By Antoine Boulin
Guest column: Antoine Boulin, President, Media at the digital content company Purch, discusses why some new media companies are receiving eye-popping valuations
This past year was a major year for deals and financial activity in the digital publishing industry. From huge funding rounds for the likes of BuzzFeed and Medium, to M&A such as Axel Springer’s acquisition of Business Insider for $343M, it’s clear that there’s a great deal of investor interest in the space. Yet, at the same time, many publishers have spent the year dealing with well-chronicled obstacles to monetization such as declining referral traffic and ad revenues, not to mention ad blocking and fraud. Gigaom’s (temporary) shuttering highlighted that, as much as demand exists for innovative publishers, it’s still a difficult business to succeed in for the vast majority of players.
So, what’s led to some of the eye-popping valuations we’ve seen this year? The most obvious answer is that advertisers spent about $140B on digital advertising in 2014, and that number is expected to continue to rise for the foreseeable future. Investors are understandably looking to grab a piece of the pie by pouring capital into buzzworthy digital publishers. This, however, doesn’t explain why some publishers are thriving while many struggle. Shouldn’t we assume that a rising tide lifts all ships?
The problem is one that any Econ 101 student could easily recognize: as supply rises in the form of digital content, prices for the ads that publishers sell against that content predictably decline. At this point, it’s so cheap for marketers to reach vast audiences that even publications with millions of monthly unique visitors are seeing their ad revenue decline. There’s simply too much supply.