation as a result.”

Affiliate marketing can be more than CPA. “If I send customers to sportsbook A, and we do it pretty well, and sportsbook A builds this huge base of customers and becomes a multibillion dollar business, and I get my $200 CPA fee, am I doing a good job as a business owner? No. We need to make sure that when we send customers to third parties, we are appropriately compensated for those customers, not on a one-time basis.”

Penn pulling the plug on the Barstool deal isn’t a sign the sports media x betting tie-up doesn’t work. “There are markets where that [Penn-Barstool] marketing tie-up actually worked pretty well. But when the New York regulators say they’re not approving you in New York because of Barstool, the first thing you do is you find a different brand because you cannot afford to not be in a market because they're worried about what [Barstool] may say or what may come out in the news.”

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On the publisher doom loop

I got several notes from my Thursday essay about a publisher doom loop of chasing yield with ever intrusive ads. One veteran of a big publisher said they would call this the “tragedy of the commons,” where competing interests – sales wants ads, subscriptions wants a subs offer, audience dev wants push notifications – result in a dog’s breakfast of a user experience.

I’m not naive. Operating businesses is mostly a series of imperfect tradeoffs. You respond to market incentives – and let’s be honest, your personal incentives – and try to align interests imperfectly. What I see broadly is a misalignment issue.

Another industry veteran who remembers the days when you could tell the end of the quarter was nearing by the deluge of pop-ups and pop-unders put it this way to me:

“When I arrived at Condé Nast they started launching new video content. The website ops didn’t report to me. I told them “you cannot play an ad in front of every video request.“ Their reply to me ‘But we need to fulfill inventory.’ Me ‘You’ll never get an audience with all those ads.’ They would repeat their same reply. This was in 2006. Groundhog Day never ends in the media business.”

The frustrating part for many publishers is many of these misplaced incentives start with advertisers themselves. Arielle Garcia, the departing chief privacy and purpose officer at ad buyer UM, spoke to the misaligned incentives in a recent Adexchanger piece.

“The large agency holding company model – a model that is rife with competing interests and conflicting loyalties, shackled to the industry status quo by “dysfunctional interdependencies.”

It is a model that can adequately serve neither the interests of advertisers nor their customers – and certainly not of shareholders, as the agencies beholden to this model conflict and commoditize themselves into obsolescence.

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