In what may be a first for an advertising conference, Borrell Miami brought a group of media finance execs together to talk about digital ad products from the bean counter’ perspective. Topics covered included digital profitability (it’s growing), sales commissions (they’re lower than for linear media), and digital’s revenue contribution (going up and up).
Revenue from Hubbard Radio’s 2060 Digital agency made up 12% of total company revenues in 2019 and 11% of expenses. In 2024, digital is expected to generate 23% of revenue, almost doubling in five years while expenses are expected to be 17%. “We're finding the revenue growing at a faster pace and expenses lagging the revenue growth,” said Steve Goldstein, President, 2060 Digital. “So not only is it profitable, but we’re also finding ways to create efficiencies and grow revenue faster than expenses.”
In 2019, just 7% of Beasley Media Group’s total revenue came from digital sales. By 2023 that reached 18.5% with a goal to hit 20-25% by the end of 2024 and eventually 40%. But the road to digital profitability has not been a straight line. Digital profit margins were higher before Beasley expanded its menu to offer third party services. “We try and marry our third-party products with our owned and operated assets just to bring that expense down a little bit and bring the profit up a little bit,” said Beasley CFO Marie Tedesco.
Digital is helping the company offset a 40% revenue decline in national agency revenue that began with the COVID pandemic. “That’s why if we are not on the digital platform and doing everything we can, then we're going to miss the train,” Tedesco said.
Software Shortcomings
Compensation packages at both companies are different for digital sellers, compared to radio AEs. Digital sellers are paid a “respectable salary” and a lower commission rate. And both see a need for AI-powered software in the finance world. “Our biggest challenge with digital is to find software and systems that work better for us,” Tedesco said. “Even though we have had digital for a while, we still don't have the right software to monitor it and to make sure that we are actually providing our clients with what they are asking for.”
Tedesco and Goldstein see a need for software that rolls up their O&O ad products with those from the third-party providers they use to show impressions delivered to clients. “If I could wish for something, I would wish for a system that could combine and integrate all of those things into one,” Tedesco said. Added Goldstein, “My vision is [insertion order] to invoice and talking to all the different platforms so we can build on actuals. It's the Holy Grail.”
Direct to consumer advertising at Warner Bros. Discovery, which includes the rebranded streamer Max and premium TV channel HBO, drove $503 million in revenue or about 25% of total revenue at the media and entertainment conglomerate in 2023. That compares to 20% from networks and 25% from studios. “What's happening for us is linear advertising is declining and last year was a more significant decline than in the past,” said Lori Locke, Chief Accounting Officer, Warner Bros. Discovery. “And what we would expect is the digital revenue [from streaming] to increase. So that takes time.” The digital segment produced “a little profit” in 2023, Locke said. But as the shift from linear to streaming continues, she looks to grow digital revenue from advertising in addition to subscriptions. “There's a lot of money to be made,” she added.
Hubbard’s 2060 Digital, which started informally in 2011-2012, is now a separate LLC for Hubbard with its own P&L. In 2017-208 it did a major revenue reclassification to better track the digital revenue and profit margins. “As we grew this business over the years, we realized that we were sharing people” with the radio side of the company – a radio employee doing some digital ads, for example. The result was Hubbard reclassified $1.4 million of expense from the radio side to 2060 Digital’s P&L. “We try at every opportunity to put the expense where it belongs,” Goldstein said, noting that it has reclassified salary allocations for “split employees” who do work for both radio and digital.
Expenses Reset
While radio has long been Beasley’s “cash cow” and continues to generate the bulk of its revenue, declining broadcast ad sales have made it less profitable. Air talent are bonused on their ratings performance “but those ratings points are not worth the same today as they were 10 years ago,” Tedesco noted. “There's a lot of resetting that we need to think about. We need to take some of those expenses out of the traditional side and continue to invest them in the digital side. That's going to be our future.”
“The CFO's Perspective on the Profitability of Digital Products” was moderated by Joe Annotti, President & CEO, Media Financial Management Association.
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