‘Diversify your revenue streams, period’: IAB CEO Randall Rothenberg thinks relying on solely on advertising is ‘wrong’

The news publishing industry may be getting squeezed by the pandemic economy, but for Interactive Advertising Bureau CEO Randall Rothenberg, it set itself up for failure long ago, by leaning too heavily on advertiser revenue.

“When the United States became a national marketplace in the mid to late 19th century, that marketplace was so big, so vast and laden with opportunity that it just made much more economic sense to premise your revenues and growth as a publisher on advertising,” Rothenberg said on the Digiday Podcast.

Even the New York Times, which is riding a high of more than 6 million subscribers, is foreseeing a drop in ad revenue of up to 55% in the second quarter, leading its head of advertising to say layoffs are likely.

Rothenberg said that historically, that shortsightedness extended to magazines and even television — media products for which, in Europe, consumers paid premiums.

His big takeaway: ” You need to diversify your revenue streams. Period, full stop.”

One bright spot for Rothenberg is the growth of central authority in the industry.

“I’m really hopeful now, more than I have been ever in the past 15 years,” Rothenberg said. “It has been extraordinarily difficult to get the various segments, players, companies and executives across the vast and unruly marketing and media supply chain to agree on the basic best practices and technical standards that must undergird any industry supply chain.”

Here are a few highlights from the conversation, which have been lightly edited for clarity.

When everyone is indoors, everyone is online

What we’ve learned from all manner of consumer research over the past few weeks is that pretty much everybody who has not shopped online has now begun to shop online. And different categories of shopping that were still holding their own in retail are now flipping. This is significantly going to accelerate one of the trends we’ve been identifying in our disruptor brand research for the past couple years is that physical brick-and-mortar stores are no longer for shopping. They’re actually for entertaining and servicing, but not actually for discovery and purchasing.

How the penny press set newspapers up for failure

Europe always had this right and America always had this wrong. When the United States became a national marketplace in the mid to late 19th century, that marketplace was so big, so vast and laden with opportunity that it just made much more economic sense to premise your revenues and growth as a publisher on advertising. That’s when the concept of the penny press came into existence. Why would you charge your end consumer a lot of money when the advertisers are so proliferant, so willing to spend? In Europe, by contrast, every individual market was much smaller than in the United States. You didn’t have as many companies, you didn’t have as many advertisers. So media in Europe historically always charged consumers more. Direct consumer payments were considered core parts of revenue in all those media businesses across most of Europe through most of the history of media. That was something that in the U.S., we never learned, whether it was the magazine business, the newspaper business, even the television business. Across Europe, people were paying, in many instances, for television access. In a way, you could say we were caught in this historical anomaly and the money was so free and easy that the proprietors of publishing companies didn’t have to think a lot about consumer pay until it became too late. Why would any company in any industry accept one revenue stream rather than multiple? That’s really the lesson. You need to diversify your revenue streams. Period, full stop.

Hope for more central authority

I’m really hopeful now, more than I have been ever in the past 15 years. It has been extraordinarily difficult to get the various segments, players, companies and executives across the vast and unruly marketing and media supply chain to agree on the basic best practices and technical standards that must undergird any industry supply chain. The fact that we are still having debates and arguments around things like measurement, fraud, consumer safety, fake news, is astonishing and enormously dismaying. These things could not be allowed to exist, and were bled out of the food industry decades and decades ago. They were bled out of the auto industry beginning in the late 1960’s. And yet we’re still having these debates. The lessons from the changes in the auto industry are very positive. Number one, that massive industrial resistance can be overcome by consumer action. Second, you can actually see that there are necessary roles for the federal government, for state governments, and for industry self-regulation. All of them play important roles. And that there has to be some kind of unified leadership taking charge of this. That’s where I’m feeling most positive right now. Our biggest gap over the years in getting to consistent technical standards and operating practices for the digital media and marketing supply chain has been the lack of knowledge and understanding in the large brands themselves.

This Friday, at noon ET, we are airing our sixth episode of The New Normal, a weekly interactive show focused on how publishers are adapting their businesses. Kayvan Salmanpour — chief commercial officer at Boston Globe Media — will talk with Digiday editor-in-chief Brian Morrissey about how to navigate this crisis, from the sales perspective, when local businesses are suffering so much. Register here.