Publishers Face Costly Digital Advertising Dilemma While Adapting to New Privacy Rules

Pivoting to first-party data model can be expensive, and scale is an issue

pair of glasses resting on a newspaper
The New York Times is phasing out third-party data for ad targeting, but smaller publishers may not have the resources to do the same. Getty Images

Key insights

Whether it’s due to regulations or sweeping changes from internet browsers, publishers are reorienting their digital advertising practices around their first-party data. But not all outlets can easily adapt.

In mid-May, The New York Times announced it’s building out a first-party data platform and will stop selling inventory with third-party targeting by 2021. Allison Murphy, svp of ad innovation at the Times, told Axios the company can make such a drastic change because it has 6 million subscribers and millions more registered users.

“It’s a total shift in the currency of the internet,” Murphy said during Permutive’s recent online summit. “It takes huge investment … that’s the result of a year’s worth of work, and hiring people and investing in people.”

The Times’ digital property is the most-visited stand-alone news site on the web, according to Comscore. The company posted over $443 million in revenue and touted record-setting subscription growth last quarter.

But not every publisher has that level of scale or the resources to stop using third-party data to sell targeted ads, especially during a pandemic that’s straining budgets and ripping apart newsrooms.

“A small publisher sitting on first-party data—it’s going to be difficult for them to be able to monetize that through programmatic channels unless they have some assistance in getting into some sort of scalable network,” Fran Willis, CEO of the Local Media Consortium, said.

Willis said her organization, which represents around 90 media companies, is working with its publishers to maximize the acquisition of first-party data, initiatives that get readers to share personal information, such as an email address, with the company.

Regulation means publishers are in a time bind

Publishers are doing this now because they’re in a race against the clock, said Danielle Coffey, svp and general counsel at the News Media Alliance. Enforcement of the California Consumer Privacy Act begins July 1, and Google will stop supporting third-party cookies in its Chrome browser—which has over 62% market share, according to W3C—by 2022.

“We also see the potential for the reward and having that intimate relationship with our users and owning our own first-party data. It’s self-induced because we’re not making enough of the way that it’s working now, so people are transitioning on their own,” Coffey said.

Despite pressure from regulators, privacy advocates and web browsers, and despite the unfavorable economics of digital advertising, smaller publishers still fear completely cutting out vendors.

Moving away from the traditional model of using third-party data to enhance ad sales negatively impacts their revenue in the short term. The question is how much of a negative impact can publishers sustain?

“The first question you ask is how much impact can I withstand moving away from how things exist today, whether you’re forced to through the law or browser changes, or whether your own initiative. How much can I withstand, and can I survive?” Coffey said.

But not all third-party data is privacy-unfriendly. Adam Solomon, chief growth officer at Lotame, said such data can, for example, come from consenting relationships with credit card companies or public sources like new mover data. Companies just need to do a better job of explaining to consumers what’s being collected and what they intend to do with it, he said.

“Even the largest media companies and publishers with all this good data need to have a blend of first-, second- and third-party data. If you’re a smaller publisher or media company, your first-party data is going to be narrow and not sufficient to meet marketers’ demand,” Solomon said.

Advertising trade bodies have called for a further delay in CCPA enforcement, citing the law’s complexity and the need for further clarifications. This puts vendors in limbo.

“We’ll continue to have a relationship with [third-party data vendors] so long as it’s beneficial and legal,” Coffey said.

The issue of scale

Giant platforms like Google, Facebook and Amazon draw in advertisers because they’re closed ecosystems built on direct relationships with users that let advertisers reach who they want and measure results. The Times is big for a publisher but small compared to a platform.

However, ad buyers are increasingly looking for opportunities outside of the major platforms to avoid the potential risk of overinvesting in a small number of companies.

“That’s where we see publishers and our own first-party data playing a huge role,” Rachel Mervis, programmatic lead at Nestlé, said during the Permutive summit. “We need an easy way to work with them, and we need scale of audiences that are relevant to us.”

The Times will use its own data to create 45 audience segments for ad buyers to target, but those audiences can’t be applied to other media companies.

Platforms offer consistent taxonomies or audience definitions. For instance, “auto-intenders” are identified consistently inside walled gardens, but that level of consistency doesn’t exist yet among publishers with different first-party data offerings.

“The only thing that does give me pause is that we need to make sure it’s available at scale and that we’re able to use the same type of data taxonomy in order for all of us to align our best data assets,” Stephanie Layser, vp of ad tech and operations at News Corp, said during the summit.

Willis said the Local Media Consortium is working on several initiatives to create a scalable network by aggregating first-party data among members. The consortium already runs an auction package through Google that allows programmatic buyers to target its members at scale.

Most publishers are still in the early stages of building out their first-party data strategies, and essentially every possible solution is on the table.

“Is there a consortium? Is there a single sign-on? Do our publishers go more toward subscriptions and other revenue streams? It’s all up for grabs right now,” Coffey said.

@andrewblustein Andrew Blustein is a programmatic reporter at Adweek.