The Philip DeFranco Show - MS 3.7 The HUGE Issues With The Digital Ad Space, Corporations, Closures, & Understanding Diversification

Episode Date: March 7, 2019

Support this content w/ a Paid subscription @ http://DeFrancoElite.com Watch Yesterday's PDS: https://youtu.be/iBelXsU3bYw Watch The Previous Morning Deep Dive: https://youtu.be/tsFUcfVDxek ———————————— Watch ALL the Morning Shows: https://www.youtube.com/playlist?list=PLHcsGizlfLMVTPwyQHClD_b9L5DQmLQSE  ———————————— Follow Me On ———————————— TWITTER: http://Twitter.com/PhillyD FACEBOOK: http://on.fb.me/mqpRW7 INSTAGRAM: https://instagram.com/phillydefranco/ ———————————— Sources/Important Links:  ———————————— https://www.businessinsider.com/2019-media-layoffs-job-cuts-at-buzzfeed-huffpost-vice-details-2019-2#vice-media-250-jobs-february-1-1 https://variety.com/2018/digital/news/defy-media-shutting-down-layoffs-1203020919/ https://www.hollywoodreporter.com/news/disney-digital-networks-hit-layoffs-1157822 https://deadline.com/2019/02/machinima-closing-layoffs-warnermedia-otter-media-1202547949/ https://www.cnn.com/2019/01/24/media/media-layoffs-buzzfeed-huffpost-gannett/index.html https://www.poynter.org/business-work/2019/gannett-lays-off-journalists-across-the-country/ https://www.theguardian.com/media/2019/jan/26/huffpost-buzzfeed-layoffs-digital-journalism https://digiday.com/media/new-yorker-plans-double-paid-circulation-2-million/ https://www.nytimes.com/2018/08/08/business/media/new-york-times-earnings-subscriptions.html https://www.miaminewtimes.com/news/mcclatchy-follows-buzzfeed-vice-and-others-in-cutting-staff-11070151 https://digiday.com/podcast/digiday-podcast-jonah-peretti-buzzfeed-facebook/ https://www.fastcompany.com/90295558/patreon-is-on-track-to-reach-1-billion-in-total-payments-to-creators Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello, hello, welcome to your extra morning news show. My name is Philip DeFranco and today we're gonna be talking about something we've touched on briefly in the past, the digital ad space, the corporations, and the employees who suffer. I mean, some of the recent things, you had Machinima now shutting down completely, laying off 81 employees as part of the now-formed WarnerMedia after Warner Bros. merged with AT&T last year. Hell, in January alone, about 2,100 employees were laid off from media companies, with Vice Media cutting 10%, that's around 250 people. BuzzFeed cutting 15%, that's about 220 people. Verizon, which includes Yahoo, AOL, and HuffPo, cut 7%, so that was about 800 people.

And then of course, back in November, the very, very weird, strange elephant in the room, Defy Media, shut down completely. And as some of you know, I have experience in this corporate realm as well. So, why does this keep happening, and why will it continue to happen? Well, it's actually a result of a lot of things

happening kind of simultaneously, but we're gonna be focusing on two of the more prominent ones today. We're talking the digital ad space and corporate acquisitions. And actually, to talk about the digital ad space, we need to first kind of do a quick TLDR of the traditional media ad space.

Which, keep in mind, this is a TLDR. A video on the traditional ad space is a video in its own right. So, in traditional media, commercials are sold for various programs based on their ratings. You know, just how many eyes are going to be on that screen when their product pops up. And so you understand the money we're talking about here per ad aid. This Is Us averages $433,000 per 30-second ad. The Big Bang Theory averages $285,000.

Bigger sporting events like Sunday Night Football, it averages $665,000. And these amounts are based on CPMs, cost per meal or cost per thousand. And the average reported CPM for TV can range from $20 to $40. Now that same sentiment is carried into digital video, but on a significantly smaller scale. Right, so the closest thing digital has

to a traditional TV commercial is going to be your pre-roll. And there, the average CPM is all the hell over the place. Right, because it really depends on a lot of factors. And even then, most industry experts, creators and brands alike can't seem to agree but you are definitely talking about much lower CPMs when it comes to the digital ad space then the average CPM for something like a branded integration or something in the video once again that is all over the place right part of that depends on

the company is the long-term relationships how many videos they're buying one or many how many middlemen are you talking about I mean I have some deals directly with a company but I've had deals in the past where it was like a company to an agency to an agency to me. Also, with digital comes some risk. If you're not buying super, super premium and specific, sometimes your ads might pop up in a place you're not happy with. Also, even with branded integrations, there's a risk there. Branded integrations into an online video, I mean, you're talking about a thing that is going to remain up forever. Because that sort of integration is closer to an endorsement, the brand and person are very closely tied.

So if some scandal happens, boom, they pop up. And with the digital advertising space being, it's an overused expression, but it works really well. Being a little bit like the Wild West, people and very large companies have been figuring out a new way to do business. For example, editorial or online news outlets have had their own challenges with advertising.

Right, traditionally when you're talking about print media, you have the sale of the newspaper, which would also have the ads that were sold featured within the physical newspaper itself. Then you flash forward to the modern example in the digital space where you have banner ads lining all the websites you scroll. I mean, you know the ones.

And so with the ever-growing shift of more and more people consuming their media via screens, what we've seen are traditional editorial outlets, such as the New York Times or the Washington Post, having chosen to adopt online subscription services. The New York Times reported that in the second quarter of 2018 alone, they added 109,000 digital only subscribers. And with that rise came an increase in revenue

that counteracted a decline in print advertising. And another one, they went on to say that digital subscriptions brought in $99 million in Q2, a jump of nearly 20% compared to the same period in 2017. And actually following suit in November of 2018, we saw Glamour Magazine shutting down their print publication of the magazine to shift entirely to digital.

Also, affiliate programs have been another option for editorial outlets. For example, when you see a list of best gifts featuring a quick product review and a link to purchase, it often provides a kickback to the digital publisher. Also, another direction for editorial companies such as Upworthy and HuffPo is taking the plunge into video. But the thing there is that this can often lead to layoffs as the outlets pivot to prioritize video and it's important to note video is more expensive, more competitive,

and it's harder to grow there. But one of the things that might be in your head right now is why is this an issue? Right, we talked recently about how digital ad revenue had surpassed traditional media. So why are we seeing all of these companies struggling? Well, we have to address the fact that Facebook and Google have saturated the digital ad marketplace as a duopoly. Per Forbes, in 2018, 58% of the US digital ad spending, estimated at 111 billion, will go to the Google-Facebook duopoly. 37.1%, 41 billion to Google,

and 20.6%, 23 billion to Facebook. With Amazon coming in third, bringing in $4.61 billion last year, but it is still way, way behind the other two, with only a little over 4% of the digital ad space. And keep in mind, that is after they doubled ad revenues in one year, which is impressive in its own right. I mean, you compare that to Buzzfeed,

who reportedly made more than $300 million in 2018, according to the New York Times, but just a year before, back in 2017, along with Vice, they missed their revenue target by as much as 20%, which reportedly crushed the dream of taking the company public public and led to the first of their rolling layoffs. And I mean, just think about the digital video content

that you watch. Chances are you watch it on YouTube, which is owned by Google, or maybe Facebook, which also owns Instagram. It's not easy for a digital outlet to upload content to the internet without going through or having one of these two companies have a hand in it. And the challenges and the pressure of trying

to secure revenue as a digital media company with this duopoly in place, I mean, it only gets harder once a digital startup has been acquired, which actually brings us to corporate acquisition. Over the last decade, digital has changed how people consume news, entertainment, how they just live their daily lives. And when you have attention and money, the corporations follow. And the forms that attention usually turns into acquisitions as well as investment. For example, Discovery purchasing my former company to fraco creative back in 2013 Which of course I eventually bought my stuff back your Disney buying maker in 2014 investment and device by a and a networks in 2014 investments into BuzzFeed and box by NBC Universal in

2015 and depending on the corporation that you're talking about some of them can struggle with understanding how a digital company operates for example many Online digital brands build communities as opposed to audiences meaning it takes time to establish loyalty with your viewers. Let's say we're talking venture capital or VC funding. Your investment comes in at different stages and is based on whether you've hit specific metric goals. Like, let's say, 1 million subscribers in the next 12 to 18 months or a certain amount of views. And there needs to be some depth to those actual numbers if you're building something in the digital space. For example, all views aren't created equal if all of a sudden you're saying, we need to get to 40 million views a month. If most all of your videos are doing garbage views,

but you got three in the archive that bring in 39.9 million, that's not grow a company kind of success. That's a viral hit slash lucky algorithm lottery take. Also, sometimes you see instead of simply operating on a smaller level financially as an independent company, some of these digital publishers end up having to make their numbers look like corporation numbers, right? Did you move the needle? What's the ROI? Which if you don't know stands for return on investment, which is kind of just basic business. You want a product you're creating to make more money than it costs to produce. Or I guess even more simply put, you know, profitability.

And so with rising costs for digital video companies now expected to compete with production quality of traditional media, growing staff count and resources, and the struggles with an over-saturated market as we covered, ROI becomes harder and harder to attain. And also going back to all numbers aren't equal, I mean a lot of whether a company succeeds or not is based on what their definition of success is. If you're a company that just wants to maintain their current operation or grow at kind of maybe

a slower rate, those revenue targets might be more manageable. But places like Vice or Buzzfeed are example, they are actively trying to be huge players in the game, which means high revenue targets and big promises to the investors. Okay, so I know it's a lot, but let's keep going. To explain more in detail the struggles faced when trying to be profitable in digital video, we spoke to a long time professional in the digital media industry and he had this to

say. Hi, my name's Mike. I've worked in digital programming for about 10 to 12 years, so really since YouTube started to monetize. In terms of growth and in terms of sort of like why I think businesses have had, like large businesses have had a hard time making digital video work for them. Individuals who had started early on YouTube, creators who've been around for 10, 12 years at this point, making millions of dollars a year from their basement. And so it was like, well, if that kid

can make millions of dollars a year on their basement, then if we're spending a million dollars a year and making seven, then we can scale our business to be as competitive. And this is clearly a very clear business model. Those people had invested 10 years in building an audience slowly over time. And were now monetizing, not content. They weren't monetizing content.

They were monetizing trust. Someone gives me a bunch of money right now and says go start a digital vertical on youtube and facebook um and you need to be competitive and it needs to be ad supported then they're gonna say well to be ad supported you have to get to a million subscribers by, what is it now, February? By, if not July, December. Right? And there are ways to make the system do that. Right?

You can put money these days, especially with Facebook and YouTube, because they're advertising platforms. You can put a bunch of money into advertising the best of your content to try and get as many views as possible. And people will see a thing they kind of like and then follow it because they already follow a thousand other things. And so you can sort of buy your subscriber base. And that's not even getting into bots, but you can sort of buy your subscriber base and build an audience, but there's no community there. There's no brand loyalty. There's no understanding of your voice or your personalities. There's no trust that's being built because they're not people that are necessarily going to remember, oh, I know Phil DeFranco. I know Rogue Rocket. I'm going to come

back here purposefully every day. Without that, without the trust and the brand and identification and the like community component of it, you actually don't have a consumer base. You can't, you just can't manufacture trust. Part of what we forget is that it's a very, very new business, right? It's a business that has only existed for about 10 or 12 years. I think now that we've seen things succeed and we've seen things fail and we've seen the way that money can be helpful and money can be hurtful, I'm hoping, I'm hoping what this means is a whole new set of experiments, right?

A whole new set of different companies trying it differently. I'm hoping that what it doesn't result in is everyone being like, it doesn't work. We're out. Because I think that that is a I think that's a disservice to a lot of really creative people that have really interesting things to make. And I think it's a disservice to the audience. There are very few things that you can be certain of in life, but you can always be sure the sun will rise each morning. You can bet your bottom dollar that you'll always need air to breathe and water to drink. And of course, you can rest assured that with Public Mobile's 5G subscription phone plans, you'll pay the same thing every month. With all

of the mysteries that life has to offer, a few certainties can really go a long way. Subscribe today for the peace of mind you've been searching for. Public Mobile. Different is calling. The new BMO VI Porter MasterCard is your ticket to more. More perks. More points. More flights. more of all the things you want in a travel rewards card, and then some. Get your ticket to more with the new BMO VI Porter MasterCard and get up to $2,400 in value in your first 13 months. Terms and conditions apply. Visit bmo.com slash viporter to learn more. And that last point that Mike made is something that I really want to hit on, right? Because the purpose of this video is to showcase just how complicated the digital space can be and to shed some light on exactly why we're seeing

those big companies like DeFi shut down seemingly out of the blue when they have a dedicated audience base. And I agree with him. I don't want digital to continue down the path of being so misunderstood or so mismanaged that not only the companies in the space, but the people continue to be seen as lesser by some, when often from the beginning, they are being set up to fail. It's something we've talked about on the show before, and if certain models are not overhauled in some aspects,

I don't see the root of the problem going away anytime soon. With all that being said, I will say this. As corporations continue to try and figure out sustainability in a relatively new industry, we can expect a lot lot of experimentation and when some of those experiments inevitably fail we end up with many many Sacrificial limbs specifically in this case the employees themselves It's something I've been wanting to do more and more with these morning deep dives is to talk about those Individuals who have personal experience in relation to the story

We're covering right because these layoffs become just headlines numbers in an article without a face attached to them, and we can often lose the reality and humanity of what these people actually lost. So to talk more about the experience of a mass digital media layoff, we spoke to a content creator who has been through it before, and it's actually a friend of the show by the name of Sam Basher. I started when I was 19,

and it was the first real job I had, and I was terrified, but I was able to over basically five years grow up and leaving that you kind of in the back of your head you're always like it's like not gonna eventually you gotta do something else but you never

can plan or really comprehend what that means when it comes to an end and it's not your choice. It took about a week for me to fully understand that like oh I'm not coming here anymore. You know it end and it's not your choice. It took about a week for me to fully understand that like, oh, I'm not coming here anymore. You know, it's like, it's not happening anymore. You don't get to see these people anymore.

You don't get to make this content anymore. You can make this, you could make a version of this, but you don't get to do it anymore with this team, with these people. And that thing, that's the part that like hit me the hardest was that I couldn't do that anymore. I've personally affected a lot of people, a lot of very close people. I think besides like people I grew up with and like my family, every friend and acquaintance I've made has been affected by it in some way or another, or they have the friend that has connected to it.

I don't think I know anybody that's specifically been safe from the layoffs or the shutdowns. I definitely know people who made a quick transition to other companies basically right after our shutdown. And within some three months, there was either a shakeup or they had to halve their employees or turn the clock forward by a year or two and then those companies are gone now. All I know is I'm scared, but good on you if you wanna keep making content.

The hard truth is that in order for digital companies and content creators to survive the powerful conglomerates saturating the ad market and to sustain profitability, whether independent or owned by a larger corporation, we all have to diversify our income. It's a big part of why I operate with multiple streams of revenue. Right here on YouTube, we have YouTube advertising,

although demonetization has been a big issue. WIT is why we launched our pay subscription service to Franco Elite. People pay a monthly amount to help support the content we're creating as well as to give us solid footing to continue to grow We have our merchandise which we're currently revamping. We sell a lot of our own in-show ads We launched sister ventures like a recently launched beautiful bastard hair care line all in the search for sustainability in an unstable environment

But also this isn't a new concept. I'm not like I'm the genius who figured it out No, there are also examples of people smaller and larger who do a better job of it I mean DeFranco Elite was kind of the the merging of two things the reasoning that a lot of newspapers and other news outlets used Which was we're trying to get this out there support the pay structure of something along the lines of a RT first and you see Diversification all over the place. I mean vice sells branded merchandise including hoodies tote bags beanie He's got tasty which is part of BuzzFeed They've been selling their own cookware and Walmart stores since early 2018 Creators of all sizes have embraced patreon which which, per Fast Company, has reportedly paid out $1 billion to creators and artists since they started back in 2013.

And in 2019 alone, they say they'll send out half a billion dollars. But ultimately, with all of that said, this is the part where I turn it back to you. Because for me, especially on a topic like this, I feel like your reactions can be very eye-opening. What are your thoughts on this space and this industry in general? Do you think that this involvement, whether it be investment or acquisition from large corporations, it's inherently bad or good? What are your thoughts around the future of this space? Do you think that it's just inevitable that it becomes more and more corporate or it's going to be this kind of weird mishmash in between? Also, on the note of support systems, and this is in a promo for defrancoelite.com.

Oh my god, where'd that lower third come from? It's a joke, but if you did support, thank you. But what ways do you support the content that you consume, whether it be people on Patreon or news subscriptions or merchandise or anything like that, and why? I'd be really interested to see your answer there. But on that note, this is the end of the video. If you like this video, you like our diving into stories,

let us know, Hit that like button. Also, if you're new here, be sure to hit subscribe. I'd also recommend you ring that bell to turn on notifications and or follow me on Twitter. I only tweet stupid stuff now and then. But with that said, of course, as always, my name is Philip DeFranco. I love your face and I'll see you later today on today's brand new Philip DeFranco show.