The Era of Media Arbitrage Is Dead

By: Jacob Cohen Donnelly

For close to 30 years, the digital media industry as we know it has thrived—or, perhaps, survived—by playing a game of arbitrage. That era is coming to an end and publishers that have not yet reckoned it are going to die.

Consider how much of digital media works. A low-paid reporter or writer—salaries have not kept up with inflation by a long shot—creates a piece of content. Google comes along and ranks said content. Then people start showing up. Immediately, micropennies of revenue are generated. Whether the user bounces or not is irrelevant because there are millions of other folks that will come to the site over the coming days or weeks and see similar pieces of content.

This is an arbitrage scheme at its finest. The publisher acquired the traffic at a low cost—the partial cost of that reporter—and then monetized it immediately with ads. The worst offenders monetized with an overwhelming number of ads—double sidebar ads, instream and outstream video, chum boxes at the bottom, refreshing ads and the list goes on.

In an arbitrage scheme like this, you have two levers to pull. You can either increase the amount of traffic you get per story, thus increasing the revenue, or decrease the cost to create the story, thus having the same writer produce more stories. This is basically Reach’s strategy. A UK-based publisher, it has been pushing its reporters to produce far more stories in a day. According to HoldTheFrontPage:

Company chiefs want to increase article volume in order to boost page views, which have been badly hit by algorithm changes from major referrers such as Google and Facebook.

…

One internal email, seen by HTFP, suggests an average count of eight stories a shift for reporters working in the office, although this would not apply to those who are sent out on stories.

The email, sent by a senior Reach editor, states: “We need to make more of shifts where people are not going out as drivers of volume. In practice, if you’re on a general shift and you’re not on a job, it should be at least eight stories a shift.”

This makes sense for arbitrage. If traffic is dropping per story, one way to keep the arbitrage alive is to get more out of the fixed costs. Pageviews are all that matter, so getting more from the same investment is a great way to win.

Another fixed cost is the people responsible for selling the ads. Cut them out and invest all your effort in programmatic advertising and let someone else worry about selling ads. That’s basically what The Arena Group has done. Back in August, CEO Sara Silverstein was on Bloomberg and said:

We’ve made some drastic measures like getting rid of our entire direct sales department. The margins that we were making on direct just weren’t there and we feel like we can get to sustainable profitability on programmatic if we focus on our technology and our audience.

They’re proud of this strategy since they had their first profitable quarter ever. Free traffic and high-margin programmatic advertising. That’s the good stuff.

BuzzFeed’s not as extreme here since they’re still doing directly sold ads, but even their strategy appears to be much of the same. As someone close to the company told me:

So, things like our programmatic advertising as well as our affiliate commerce which is all of the shopping posts that you see and everything that comes from affiliate. Those are really high margin businesses for us because not only are they low spend, high revenue, but also using our technology, we can scale those things very quickly. 

It’s the same play. Arbitrage the low-priced traffic from platforms with relatively low cost content and then focus your efforts on “using our technology” to scale revenue.

Don’t get me started on the dozens of B2B media companies that have done this. Look at all the poorly rewritten press releases from “editors” who manage three or four sites. Since the competition is low, they can get free traffic and then arbitrage with lead gen and banner ads.

This strategy has worked for a long time. It’s not an inspiring strategy, but if you manage your costs accordingly and really know what game you’re playing, the arbitrage scheme works.

But what happens when someone really cuts off the traffic? Reach is trying to create more content, which will fail. The Arena Group is trying to focus all its efforts on programmatic, which is undifferentiated ad impressions, so is a race to $0. BuzzFeed is looking to create “AI-powered interactive experiences,” which I guess means cheaper surveys?

What I now realize is that these last 30 years that many of us have operated in digital media has actually been a fluke. This idea that we could just get free traffic, monetize it immediately and then hope to have a great business is insane. That’s not how any other business works.

For most businesses, they have to create a great product, pay to market that product and then hope people will come and buy it. There’s nothing free about it. There are short-term arbitrage opportunities that exist, but the business model is not built on it.

As an industry, we got complacent with our scheme. Rather than realizing it was too good to be true, we doubled down on it. In 2024, consumer publishers are finally realizing that they need a first-party data strategy. Why did they wait? Why were they not taking advantage of all this free traffic for decades and building something sustainable?

Imagine, for a second, that it was 2015 and you’re getting all this free traffic. Instead of trying to maximize revenue on that single ad impression, you built an incredible newsletter and pushed everyone to sign up. Now it’s 2024 and rather than lamenting the drop in Google traffic or the rise in AI, you’re shrugging because you’ve built a moat of highly engaged readers. Doesn’t that sound nice?

The arbitrage era of digital media is over. Some publishers can extend the era, but viewing this as a viable strategy going into 2025 is not smart. If your goal is traffic, programmatic advertising and creating a quantity of content, the reckoning isn’t coming—it’s here.