Facebook Instant Articles Just Don’t Add Up for Publishers

Here are some key numbers for content licensors in digital media: Netflix will pay approximately $3 billion in licensing and production fees this year to the television and film industry; Hulu is paying $192 million to license South Park; Spotify pays out 70 percent of its gross revenues to the music labels that hold the underlying rights to Spotify’s catalogue.

Now here’s what Facebook is guaranteeing a variety of publishers, including the New York Times, BuzzFeed, and the Atlantic, which are posting articles in its new “instant articles” feature: $0. That’s pretty much the deal being offered in other similar digital distribution agreements by Apple News, Snapchat Discover, and an anticipated similar offering at Google. Nothing.

In effect, digital content is being divided between a lucrative high-end entertainment world, where licensors receive a negotiated fee for allowing the distribution of their property, and a low-end publishing world where content is expected to be “free,” supporting itself on often elusive advertising sales and ad splits. In this particular deal, publishers can sell ads on their articles and keep all of the revenue, or have Facebook sell ads in exchange for 30 percent.

An important and grievous question is how this anomalous division in the media business came to pass. The more immediate question is about whether Facebook’s “instant articles” and other republishing initiatives are digging a deeper hole for publishers or helping them get out of the one they are already in.

Publishers of course believe the latter is true, or why else would they be doing such deals? On the other hand, publishers have largely found themselves in this dismal situation because of their past bad decisions—accepting the general free ethos, bowing to a vast catchall of casual and formal sharing and reposting agreements, and failing to challenge an ever-expanding interpretation of fair use. It seems only logical to doubt the business acumen of people who have been singularly inept when it comes to protecting their interests in the world of digital distribution.

Indeed, publishers continue to speak of the confounding transition to the digital world, but through another lens, it really needn’t seem so difficult or foreign.

In the case of these new platform distribution deals—while they all involve slightly different plays—they each mimic a standard publishing business model: syndication. That is, a publisher with access to a different audience redistributes the content of another publisher—of course paying the content owner a fair fee. In some sense, this is the basis of the media business. The New York Times has always syndicated its stories to other papers and, for near 40 years, to various electronic outlets. Cable operators pay to carry cable stations. Networks license shows and movies. Theaters pay studios. Content is valuable–otherwise why distribute it?

There is, too, the reverse of this model, in which media buyers and other content creators pay distributors for access to their audience. That’s called advertising. There is also a hybrid form of editorial and advertising content, such as free-standing inserts in Sunday papers, paid cable time, and native advertising online. In this, you might try to create some sort of editorial (usually with a disclaimer in small letters that this is paid advertising content or some such), but the content is very much second to the products you’re selling or ads you’re hosting—it’s pretend content.

When the Facebook “instant articles” deal was first proposed last fall, there was no provision at all for a financial exchange. From Facebook’s point of view, it was just a further service to users and publishers. If it hosted the Times’ content it would load faster—hence a better experience for Facebook users clicking to a shared Times story. The Times and other publishers should do this, Facebook reckoned, because it would get them greater exposure to Facebook’s vast audience. It was promotional.

After some limited pushback from the publishers, the deal now resembles a conventional digital ad split—of the kind made ubiquitous by Google AdSense. That is, if Facebook sells against this content through its networks, it splits the revenues with the publisher. If the publisher sells the ad, as though in a free-standing insert model, it keeps what it kills. (Exactly the model that has consistently lowered digital ad prices—the inevitable discounting when you have many sellers of the same space.)

When I discussed this with one of the Facebook executives responsible for crafting the deal, I tried to point out that paying for content—i.e., traditional syndication—was exactly what kept the “content” from becoming advertorial. Otherwise, the content creator necessarily has to use this distribution opportunity to maximize sales potential—it’s a singular monetization moment (the publisher is not building larger, sustainable brand value). The Facebook executive seemed mystified by why Facebook should care about this.

And, indeed, it’s a model that, on this monetization basis, might work to BuzzFeed’s advantage. In a sense the “instant article” arrangement means BuzzFeed has cadged free space and free audience from Facebook, which it can sell back to clients sponsoring its content. This can work particularly well for BuzzFeed because it is not just an editorial organization but also effectively an ad agency (or direct response firm)—it strategically and shrewdly walks the fine line between editorial and promotion. (Varieties of print publication categories, like travel and fashion, have of course long straddled this line.) And that works just fine for both BuzzFeed and Facebook.

But what of the New York Times?

It is not only that this syndication arrangement gives the Times no direct payments, but “instant articles” and other platform distribution deals move the business another step closer toward what Ken Doctor, an analyst and journalist who has closely covered the demise of the news business, calls “off news site” reading. In this, publishers effectively give up their own channels and become suppliers of content to more efficient distribution channels. There is no New York Times, there are just New York Times articles—a distinction Facebook might not think much of, but that all publishers, in this gradual relinquishing of their brand and audience, ought to have an existential crisis about. In effect, the New York Times becomes a wire service–the AP, except where the AP gets paid huge licensing fees, the Times does not. (In fact, the Times itself, reliant on the AP for its pictures and other reporting, will still be paying those fees to the benefit of Facebook.)

This is further puzzling because the Times has built a digital subscription business of almost a million users. Why subscribe to the Times if you can read it for free on Facebook?

Of course, the subscription business will not support the Times alone (indeed, its growth appears to be seriously slowing)—it needs advertising too. Most of the advertising that pays for most of the Times’ costs still comes from the actual newspaper. That revenue stream is declining quickly, however, and is far from being replaced by digital ads, which in the first quarter of 2015 yielded only $14 million a month in revenue (15 years ago, before digital balkanized the business, the Times was averaging more than $100 million a month in ad revenue).

These measly ad dollars are in part a function of the fact that Google and Facebook together take 52 percent of all digital advertising. In other words, part of the thinking here is, if you can’t beat ‘em, join ‘em—or submit to them.

From the earliest information-wants-to-be-free days of digital media, publishers have largely responded to the medium as an experiment, going forward because others were, and because they “couldn’t afford not to,” scared into greater and greater urgency because they did not understand the technology. The ultimate result was a disastrous, sheep-to-slaughter endgame scenario, in which the new, digitally focused publishers are a fraction of their analog size.

And now, in the prevalent view, there is simply no turning back. The math has changed. The New York Times may once have made more than $100 million a month in advertising revenue on a 1.5 million circulation base; now it makes $14 million on 50 million monthly visitors on the digital side of the business. So it will need something like 350 million users to make equivalent money—which, bizarrely, Facebook might possibly provide. Except, of course, that the more numbers go up, in digital math, the more their value goes down. But pay no attention.

Meanwhile, in another part of the media business, billions of dollars are now flowing to content creators and owners from digital platforms, with every major platform amping up negotiations with sports, television and film, and even music licensors. Sports and television and film have largely regarded digital deals as little different from their offline versions, scoffing at the idea of free. Even music, after many years of digital blackmail, has begun to wrestle back aspects of its business. (Thank you, Taylor Swift.)

There are of course differences between entertainment content and news and other editorial matter, and perhaps that accounts for why the old rules and basic business models that worked so well for so long should not apply in a digital context. Or perhaps publishers are just shamefully bad businessmen.

Michael Wolff is the author of the newly released book Television Is the New Television: The Unexpected Triumph of Old Media in the Digital Age. He is a columnist for USA Today, the Hollywood Reporter, and British GQ. His most recent story for MIT Technology Review was “The Facebook Fallacy” (May/June 2012).