Why host-read ads will never go away

Despite the rise of programmatic advertising, the beloved host-read ads that appear on your favorite podcasts and YouTube channels are here to stay.

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Why host-read ads will never go away

The YouTuber Thomas Ridgewell recently posted a 30-minute video that goes deep into his own history of selling brand sponsorships for his channel and talks about his attempts to push the limits of propriety when executing on a nine-video brand deal he signed with a VPN company. The video is fascinating, not only because it shows how the brand sponsorship sausage is made, but also because it illustrates why such sponsorships still flourish despite the availability of an abundant amount of programmatic ad inventory.

After all, YouTube is now raking in $30 billion a year from programmatic video advertising. Why would a brand ever go through all the labor of partnering one-on-one with a creator when it can target that creator’s subscribers with much better efficiency through programmatic ad buys?

Ridgewell’s video is an answer to that question. It is, of course, an ad. That’s right, I and 500,000 other people sat through a 30-minute sponsored video and enjoyed every minute of it. It was the last in a series of nine sponsored videos that have collectively generated millions of views. There is no universe where someone would sit through 30 minutes of a programmatic ad, much less share it to their own networks. What’s more, these videos will live on into perpetuity, being resurfaced by the YouTube algorithm for years to come. A programmatic ad, on the other hand, stops showing the very moment your budget runs out.

And it’s not just YouTubers who are getting inundated with sponsorship requests. I’ve witnessed rising demand across just about every content vertical. It used to be that you needed tens of thousands of Instagram followers before you could consistently land brand deals; now I’m seeing influencers with as few as 3,000 followers get approached. With podcasts, brands wouldn’t even bother with you a few years ago if you had fewer than 50,000 episode downloads; I now talk to creators who are able to sell months of inventory before they even launch their first episode (a Press Gazette article recently quoted a podcaster who makes six figures even though he averages 260 downloads per episode).

I experienced this myself a few weeks ago when I opened up my newsletter to sponsorships. Within days, I had sold out all of my inventory until July, and I had multiple readers reach out to admonish me for charging too little. It’s just clear to me that brands have become increasingly knowledgeable on how to navigate creator sponsorships and are allocating more and more of their budgets toward those sorts of campaigns.

Of course, that’s not the only reason that so much direct sponsorship money is flowing into the Creator Economy. It also helps that programmatic advertising is experiencing a market correction, with many marketing executives coming to terms with the idea that the ad tech industry never quite lived up to its promises.

A decade ago, many assumed the rise of programmatic advertising would be a major boon to both marketers and publishers. Brands thought they would eventually be able to target their ads to a level of specificity never before thought possible, which would virtually eliminate all wasted spend. Publishers were lulled by the idea that they could maximize their inventory, which happened to be expanding rapidly as Facebook unleashed floods of traffic. These assumptions led to VCs dumping billions of dollars into digital media startups over a period spanning just a few years.

Both assumptions are considered laughable today. The view on programmatic ad spending has soured significantly in recent years. Here are a few reasons why:

• A significant portion of programmatic advertising is being funneled toward clickbait, low-quality websites. A recent AdWeek report explained that these sites “sustain themselves via what some in the industry refer to as ad arbitrage, the practice of buying web traffic through sponsored posts, hoping clicks to their content will generate enough programmatic ad revenue to make a profit.” Those pages have zero brand loyalty and are jam-packed with ads, thereby eliminating any efficacy. According to one source, these types of websites account for 12.3% of global programmatic web display ad spend.

• At least those sites are being viewed by actual humans. One recent report estimated that brands will waste up to $68 billion this year from programmatic ad fraud, meaning that nobody saw the ads at all. Digiday estimates that “upwards of 40 percent of inventory can be fraudulent.” The problem is so prevalent that several major brands saw zero effects on sales when they pulled hundreds of millions of dollars from their ad budgets. 

• Even reputable ad tech companies keep getting caught engaging in shady behavior. The most explosive revelations came in a lawsuit alleging that Google and Facebook formed an illegal advertising deal that manipulated ad auctions to the detriment of brands and publishers. “The lawsuit alleges Google's AdX exchange sometimes overcharged advertisers bidding for space on publishers' websites, allowing the tech giant to pocket the difference,” wrote Business Insider. Several prominent publishers recently accused ad tech firms of improperly scraping data from their websites, and independent audits have found that ad tech companies routinely pocket the lion’s share of revenue for ads that appear on publisher websites. “It’s unclear to what extent these intervening technologies are useful,” a publishing executive told Adweek. “That [ad-tech vendors] provide value for what they charge has always seemed unlikely to me.”

• Major platforms have taken steps to limit the amount of targeting available to ad tech vendors. Google’s Chrome is slowly eliminating browser cookies, and Apple has made it much more difficult for apps to share user data on iOS. "The iOS 14 privacy changes affected everything," one ad buyer told CNBC. "The internal metrics and mechanisms that Meta uses for attribution are off somewhere around 30, 40, or 50%." Because of Apple’s policies, Facebook estimates that it’ll lose out on $10 billion of ad spend in 2022. You can bet that a significant portion of that $10 billion will go to creator sponsorship campaigns.

I’m not saying that programmatic advertising will ever go away, but I do think that brands have increasingly adopted the belief that they at least need to hedge their marketing bets by establishing direct sponsorship deals with content creators, even if those deals are much less efficient to execute on. This is great news for those who worry that Big Tech has gained monopolistic control of the advertising market, and it means the beloved host-read ads that appear on your favorite podcasts and YouTube channels are here to stay.

Finally...an IRL Event for Small Media Companies and Content Creators

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CEX -Creator Economy Expo. Over 40 sessions to help you grow your audience, drive new revenue lines, sharpen up content operations and learn about Web3 business models.

The event is May 2-4, 2022 at the suites only Arizona Grand Resort (Phoenix) and is limited to 500 creators. The speakers include Dan Pink, TitTok/Twitch star Leesh Capeesh, Ann Handley, Joe Pulizzi, Roberto Blake and 30 other world-class content/media entrepreneurs (plus, attendees get ALL the recordings as well). Join me and get $200 off the already low rate. A good portion of the attendees are bringing their families (includes an on-site water park).

I’ll probably end up attending the event, so definitely reach out if you want to grab coffee/lunch.

My latest: How Starter Story grew to 1.4 million monthly visitors and $500,000 in annual revenue

Starter Story publishes up to 60 small business case studies a month and attracts over 1 million monthly visits just from Google alone.

Quick hits

Is Substack more aligned with writers or readers? Its app launch suggests it's leaning toward the latter. [The Rebooting]

Insider editor Nicholas Carlson makes $600,000 in salary and received a $600,000 bonus. [Gawker] Who said a career in digital journalism doesn't pay? :-P I remember listening to an interview with Carlson a few years back, and I think he said that he started at Business Insider as a lowly intern.

Podcast fanbases have shown an appetite for buying tickets to live, interactive virtual shows. One podcaster has made as much as $500,000 through such performances. [The Verge]

One of the local newsletters that launched on Substack published an update on its finances and progress. Six months in, and it's generating $68,000 in annual revenue. [Arizona Agenda]

Bloomberg Media has experienced monster growth in recent years and is allowing its parent company to diversify beyond its highly lucrative Bloomberg Terminals. [Poynter]

This makes a good point that a really strong subscription business can lead to a really strong advertising business. Not only are your readers more affluent, but you have more first party data on them. [Digiday]

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It started with podcasts, but now it's moving into text-based reporting.

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Simon Owens is a tech and media journalist living in Washington, DC. Follow him on Twitter, Facebook, or LinkedIn. Email him at simonowens@gmail.com. For a full bio, go here.