Digital natives still depend heavily on grants, advertising
Public-service mission fuels business models in Africa, SE Asia, and Latin America
You’re reading the My News Biz newsletter, which I send every Thursday. My goal is to help digital media entrepreneurs find viable business models.
Note: What follows is an edited excerpt of the Business Models chapter of SembraMedia’s Inflection Point International study of 201 digital native media in Africa, Southeast Asia, and Latin America. Read the full report here–also in Spanish and Portuguese. It is republished under Creative Commons 4.0 ShareAlike international license (Disclosure: I am treasurer of SembraMedia and participated in the editing of the report.)
Digital natives fall into four distinct tiers of maturity
Because we selected such a broad range of media organizations for this study-100 from Latin America, 52 from Southeast Asia, and 49 from Afica--we found that the best way to compare them was to divide them into four distinct tiers of business maturity, based on total revenue, number of page views, team size, and how many years they had been publishing. (We used the same tiers in our 2016 report.)
In expanding this study from Latin America to Southeast Asia and Africa, we decided to use the same four tiers to ensure consistency and comparative data sets between the two studies, but we’ve simplified the names this time for clarity and to make them easier to translate.
As we analyzed the media organizations in each tier separately, we found common challenges and opportunities. Although there is no single recipe for success, we did find trends across all 12 countries that provide insights into the most promising sources of revenue at each of these stages of growth.
For example, regional and national media with relatively large audiences reported higher levels of advertising support. Smaller, local, and niche media earn larger portions of their revenue from sources that leverage the experience of their founders, such as consulting and training programs.
As we analyzed the media organizations in each tier separately, we found common challenges and opportunities. Although there is no single recipe for success, we did find trends across all 12 countries that provide insights into the most promising sources of revenue at each of these stages of growth. The 12 countries in the study were Argentina, Brazil, Colombia, Mexico, Ghana, Kenya, Nigeria, South Africa, Indonesia, Philippines, Malaysia, and Thailand.
Tier 1: In our first report we named this group Startups & Stagnants because in addition to the early startups in this category, we also found organizations that were more than 5 years old and seemed to have stagnated, unable to grow revenue above $20,000 per year.
Tier 2: In the second tier, team size nearly doubled to a median of 14 with more than three times the traffic, and nearly five times the revenue. At this tier, with revenues of between $20,000 and $99,999, most of these media leaders were better able to cover expenses, but they still struggled to show any kind of profit. In our first report, we named these Struggling and Steady.
Tier 3: The third tier features media with multiple revenue streams, where larger teams and audiences enable higher advertising rates and audience support, and revenue ranges from $100,000 to $499,999. We named these Steadfast & Striving in our first report.
Tier 4: Media in this tier reach millions of people each month, bringing in more than $500,000 per year (with some generating well over a million dollars annually). The majority of the media in this tier reported larger audiences and larger teams, earning them the name Stars & Standouts in our first report.
Note: The findings in this chapter are based only on the information we collected from the 141 media organizations that answered our detailed questions about their revenue, expenses, and initial investment. Of the 201 media leaders interviewed, 24 declined to provide confidential financial information (despite our assurance of confidentiality), and 36 were unable to answer all of the financial questions.
Founders start with limited resources, but don’t give up easily
Most of the 201 media in this study were started with less than $15,000 in initial investment, and their limited resources make building a sustainable business model challenging.
Yet, compared to other types of entrepreneurs they show surprising longevity. According to data from the U.S. Bureau of Labor Statistics, about half of all business startups fail before they reach their fifth year of operation.
In comparison, when we started this research in 2021 and went back to look at the 100 media we studied in Latin America in 2016, only 23% had ceased publishing. Most of them were in Argentina, where inflation reached 50% during the economic crisis that followed the pandemic lockdown.
This low failure rate is consistent with what we’ve seen after six years of mapping Spanish-language digital media across more than 20 countries for our media directory at SembraMedia. As of this writing, our directory features 968 media organizations that are actively publishing. Over the years, we’ve removed 217 (or about 28%) because they ceased publishing for more than six months.
On of the oldest media organization in our directory, El Faro in El Salvador, started in 1998 and was run exclusively by volunteers during its first five years of operation. In the last decade, El Faro has grown into an internationally recognized news source, with a paid team that includes reporters, editors, sales and business staff.
Grants and advertising still dominate in global sample
Across all of the media in all three regions in this study, in both 2019 and 2020, the top revenue categories were grants, advertising, consulting services, content services, and reader revenue, in that order.
In our interviews, we asked media leaders to select all of their revenue sources from a list of 30 different kinds of income. We then asked them to identify the source that provided the most revenue.
* To better understand and compare the types of revenue, we grouped similar sources into the following five macro categories:
Grants: Includes all grant funds from private foundations, philanthropic investors, private corporations, as well as grants from foreign and national government organizations.
Ad revenue: Includes all ad sources reported, including Google AdSense, affiliate ads, programmatic ad networks, sponsored content and native advertising, and ads sold by agencies or staff.
Consulting services: These include a range of services, such as communications and social media consulting, research projects, and special commissions by NGOs.
Content services: Includes all revenue from content syndication, unique content created for other media, content created for non-media clients, and design or tech services.
Revenue from readers: Includes subscriptions, membership fees, newsletter subscriptions, site subscriptions, donations from individuals, crowdfunding, and event ticket sales.
Diverse revenue is key, but having more sources is not always better
Developing diverse revenue sources is key to editorial independence and financial success, but in this research, we found that having more sources is not necessarily better.
For the digital native media organizations we spoke with, having less than three revenue sources was likely to put them in the bottom third of income earners, but having more than six income sources did not consistently increase revenue when compared with other similar-sized media organizations.
The ideal number seems to be between two and six distinct revenue sources. This finding leads us to a warning for media leaders not to try and develop too many revenue sources at once because it can be counterproductive.
In both 2019 and 2020, grants were the primary source of income in all three regions.
It should be noted that because we sought out organizations for this study that were not overly dependent on local government sources, the low levels of government funding are not representative of what other media may be receiving in these markets. Similarly, the relatively small overall budgets of the media in this study means that even small grants (in the $5,000 to $10,000 range) can have an impact.
The risk of over-dependence on grant funding
It remains to be seen whether the increase in grant funding we found in 2019 and 2020 is a trend that will continue, or if these levels will recede. Interviews with grant funders confirm that a number of private foundations and corporate donors temporarily increased grant funding during the pandemic.
The existing economic challenges for news organizations that were exacerbated by the pandemic have led to a global movement to increase grant funding for media and even create a large fund to provide more grant funding and investment in the future.
The International Fund for Public Interest Media is an independent, multilateral initiative dedicated to supporting journalism in low- and middle-income countries as a key pillar of democracy. With funding from governments, corporations and development agencies, the Fund will support media outlets producing trustworthy coverage in the public interest. The Fund’s founding partners are Luminate and BBC Media Action. Additional operational funding has been provided by Craig Newmark Philanthropies, John D. and Catherine T. MacArthur Foundation, and National Endowment for Democracy.
Our analysis shows that grant funding has provided an important contribution to the development of independent digital media, especially in challenging markets and during unprecedented times, such as the pandemic.
However, we have found that media that become overly reliant on grants sometimes have a harder time building sustainable business models.
In our ongoing work with digital native media in Latin America, we’ve seen first hand how large grants to small media organizations can lead them to create larger journalism teams than they can sustainably support. This can lead to layoffs and, in some cases, media closures when grant programs end abruptly—especially when they come with no business support, or they include restrictions that the funds can only be spent on reporting projects.
That said, the fact that most of these media organizations are earning more than 70% of their revenue from other sources suggests that even those who receive grants are working toward building diverse business models.
Advertising, No. 2
Advertising was the second largest revenue category in our global sample, making up just over 23% of total revenue in 2019, and 21% in 2020. Average ad revenue across all three regions was $28,319 in 2019, and $27,323 in 2020.
The drop in ad revenue in 2020 is consistent with the loss of advertising revenue experienced by many media around the world during the first year of the pandemic, although these digital native media organizations lost less revenue, as a percentage of income, than daily newspapers.
According to the Pew Research Center, newspaper ad revenue in the U.S. declined sharply in 2020. “Ad revenue totaled a record low $8.8 billion, down nearly 30% from $12.45 billion in 2019.”
In their study of the pandemic’s impact on independent news media, Reuters Institute found that commercial news media, which are often heavily reliant on advertising, with large newsrooms and print products to support, were more likely to suffer severe drops in revenue in 2020. Those who reported stable or increased revenue for that year were more likely to be smaller, online-only newsrooms, which are more similar to the digital native media in this report.
Also of note, the most popular type of ad revenue reported by all of these media organizations in 2019 was sponsored content and native advertising, followed by Google AdSense, national advertising sold by a media organization’s staff, local advertising sold by an organization’s staff, and then services or advertising from a domestic government organization. (Again, it’s important to note that we excluded media from this study if we learned that they were overly reliant on government advertising.)
Ads for News, a coalition of media organizations, marketing firms, and advertisers, managed by the nonprofit Internews, is already working to help independent media earn higher ad rates by creating “whitelists” of media, supporting ad tech optimization, and developing partnerships with premium advertisers that often overlook these smaller media players.
“Ads for News is a curated portfolio of trusted local news websites—screened by local partners to exclude content unsuitable for brands, such as disinformation. We make it easier for brands to reach audiences on trusted media, supporting real journalism and spending towards those who have earned it while experiencing the unparalleled benefits of advertising in quality news environments,” according to their website.
Disclosure: SembraMedia is a partner in United for News, which created the Ads for News initiative.
In addition to white lists, helping smaller media combine forces or join existing media marketplaces that aggregate traffic from multiple media companies would almost certainly help them earn far higher ad revenue. But this is not a problem that can be fixed with limited training. Because most of these media also lack technical team members, they need specialized (and expensive) tech support to install ad management software and optimize the technology on their websites before they can participate in ad exchanges.
Consulting services represented almost 12% of total revenue for the media in this study in 2019. Examples of the type of consulting services entrepreneurs shared with us included: creating classes for NGOs and private companies; providing PR, marketing, and strategic communications services; and conducting surveys, polling, and other research.
After more than five years of research on digital native media in Latin America at SembraMedia, we’ve learned that syndicating content to other media is one of the first ways many journalism entrepreneurs start earning revenue. But in the detailed analysis we did for this report, we discovered that selling content to clients who are not media organizations produced higher revenues than content for other news organizations.
Across all the media in this study, content services were the fourth most important revenue source, representing more than 8% of global revenue in 2019. For the purpose of comparison, we combined all of the content services into this macro category, which includes content syndication, unique content created for other media, content created for non-media clients, and design or tech services.
But when we looked at the most important revenue sources broken out across our list of 30 revenue types, “content for non-media clients” was the second-most important revenue source overall, and content for other media didn’t even make the top 10.
Reader revenue still small, but growing
To best represent the many ways media earn revenue directly from their audiences, we combined six of our 30 revenue types to create the macro Reader Revenue category.
Of those six, the most popular type of reader revenue reported was donations from individuals, followed by membership programs, crowdfunding, event tickets sales, subscriptions to a news site, and then subscriptions to newsletters.
The combined value of all of these audience-based sources represented 8% of total revenue in 2019. Notably, that percentage dropped to 6.5% in 2020.
In Latin America, reader revenue nearly doubled between the first Inflection Point study in 2016—when subscriptions and membership accounted for about 5% of average total revenue—to nearly 10% in 2019. Donations from individuals and membership programs were the most popular sources of reader revenue in Latin America.
What drives reader revenue
Despite considerable statistical analysis, we found no definitive recipe for a successful reader revenue program. For example, there was no clear relationship between higher reader revenue and the type of journalism or topics an outlet covered.
Our findings are also in line with previous research by the Membership Puzzle Project (MPP), suggesting financial contributions to media organizations are likely to come from a small, loyal proportion of the audience—a maximum of 10% of a site’s overall audience, unless the organization has an exceptionally engaged audience. During its four years of research, MPP also found that the majority of media ventures pursuing membership would see it make up 10% of revenue or less in the early years of a membership program.
We did find a correlation between the number of pageviews and reader revenue in this study, and although it was not a significant correlation, it is consistent with other research that suggests a larger audience can be one factor in the success of membership programs, subscription rates, and event income. Even with a small percentage of conversions, more people at the top of the audience funnel has the potential to result in more subscribers, members, or event attendees.
The relatively low level of revenue in this category is likely due to multiple factors, including:
Many of the media that did report having membership programs started in the last year or two, and other research suggests reader revenue initiatives take time to grow, sustain, and retain.
In many of the markets we studied, consumer habits around paying for news are still developing.
Consumer spending power is often more limited than in regions such as North America and Europe, where reader revenue models are more firmly established and more extensively studied.
Even for those outlets where reader revenue represented just a fraction of their overall revenue, it’s worth noting that many said reader engagement projects such as membership were about more than just generating cash.
As the Membership Puzzle Project’s Membership Guide says: “Membership is more than just a piece of a revenue pie. Membership is a relationship between a newsroom and its supporters that treats audience members as core participants and stakeholders.”
El Gato y la Caja in Argentina, for example, asks its community to complete questionnaires that allow them to get data and scientifically test hypotheses.
ConexiónMigrante, based in Mexico,offers free membership to their audience, which is made up primarily of immigrants in the U.S. In addition to gaining access to the community, members receive discounts on products or services from sponsors.
In addition to publishing articles and other information,ConexiónMigrante runs a Migrant Service Center where they answer phone calls, and respond to questions they receive through Facebook, WhatsApp, and email. “We started the call center because someone sent us a voice message to tell us that they could not read or write, but that they needed help,” said founder and director Patricia Mercado.
Regional differences: Southeast Asia’s higher startup capital
In Latin America and Africa, there was a correlation between the number of years these media organizations had been publishing and their level of business maturity, but in Southeast Asia, we found an anomaly. The media in the top tier reached the highest revenue level after an average of just two years of operation.
In contrast, the median age for media in the top tier in Latin America was nine years, and in Africa it was seven years.
It should be noted that the majority of the top tier sites in Southeast Asia were from Thailand, but our analysis revealed a few other clues about what could be driving this early success: all of the media in the top tier in Southeast Asia received significantly higher initial investment than media in other regions.
On average, top-tier organizations in Southeast Asia had five staffers devoted to sales or business development. In this region, having at least one person dedicated to this area increased revenue sixfold.
Latin America: the weak are culled, the strong prosper
Our first Inflection Point study provided valuable insights into how 100 digital media entrepreneurs were covering the news, building business models, and serving their communities in Latin America in 2016, even as they faced myriad threats and attacks.
In this new report, we used that historical data to explore how digital native media changed between 2016 and 2019. We found that 75% of the media we interviewed for both studies reported revenue growth—and some were bringing in a lot more money.
We should note that of the original 100, 23 that had ceased publication, and we cut 21 of the media in our original sample because they didn’t meet our stricter criteria, or we couldn’t schedule interviews in time.
In Africa, financial data is hard to come by
Researchers reported that it was especially difficult to get answers to all our financial questions because many of the media leaders they interviewed had never been asked these types of questions about revenue and expenses before. In some cases, researchers told us their subjects simply did not know how to answer, because they lacked the data or were not tracking the metrics we requested.
These interviews were done while many were still on lockdown or limited travel because of the pandemic. A further complication was that the limited bandwidth in many parts of these African countries made it hard for our researchers to conduct video interviews, so many had to be done by mobile phone.
In some cases, even when they knew the answers, despite reassurances that we would only share aggregate anonymized data (not their private data), some were hesitant to share detailed financial information. Our local researchers hypothesized that this could be due to a reluctance to reveal all of the sources of their funding, or the state of their finances.
This newsletter was based on a blog post on my website, Entrepreneurial Journalism.
Inflection Point Part 1: Digital media entrepreneurs punch above their weight
Inflection Point Part 2: Digital natives fill coverage gaps, drive social impact
Inflection Point Part 3: Digital natives still depend heavily on grants, advertising
Inflection Point Part 4: Three skill sets needed for successful digital news media
Inflection Point Part 5: Media freedom and journalist safety