We increasingly live in enclaves. We live our lives inside digital ecosystems configured by the collection and analysis of our personal data. Most of us, in one way or another, rely on Facebook, Apple, Google, Amazon and other digital platforms to live our lives nowadays.
The business models of the tech firms that run these platforms are designed to lock us into their enclaves, to rely upon their services and products and to hand over our personal data to build their algorithms. Consequently, they want us to stay in their enclaves. If we do leave, they’ve found ways to digitally stalk us around the rest of the web through cookies, application programming interfaces and other plugins.
And this is where the federal government’s new Online News Act comes in. The act is an attempt to address the consequences of this individual retreat into our respective enclaves. The growth of platforms like Facebook and Twitter has led to a precipitous fall in the news media’s advertising revenues.
The big tech firms that run sites like Facebook and Google receive 75 to 80 per cent of online advertising revenues and 50 per cent of total advertising revenues in Canada. This market concentration has seen a corresponding shrinking in the advertising income received by Canada’s news media, threatening their survival, as pointed out by Bob Cox, former president of News Media Canada.
Big tech has seized control of the “assets” that used to underpin advertising in news media: the viewers, readers and users. Google and Facebook, for example, are now key intermediaries in online advertising, able to charge significant “middlemen” fees when auctioning off online advertising space, thereby reducing the money that news media get from ads. Moreover, big tech’s market power has had a significant impact on referrals to news media sites, since small changes in the algorithms of search engines or news feeds can significantly change online traffic.
The Online News Act follows the recent Australian approach in trying to get Facebook, Google, and other digital players to pay for the news materials that users post online and that attracts advertising dollars.
Some commentators, like Michael Geist from the University of Ottawa, argue that the Online News Act represents a self-serving approach to dealing with big tech. For Geist, news media simply want a greater share of the digital advertising revenues they lost over the last decade or so, but it’s not clear what unintended and negative consequences could result.
So, does it make sense for news media to get a bigger slice of the big tech advertising pie?
Perhaps, but it might not solve anything. The biggest issue is that the big tech digital advertising model is not particularly healthy. News media may simply be setting themselves up for more grief in the medium and long term.
To understand this requires an appreciation of how digital advertising works. And, increasingly, how it’s not working – in fact it’s creating a whole series of problems of its own.
One of the clearest expositions of these problems with online advertising is provided by Tim Hwang in his book Subprime Attention Crisis. Digital advertising entails the buying and selling of ad space inventory, or what Hwang calls “attention assets” – basically, viewers watching a screen. This buying and selling is facilitated by advertising exchanges, which are companies that manage the ad inventory market.
Much of this buying and selling has become automated and is now dominated by firms like Google and Facebook. These companies often represent both sides of the ad exchange – that is, both buying and selling ad inventory. Such automated or programmatic advertising is driven by the collection of personal data and the targeting of advertising based on these data. Most new media firms now sell their ad inventory – space on their websites – through this automated process but are reliant upon the big tech firms to drive traffic to their websites to maintain their ad revenues. This is where the problems arise.
On the one hand, fewer viewers are clicking through from digital platforms to the news media websites, meaning that their ad inventory is becoming less valuable. On the other hand, digital platforms are taking a significant cut of all content producers’ ad revenues when they do send people their way – close to 70 per cent in some cases, according to Hwang.
Here’s the kicker, though. Hwang argues that digital advertising is entering its own “subprime crisis” for a number of reasons. First, the emergence of big tech firms as intermediaries has concentrated and distorted the ad market. For example, Facebook has been sued for overstating the viewer numbers on its platform by 60 to 80 per cent – and potentially higher.
Second, because of market concentration, ad inventory is increasingly sold inside digital enclaves, meaning that its real value can be hidden by those who control access to the enclaves and the data on advertising’s effectiveness.
Third, our attention is declining and there are numerous examples of fraudulent practices – like click farms – to game viewing figures. Click farms are businesses that sell followers, clicks, likes and views by running multiple devices at once and hiring people to use them and interact with digital platforms. People can boost their social media presence by buying followers. All of which means that the real value of ad inventory is falling.
For example, click-through rates – representing the proportion of people who click on an online ad they’ve seen – for Google and Facebook ads, according to Hwang, are less than one per cent. But the problem is that online advertising has become the golden egg that no one wants to crack, since doing so could cause a rippling crisis throughout the digital economy.
All of this means relying on the digital companies to financially support news media isn’t a sustainable approach. Advertising effectiveness, advertising viewing and advertising revenues per view are all worsening over time, so it makes sense to avoid increasing dependence on these revenues to support our news media.