Please ensure Javascript is enabled for purposes of website accessibility

Should Publishers Fear Facebook and Twitter?

By Jamal Carnette, CFA - Oct 21, 2015 at 5:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Facebook and Twitter provide substantial value to websites, which they should be compensated for, but don't appear to want to hijack publishers' monetization models.

Facebook's Instant articles are upsetting some publishers. Source: Facebook.

It's safe to say we're in the golden age of online publishing. What started as a cadre of bloggers has grown in scale to become as important as traditional outlets. Due to the presence of cheap outlets like Facebook (META -0.76%) and Twitter (TWTR 2.25%), essentially anybody with a good idea and a WordPress account can reach an audience of millions. In turn, many of these writers have a star-like following, and can often drive news cycles in less than 140 characters, an outlet Woodward and Bernstein would have died for in the late '70s.

Major media outlets have noticed: In August, NBC Universal, a division of Comcast, invested in both Vox Media and Buzzfeed with post-money valuations of $1.05 billion and $1.5 billion, respectively. And then last month, German publisher Axel Springer reacted to losing the Financial Times bid by buying Business Insider for a valuation of $442 million. The Walt Disney Company has gotten in on the action by adding Grantland and Nate Silver's FiveThirtyEight to its digital offerings. AOL's purchase of The Huffington Post... this list goes on.

The reason why is there's been a shift in audience away from traditional outlets like print and television to digital and mobile formats. As such, these major companies need to diversify their media mix accordingly, and it's simply easier to buy equity in these sites than to try to build one from the ground up. However, more recently, there have been developments that could present headwinds to future growth for online publishing.

Ad blockers and gatekeepers
For these nimble, ad-supported publishers, the first shoe to drop was Apple's inclusion of ad blockers on its iOS mobile operating system. Under pressure from readers concerned with privacy and an increasingly degraded user experience, Apple added the option -- and it was initially quite popular.

Of course, sites reacted negatively to this because it hurts their business models, but when even the Senior VP of the online-ad trade group Interactive Advertising Bureau admits, "We messed up" and "lost control of the user experience," it's hard to argue that Apple should not have included ad blockers.

However, the next development may be more detrimental to publishers. In a video rant on TechCrunch, Josh Constine argues that Twitter and Facebook are attempting to hijack the monetization of content by hosting the content on their site, and not acting as a click-through page to publishers' sites. As most publishers make their money once you visit the site, this is an obvious problem for websites.

At this moment, I feel the concern is overstated. First, it should also be noted that this specific treatment is only for Twitter's Moments feature and Facebook's Instant Ads, not for every article. In addition, and from an article Constine wrote, Facebook is working with publishers to monetize ads in Instant Articles: If the publisher sells the ad, it receives 100% of revenue, and if Facebook sells it, the publisher only receives 70%.

Presumably, Facebook controls how many ads are placed, but this does not appear to be the motive of a company looking to destroy publishers.

These outlets, especially Twitter, should monetize this value
I don't blame Facebook or Twitter for looking to monetize this traffic more effectively. For Twitter, this is especially true, as many large publishers and their writers treat the service as nothing more than a distribution portal for their massive follower base, and a conversation forum only among other power users.

And that's fine, but if it's mostly a one-way distribution portal, then you should pay for that right -- Twitter has provided value to your organization, and should be compensated accordingly. Simply put, many publishers are taking more value than adding, and money should flow to the entity that provides the most economic value. Those thousands of followers have value, even if power users are not utilizing or interacting with them accordingly.

Not only that, Twitter recommends many of these writers during the on-boarding process, essentially bringing new followers  -- almost indiscriminately -- to power users. Of course, both entities benefit from this arrangement: Twitter lowers its abandonment rate, and power users grow their follower counts, but it's quite apparent the service has the upper hand here.

While I don't personally think Facebook and Twitter are out to intentionally hurt publishers, both companies have the ability to do so. More broadly, however, it shows how unique these two companies are, and paints a favorable picture for their long-term successes.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$160.03 (-0.76%) $-1.22
Twitter, Inc. Stock Quote
Twitter, Inc.
$38.23 (2.25%) $0.84

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.