Guardian boss: Facebook Instant Articles give us ‘woeful’ returns but our local finances are on target

In an interview with Mumbrella's Miranda Ward, Guardian Media Group CEO David Pemsel and Guardian Australia managing director Ian McClelland discuss Facebook and its Instant Articles platform, rebate issues between media agencies and publishers, branded content, The Guardian's membership scheme and the question of a Guardian profit.

The commercial returns for The Guardian of participating in Facebook Instant Articles have been “woeful”, the boss of the Guardian Media Group has said.

Speaking to Mumbrella, David Pemsel, CEO of The Guardian Media Group, said Facebook Instant Articles have failed to deliver financially for publishers, but the platform is worth sticking with for the audience reach it delivers.

“Facebook believed that Instant Articles was going to be a very efficient way for us to publish straight into the news feed,” he said.

Pemsel’s comments came as part of a wide ranging interview with Mumbrella given by both Pemsel and Guardian Australia managing director Ian McClelland which also tackled rebate issues between media agencies and publishers, branded content, The Guardian’s membership scheme and the question of the Guardia’s own financial sustainability.

Facebook launched Instant Articles two years ago globally with Buzzfeed, BBC News and The Guardian amongst the first to sign on to the platform which aimed at allowing publishers to sell ads directly to monetise the platform or use the Facebook ad network to sell ads. The technology sees content hosted by Facebook itself, which allows for users to see articles virtually instantly, rather than waiting for a page to load.

A local rollout of the platform took place at the end of 2015.

Pemsel said: “What I would say is that it’s great for reach and it’s a brilliant way to be able to extend our audience and our traffic and build a much more global reach.”

But he added: “The economics financially for us were woeful.”

“It was an attempt to try to find some equitable return for us for our journalism and it didn’t succeed, at all. So now we will keep pushing Facebook to come up with new ideas.”

Pemsel said there needs to be a “symbiotic relationship” between Facebook and publishers. “What you can’t do is just say, ‘We’re not going to collaborate with them. We’re not going to talk to them’.”

Pemsel is hopeful Facebook will find other ways to help publishers make money by using the platform. In January it launched The Facebook Journalism Project designed “to establish stronger ties between Facebook and the news industry”

Pemsel said: “What platforms are very good at is that they innovate at scale very, very quickly. Facebook particularly test and learn multiple millions of times a day across the globe.

“I think that if we could get – how does news organisations get an equitable return for the journalism within those platforms – and that became part of a product roadmap within Facebook, I’m sure it would get cracked.

“What we have to do is keep making sure they understand the economics of our business, they certainly understand the virality of our content within their platform and we have to try and join those two up.”

Media rebates

Meanwhile, Pemsel said he was surprised that the company’s disclosures around trading relationships with media agencies had been seen as worthy of comment last year. Six months ago, The Guardian revealed in its financial results it gives “cash payments” and “free advertising space” to media agencies in return for a certain spend. However Pemsel argued the trading practice “has been going on for years”.

Within Australia the rebate system has come under scrutiny in the past two years with the industry body representing Australia’s major media agencies, the MFA, issuing a “transparency framework” in November last year which aimed to govern how they interact with clients on  issues such as agency rebates/commissions, so-called ‘value banks’, disclosure of margins on agency trading desks and ethics training. The move came in the wake of last year’s misreporting and ‘value bank’ scandal involving GroupM agency Mediacom.

Pemsel said: “It’s fascinating that this is seen to be a new story. I mean this has been going on for years.

“Nothing’s changed, it has always been this way. There’s always been very very robust and sometimes too aggressive trading between content creators and the media agencies. I think that’s all pretty understood.

“The greatest implications for all of this is that I think clients now are confused about what’s happening.

“They sign contracts and they’re not quite sure about who’s keeping what and what margin is going to where. And if we give you a pound, is that pound finding its way to the Guardian? Or is it going to a Facebook? Or has it been traded programatically and no one quite knows who’s making the money?”

Pemsel said there is an “obligation” for clients to “be able to dig very deeply to where their money is going”.

“We sometimes forget that the top of all of this tree there is a client who’s got a pot of money, some strategic aims and they talk to their media agency and they talk to their creative agency and as far as they’re concerned there is a degree of honesty in how that money gets distributed in order to deliver their strategy,” he said. 

“There was a time when a pound would go to a media agency, the media agency would procure it from the content creator. It was all very simple. You’ve now potentially got 15 to 20 players and sat in the middle of that programmatic trading process is where everyone is skimming off a little bit for themselves and that’s where really clients need to interrogate very very hard.

“Media auditing just needs to get a little bit more precise,” Pemsel added.

He said it was down to media agencies “to be transparent about how media gets traded”.

“I think clients become a bit more vocal about trying to work out actually how this stuff works and if there is discrepancies and things that feel dishonest or not appropriate, then it’s down to media agency and the client to be a bit more open about that.

Pemsel defended publishers’ role in the issue, saying: “We have a valuable audience but how it gets traded is not dictated by us”.

Ian McClelland, MD of Guardian Australia, agreed, saying the issue lies between the client and the media agency as to who finally receives the rebate.

Ian McClelland:  GLabs accounts for 30% of Guardian Australia’s ad revenue

“We’re simply giving a discount for volume by media as is currently normal and legal and we’re completely transparent about that. What happens to that discount is an issue between the media agency and the client,” he explained. 

Branded content – Guardian Labs

The Guardian’s branded native division Guardian Labs now accounts for 30% of the local operations advertising revenue, McClelland revealed.

Locally the division – which is headed up by Aaron Michie – now has a “scalable network” to better manage its rapidly growing business.

“We’re continuously in production with multiple clients running campaigns,” McClelland said.

“Our challenge over the couple of years has been how do we build a studio that’s flexible enough because we’re doing articles, we’re doing image based galleries, we’re doing interactives, we’re doing data visualisations, animations, virtual reality.

“It’s just endless, the different formats that we are now creating content for brands in and so how do we create a unit that can manage and be expert at delivering all those different formats.

“And the second thing is, scalability, because we have been inundated with briefs. How do we manage multiple concurrent content series? And I think that’s what has been the challenge.  We’re getting close to cracking that, having sort of a scalable network.”

McClelland said that means bringing in the right specialist partners to work on projects and sharing technologies and know-how from The Guardian’s UK and US colleagues.

He said brands and CMOs have “a real desire to engage more deeply with audiences”.

How Guardian Labs helps readers navigate its client content

“And a gazillion clicks is not necessarily going to get a brand’s message across or to change a consumer’s point of view on a brand or to encourage to think about the brand differently or to investigate, consider one of their products.

“But if you spend on average four or five minutes reading an article that’s aligned by the brand values or about one of those brand’s products, then that is very very interesting to brands.”

McClelland suggested there has been a “little bit of a shift back from wanting millions of anonymous page view or clicks”.

McClelland said The Guardian hasn’t yet needed to spruik its Labs capabilities.”Because it is word of mouth recommendation, we have a flurry of financial service providers who had a flurry of super and health insurance companies, we had a slew of technology companies,” he said.

“And I think it’s because CMOs are very very aware of what their competition is doing and I think they’ve seen the effectiveness of working with us.”

McClelland said the future for Labs lies in multi-platform campaigns, similar to what Labs has done for Optus Business recently which saw a mixture of editorial content, paid for content and a live event to promote the company.

“What we did with Optus Business last year really stretched us. That was really effective,” he said.

“We should probably do more of that using different media. It was a mixture of editorial content, paid for content, brand advertising, live events and combined together that can be a really really powerful user journey that really gets the brand message across.”

While the AANA new guidelines on influencer marketing and native advertising came into effect locally yesterday, McClelland is not concerned it will change the way Guardian Labs operates.

“It’s interesting because we made this decision quite early on,” he said.

“After a long process sort of talking to readers, working between commercial and editorial around the clear labelling of native advertising.

“About 18 months to two years ago, we just made the global decision that we would have extremely transparent and simple labelling. That it was either paid for or supported by. It was either 100 percent editorial or it wasn’t and there was no grey area.”

Pemsell admits the decision to have such clear labelling did impact on The Guardian in the short term.

“And in the short term, that cost us money by doing that labelling because I think clients were saying they wanted it to be a bit more nuanced and wanted it to be editorially supported and we just had to say you can’t buy editorial influence, ever and this badging is our way of doing it.

“There was a moment where I there was a slight wobble where you see the briefs going down and the client saying, “Well, that’s not what we want to do. We want it to genuinely feel like editorial’ and then the market readjusts and then everyone sort of gets it and understands it.

“The idea of deceiving a reader is just completely counter to any brief you’re ever going to get. So it’s now clear and it’s universal and it can’t be bent or twisted.

“The arguments in the system between commercial and editorial are just gone because it’s so clear.”

McClelland added: “We also now have the data to show that paid for, as long as it’s great, authentic, high quality content, can achieve the KPIs being established by us and the brand. ”

Membership and profits

Nine months ago the Guardian Australia rolled out The Guardian’s membership platform which enables readers to support the publisher’s journalism with one-off donations or with a $10 a month membership.

While Pemsel and McClelland declined to reveal exact numbers, McClelland said local membership, which launched one week before the release of The Guardian’s Nauru Files covering asylum seekers in detention, is six times higher than the target the publisher had slated for this current point in time.

“We’re very very happy with that and we’ve also been particularly surprised with the amounts of one-off contributions in Australia as well. I think proportionally it’s slightly more than the UK and US, so that’s great for us,” McClelland said.

Globally, The Guardian had 15,000 members in January 2016 and now it has nearly 200,000, above the publisher’s 100,000 March 2017 target. The Guardian now has the goal of reaching the equivalent of 1m supporters by April 2019.

In terms of what membership provides to the local Guardian operation, McClelland said revenue from Australian advertisers and readers “goes directly to the Guardian Australia and funds our independent journalism in Australia”.

On why The Guardian engaged a membership model as opposed to a more traditional paywall, Pemsel said paywalls have not worked for every publisher and The Guardian wanted to explore the broader role of how a reader could contribute.

“We are coming to the end of the first year of our three year plan, which [editor-in-chief] Kath [Viner] and I laid down about 18 months ago, and I think, when I look back at some of the charts we put to the board then, it was pretty clear in saying that advertising revenue was not going to be sufficient enough for us to be sustainable,” Pemsel said.

“Our task over the next three years is to be sustainable and break even.”

Unusually, The Guardian is owned by The Scott Trust, which has given the publication more time to find a post-print business model than many of its rivals. In its last set of financial results, Guardian Media Group’s overall revenue and profits were both down slightly. However it still had assets worth close to $1.6bn

“We have time to be able to explore the whole spectrum of what role our readers will play in contributing more to the Guardian,” said Pemsel.

“So one could say the most porous way would be, do they want to contribute? Do they want to be able to become a member and get some value exchange back? Are there certain parts of journalism that people specifically have to pay for? And it feels more metered.

“Because we’re on a three year journey, what I think Kath and I are most proud of, is our ability to test and learn what we think works and we are not beholden to say, “Okay. We need to deliver a shareholder return by the end of next month’, therefore stick up a pay wall and run our business on a cost per thousand or a revenue per user because that’s not how the business is run.”

McClelland said the membership model as about recognising that “not all readers are the same”.

How The Guardian invites its readers to support its journalism

“Not all readers have the same relationship with the Guardian. So it’s possible, I think, as we’re sort of finding to have a cohort of readers that don’t contribute but that we can effectively serve ads to. There’s a cohort of readers that might make a one-off contribution. There’s a cohort that like paying a subscription for the premium app, because it’s an ad-free experience and you get access to the crossword. 

“And then there’s another type of reader whose relationship is about contributing to the Guardian and supporting its quality independent journalism on a regular basis by a regular subscription. It’s discovering all those different types of relationships that we have with Guardian readers. It’s not so black and white, free or paid.”

Asked whether The Guardian is set to return a profit this year, Pemsel was straight to the point:”No”.

“We have said over the next three years The Guardian will get to a sustainable position where there will be a relationship between its cost and its revenue,” he said.

“We do have a a very, very large endowment that is a considerable sum and over the next three years what gets grown off that endowment will be able to support The Guardian.”

Pemsel continued by highlighting the importance of diversifying The Guardian’s revenue streams away from advertising.

“There’s not a news organisation in the world right now that’s not struggling with the digital economies of media advertising and the threat of Google and Facebook,” he said.

For Guardian Australia, McClelland says the local operations “remain exactly on plan”.

“Revenue is about 50% better than we anticipated for this point in time, audience is about 30% better. We will be sustainable in the timeframe within the startup capital that we said we would.”


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