The ARPUs of the Big Four Dwarf Everybody Else
Let’s give a look at the most important metric of all: the Average Revenue Per User.
This week, I wanted to write about the recent shifts in the business model of news: the end of the advertising model, the rise of subscriptions, the difficulty of substituting the disintegration of local media with small digital outlets, and the limits of the non-profit system. Through my research across multiple financial statements and industry reports, I’ve discovered that the most compelling piece of data is the evolution of ARPU over the last year and since 2011.
In case anyone doubts it: the FAANG (Facebook, Amazon, Apple, Google) has been making a killing thanks to their domination of the advertising business (Netflix earns a special mention for its mastery of the subscription model.)
Let’s start with some context by looking at the period 2011–2018 on the US market:
- Over the past seven years, Digital ad spending in the United States rose from $32B to $111B; a 3.5x increase.
- Google, which had already a stronghold on the US market seven years ago rose from $18B to $63B in revenue, also a 3.5x increase.
- Facebook, which was created eight years after Google, catapulted from $2.1B to $27B, a 13x rise.
- The New York Times digital advertising revenue rose from $233m in 2011 to $259m, a modest 11 percent increase. See the chart below (the perimeter has evolved: for the FY 2011, I took the NYT “News Media Group”, which excluded properties such as the Boston Globe):
To sum up the growth differential for the last seven years in the US market:
I included the New York Times because it is supposed to be the gold standard for digital advertising with a vast range of products from programmatic to sophisticated branded operations.
As expected, these numbers show that for the past seven years the duopoly snatched most of the growth of digital ad spending:
For each dollar of digital ad growth between 2011–2018, Google took $1.00, Facebook $3.70, while the NYT took only 32 cents.
Now, let’s turn to the Average Revenue per User (ARPU) per year with this chart:
Now let’s dive into some details:
Amazon is the king of ARPU with its giant retail operation which brought last year $752 per customer on average for its global 310 million customers. There is a significant imbalance in Amazon revenue due to the difference between the casual Amazon user and the Prime subscriber, the latter paying a $100 membership per year and buying many more products. But the most interesting part is the growth of Amazon’s advertising business: it produced an ARPU of $15, which is five times the ad revenue of most news outlets, including large audience brands.
Google’s global advertising machine is the most sophisticated and profitable in the world. Its ARPU is sky-high and shows no signs of erosion. Too bad the company doesn’t provide a detailed breakdown by line of business and geography. As a comparison, domestically, a publisher would need to charge $21 per month to make the same revenue as Google.
Facebook’s revenue per user is roaring. For Q4 2018 vs. Q4 2017, it’s global ARPU increased by 19 percent to $7.37, and the US-Canada ARPU by 30 percent to $35. Between 2011 and 2018, the social network global ARPU rose nearly 6x, while the US-Canada grew 11x. With a domestic revenue per user of $112, Facebook is the equivalent of a publisher charging $9 a month. It does that with a free service.
Apple’s master analyst and writer is Horace Dediu from Asymco. Here is what he explained recently:
“In the latest letter to investors, Tim Cook wrote that the total number of active devices has increased by more than 100 million in the last twelve months [of 2018]. Given that the figure a year ago was 1.3 billion, the current total must be 1.4 billion. We can also estimate that Apple sold about 303 million devices in 2018. This implies 2 out of 3 were replacements and 1 out of 3 increased the base.
Services revenues were about $40 billion in 2018 (up 28%). Total revenues were $261.5 billion.
Thus for the whole of 2018:
- $194 per active device of which…
- $30 in service revenues per active device”
To put it another way, with its service business (music, apps, etc.) Apple is making 10x more than a decent publisher makes on advertising. And given the growth (+17 percent Y/Y), Horace Dediu does not exclude a service-related ARPU of $50 per device owner and per year in the near future.
The New York Times is doing just fine with its digital subscription business with 3.3 million customers paying for its digital services, including 2.7 million who pay only for the news service. The news product generated $139.50 per subscriber last year. However, while the Big Four manage to have a double-digit growth of their ARPUs, the NYTimes’ revenue per user has eroded by 4 percent last year ($146.10 in 2017). Interestingly enough, while the revenue of the Times’ digital news subscription grew by 16 percent to $378M (details here), its other digital product segment, while much smaller ($22M in revenue) grew by 54 percent last year. Diversification works when it is carried by a brand like the NYTimes.
Spotify Here I leave the comment to Tim Ingham, who wrote an excellent piece in Rolling Stone last month.
“According to an F-1 SEC filing, Spotify’s monthly ARPU had officially fallen to €6.84 at the close of 2015; a year on, it tumbled again to €6.20, and in 2017 it hit €5.32. And in Spotify’s latest fiscal update, for the third quarter of 2018, ending September 30th, the company posted an official monthly ARPU figure of just €4.73 ($5.50).
This means that the average Spotify subscriber around the world is now paying more than $20 less per annum than he was four years ago. And the record labels fear this situation is about to get worse.”
Netflix has, without any advertising, made $131 per viewer globally last year vs. $116 in 2017, an increase of 13 percent. In 2011, the streaming giant was making $133 per user, but the acquisition costs since then have soared from $16 in 2011 to $180 in 2018. The competition from other (Disney, Amazon, Apple…) is looming.
Buzzfeed is an example of a digital outlet that was supposed to revolutionize online advertising with a clever social propagation of content. Their plan didn’t work as expected. The $3 in ad revenue per year and per user is a generous estimate. After off-loading a sizable part of its staff, the fancy news outlet now wants to get married to others of its kind. I am certain that, business-wise, the journalistic brand (BuzzFeed News) has been dragged down by the mediocrity of the main outlet (listicles and al.) and the pressure to make clicks. Too bad.
frederic.filloux@mondaynote.com
