As the technology industry sheds headcount and trims expenses in response to a worsening economic forecast, digital publishers reliant on Silicon Valley ad spend—namely this week, Protocol and Morning Brew—have found themselves caught in the contraction.
In October, as part of these new austerity measures, 34% of technology companies cut or paused their advertising budgets, according to Eric Haggstrom, the director of forecasting at Advertiser Perceptions.
“The technology sector has been a growth area for media,” Haggstrom said. “But this earnings season has been tough for tech companies, and many are starting to place more focus on their bottom line. Any pullback in their ad spend will be rough for media companies.”
For publishers whose business models lean heavily on advertising, especially advertising from technology companies, these reductions have been particularly painful.
At Axel Springer, whose four U.S. properties include Politico, Insider, Morning Brew and Protocol, the uneven effects of this downturn make themselves apparent. This week, Protocol shuttered and Morning Brew laid off 14% of its staff, while Insider avoided cuts and Politico was earmarked for expansion. Protocol and Morning Brew did not respond to requests for comment.
The divergent outcomes for the four properties reflect a number of variables, including their size, financial health and areas of coverage. But two key factors—the diversity of their business models and their reliance on technology advertising—are largely responsible for which were slated for expansion and which have faced cuts.
“A bad economy is an equal opportunity challenge, but some businesses have it worse than others,” said Brian Morrissey, the creator of The Rebooting newsletter.
“If you have more exposure to technology or crypto advertising, you will be harmed disproportionately. If you have a broader base of advertisers, you’re going to be better off.”
As tech advertising shrinks, tech publishers struggle
On Tuesday the tech and policy publisher Protocol announced that it planned to shutter immediately, eliminating nearly 60 jobs in the process, according to reporting from CNN.
The publisher, which launched in 2020, covered the intersection of technology and political policy, making it an attractive vehicle for technology advertisers looking to sway influential lawmakers.
But it generated the vast majority of its revenue from advertising, particularly technology advertising. So when the technology sector began to trim costs in the face of economic uncertainty, many companies paused their advertising spend, leaving Protocol in the lurch.
The sudden closure reflects the risks of cultivating an advertising clientele rooted in a particular sector, as disruptions to the space can upend an otherwise healthy business. The technology industry has grown almost uninterrupted for a decade, making it a sensible basis for an advertising roster, but it grew precarious after only a handful of poor financial quarters.
Diverse business models prove more resilient
Morning Brew, a pioneer of the newsletter economy, enjoyed vertiginous growth in its first years as an Axel Springer property. In October 2020, when Insider bought a majority stake, the publisher was valued at $75 million. Its focus on email advertising insulated it from the whims of social platforms and has helped it develop a deep lake of first-party data.
But outside of email advertising, the publisher has few substantial streams of revenue. It broached the events space earlier this year, hosting its second experiential activation earlier this week.
But unlike Politico or Insider, the newsletter publisher lacked a means of generating recurring revenue, and its focus on business reporting meant a sizable portion of its advertising base came from the technology sector.
These factors, plus a pandemic hiring boom that rapidly expanded the size of the company, left the publisher in a pinch as economic conditions worsened.
“When the economy worsens, companies suffer and pay the price for expansion that looked like a good idea at the time,” Morrissey said. “That’s compounded by the fact that advertising is always cut in times of uncertainty. Companies always go to it first, and that will affect any publisher overly reliant on advertising.”