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SPONSORED CONTENT: A BROADER RELATIONSHIP WITH THE U.S. NEWS MEDIA

The first in a series of special reports bySteve Rubel, chief content strategist

July 2013 - Volume 1

©2013 Daniel J. Edelman, Inc.

EXECUTIVE SUMMARYIn the 1950s a young Daniel J. Edelman had an important insight: bring a compelling story to journalists and it can earn credible editorial coverage. This simple idea gave birth to the first media tour. Today it is a staple of virtually every PR campaign and a key way businesses form strong working relationships with the press.

Flash forward to 2013. Mr. Edelman's eponymous PR firm is now also entering into a broader relationship with the U.S. news media. This time, though, it’s teaming up with the advertising arm of publishers on sponsored content partnerships (sometimes called “paid content” or “native advertising.”)

Due to a confluence of disruptions to the classic advertising and subscription revenue streams, many publishers are now open to turning content that’s created or curated by corporations into a new form of advertising. To be clear, these paid, rather than earned contributed articles, information graphics, videos and more are not editorial. Further, no sponsored content program could ever supplant credible coverage by an independent, free press.

Yet, these ads do closely resemble the adjacent journalistic content. Additionally, they are often slotted in the news section - once-sacred ground. Therefore sponsored content, with care, can amplify earned or owned messages in a prominent way.

For example:

‣Edelman recently worked with The Associated Press on a Twitter program where the wire service syndicated a client’s social media content and links to its two million followers. This was The AP’s first foray into sponsored content.

‣The firm partnered with The Washington Post and Slate to amplify The National Dairy Council’s owned media assets and publish custom editorial content on behalf of dairy farmers.

‣It also recently helped set up two partnerships for The Boston Consulting Group - one with the Financial Times and another with TED. These spotlighted new bespoke sponsored content tied to the company's 50th anniversary.

The primary job for PR remains building and maintaining trusted relationships with journalists - just as it did in Daniel J. Edelman’s day. To do so, the industry must continue to ensure that it meets the news media’s high expectations as well as the public’s.

The aforementioned examples illustrate an opportunity for PR professionals to now add a new dimension to their long relationship with the news media. This opportunity is centered in advertising and it combines paid and owned programming across a spectrum of publishers.

That said, there are major ethical hurdles to address too if sponsored content is to provide any value for the news media, marketers and, above all, the public.

Edelman Sponsored Content Report | July 2013 - 2

National Dairy Council sponsored content on Slate.com

This report covers sponsored content from a PR point of view. The research is culled from more than 30 briefings the firm conducted in the field with senior U.S. news media executives and ad-tech startups. This list includes traditional players like The AP, The Chicago Tribune, The Economist, Meredith, NBC News, Reuters, Rodale, Slate, Time Inc. and The Washington Post. It also encompasses digital-native upstarts like Business Insider, BuzzFeed, Mashable, Politico and The Next Web. (Search engines, social networks and entertainment holdings were not included.)

The paper, the first in a series, is divided into four sections:

‣ An analysis of why the U.S. news media is now embracing sponsored content

‣ An account of the emerging formats

‣ An initial summary of the key trends and questions

‣ An ethical way forward, including a framework of ideals that will guide Edelman in the U.S.

Edelman hopes that this series of reports inspires the PR industry to embrace a broader relationship with the press. This is a significant new opportunity that can potentially drive the profession’s next wave of growth.

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WHY NOW: A STORM OF DISRUPTIONSponsored content isn't a new idea.

Magazines and newspapers have been running advertorials and special advertiser sections in print for decades. Everyone surely has seen a TV infomercial. And the practice is quite common in entertainment. ABC’s “Jimmy Kimmel Live,” for example, regularly runs comedy bits that overtly integrate sponsors like American Airlines.

What is new is how the U.S. news media is now rapidly embracing this model on its digital platforms.

Three major disruptive forces are now converging and acting to move sponsored content - a potentially large source of revenue - into the foreground for many publishers.

Classic Revenue Streams ErodeThe first disruption is the rapid erosion of advertising and subscription revenue.

On the advertising side, over the last year prices have been sharply declining. There are at least three contributing factors:

‣ (1) The glut of supply (inventory) is outpacing marketer and audience demand (traffic)

‣ (2) Banners, which already were suffering from low click-through rates, are no longer as tenable as news consumption shifts more to mobile devices

‣ (3) Digital ad exchanges (also called programmatic buying platforms) are now in widespread use by publishers and advertisers. This has unlocked a wave of efficiency as advertising inventory is now traded in real time

Meanwhile, most consumers remain unwilling to pay for news. This means that subscription fees remain off the table as a viable means to offset advertising revenue declines.

There are cost issues as well. The press must continue to invest in new technologies to keep up with the way people want to consume news. There is also growing competition for attention from new, digitally savvy players.

Feeds Create New NormsThe second big disruption is the rise of the feed as a way to display information. The chronological format, which Twitter and Facebook pioneered, is now an equally popular way to consume news. It has arguably changed audience attitudes towards the permeability between advertising and editorial (e.g. the so-called church-state wall).

With the rise of social networking, people are now accustomed to seeing different kinds of content juxtaposed in one continuous feed. This means serious news articles by Pulitzer-Prize-winning journalists sit next to funny photos from friends and advertiser content.

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On search engines and social networks, the public generally accepts that advertising is part of the value exchange for maintaining a free service. Promoted social media content sits above organic content on Twitter and Facebook. And relevant Google keyword ads appear next to or above search results.

This model clearly works. Now news executives feel they can replicate it by carefully co-mingling editorial and clearly labeled sponsored content in a similar fashion. At least, that is their hope.

Brands Double Down on ContentFinally, the third major disruption is that marketers now are able to tell their own story in their own way on their websites, mobile apps and social channels. Every company can indeed be a media company. The growing interest in creative/brand newsrooms and real-time marketing punctuates this trend. Budgets are moving in lockstep as content strategy moves to the fore. (For more on this topic, see this recent report by Edelman Digital’s Monte Lutz.)

That said, however, even the best corporate/branded content faces the same challenge that professionals have - finding an audience. No one is immune to the laws of supply and demand. There is still too much content and not enough time. This means scale is an issue.

The good news is that marketers and news executives are united in their war against fragmented attention spans. And this, in part, is what may enable sponsored content to thrive.

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2013 B2C Content Marketing Benchmarks–North America: Content Marketing Institute/MarketingProfs

EMERGING FORMATS: A MIX OF OLD AND NEW IDEASBased on extensive research in the field, Edelman sees three common approaches to sponsored content in the U.S. news media. Other markets require further discovery. All borrow from tried-and-true analog equivalents.

These are only the first three formats to emerge. Others will surely follow as sponsored content becomes more widespread in the press, the ethical dilemmas are solved and publishers begin to differentiate their offerings.

In some cases, the approach reflects a classic publisher behavior. The FT sells content units in adjacencies to editorial. Ads continue to sit in the right-side rail.

More broadly, many publishers are now willing to carefully experiment. Sometimes they will create bespoke content for advertisers that can also be redistributed through a marketer’s social or owned channels. Wire services like The AP and Reuters are particularly adaptable here. They’re interested in streaming their unaltered content onto corporate websites, provided it has proper attribution. Such an approach can provide a more balanced view that the public has come to demand.

Paid SyndicationThe first and most common format is paid syndication. Here sponsored posts, articles, videos, slideshows and information graphics from corporations appear within the news section. These intersperse pure editorial content and are labeled accordingly.

Some are similar to print advertorials. But not all sponsored content, however, necessarily advocates a position. Some are simply feature stories.

AOL, Slate, NBC News, The Atlantic, Gawker Media and others commonly run paid-syndicated posts from major corporations like Toyota, Cadillac and Boeing.

Meanwhile, a host of ad-tech startups are trying to automate the transactional side of this process. Sharethrough launched a self-serve platform that can move a piece of content from a PR professional’s desk into the mobile feed on news sites like People.com and Forbes.com. Outbrain has a similar product that sprinkles sponsored links to a company’s earned or owned media in the footer of related news articles.

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Sponsored content on NBC’s Today.com is clearly labeled.

The long-term viability of this format, however, is still an unknown. The words “sponsored post” could equate with “don't read.” And there are occasionally times it spurs reader ire. Such was the situation earlier this year when The Atlantic ran an article by The Church of Scientology that its audience deemed too self-serving.

Still, paid syndication is the cheapest model and the easiest to execute. In some cases, like at Business Insider, it starts as little as $5,000 for a single sponsored post. So this level of commitment can certainly inspire experimentation in PR.

Further, if the quality of paid syndication continues to improve, it could be just as viable in the U.S. news media as it is on social networks and search engines. Paid search advertising was, at first, controversial too. Today it is a multi-billion dollar business.

Paid IntegrationPaid integration closely resembles TV product placement; here the marketer is weaved into a narrative, sometimes overtly.

This is the modus operandi at BuzzFeed. Many of its formulaic, yet infectiously popular list posts are essentially created around a sponsor's ideals. A brand’s messages are weaved in. This lighter touch aids the content’s overall share-ability.

However, BuzzFeed is not alone. One major publisher said it is willing to integrate advertisers into its popular list posts, making a sponsor a “No. 11” on a list of 10. Likewise, the Digiday Content Studio runs co-created articles that are independently reported, labeled as sponsored but mention the advertiser in a subtle way, like as an attributed source.

Most of these activations typically require $50,000 or more. There are also some more cost effective options.

Paid Co-CreationPerhaps the most promising format in use is paid co-creation. It’s potentially a win for the reader, the marketer and the publisher.

Here an advertiser funds the development and staffing of a new site or section or even an app that currently doesn't exist. The sponsor guides the direction but does not necessarily have day-to-day oversight for the editorial content. It is similar to a brand naming a baseball or football stadium. Forbes.com, Rodale and, most notably, Meredith all take this approach.

This system is in use widely perhaps because it is ethically safer.

The digital natives are playing here as well. Mashable's BrandSpeak, for example, teams marketers and its in-house content specialists together to develop a short series of feature articles that relate to the brand’s values or themes. Mashable has an assistant “campaigns editor” on staff to create such series.

Paid co-creation typically runs $100,000 to a million dollars or more.

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KEY QUESTIONS AND TRENDSWhile sponsored content is in many ways more evolutionary than revolutionary, it is still seen as disruptive. As it becomes more widespread in the U.S. press, it will raise more questions than it answers.

Here are five to watch:

‣ (1) Will Government Get Involved? - It's likely that the U.S. government will get involved if it feels consumers are being deceived and that self-regulation is not working well. The Federal Trade Commission has in recent years adopted a more aggressive stance in warning marketers about similar formats on social networks and search engines. It's likely it will extend these guidelines to cover sponsored content in the press.

‣ (2) Will Audiences Reject Sponsored Content? - The early consensus in the news media is that if the content is good, then audiences will read it. So far, quality remains an issue for all involved. Some publishers are struggling to keep their editorial rank and file pleased with sponsored content because there is an understandable concern that it may erode confidence in the brand. However, with few other strong monetization options, the press has a lot of reasons to make it work.

‣ (3) Will Google Spoil the Party? - Search engines remain the primary traffic driver to most news websites. Naturally, the publishers bend over backwards to ensure they follow Google's rules. Recently Google warned publishers to institute a code change that reduces the SEO of sponsored posts. If Google, oddly enough like government, feels consumers are being deceived, it will act and publishers may turn away from some of the formats, like paid syndication.

‣ (4) Will it All Be Automated? - It is possible that the whole buying and selling process will be automated in some ways. That is what ad-tech start-ups like Sharethrough, Nativo, Outbrain and OneSpot hope. They are trying to make sponsored content more scalable. Just how much automation in news can work is unknown. It tends to be bespoke.

‣ (5) Will the Press Take Control? - This may be the biggest question of all. Some sponsored content programs will be very successful. Others will, for sure, suffer from low quality. Many large publishers, including Meredith, Rodale, The Atlantic, The Chicago Tribune and even The Onion, already have studios that work directly with advertisers to create content for them. If quality remains an issue, then the press may become a one-stop shop for content and distribution.

Sponsored content raises lots of questions. But there are also some noteworthy trends that are favorable for the PR industry.

Publishers See PR as a Strategic PartnerTime and again news executives have told Edelman that the PR skill set could translate well in navigating the complexities of sponsored content. These include its journalistic sensibility, speed, agility and the bespoke nature of the business. One publisher expressed concern in ensuring the quality of sponsored content is strong enough to align the interests of readers, journalists and advertisers as it is placed near pure editorial content.

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Google issued a warning earlier this year on sponsored content.

Big Ideas Are RequiredNews websites that trade in big ideas like the business press and political sites, are leading the charge into sponsored content.

This trend theoretically aligns with disciplines like corporate reputation, health care PR and public affairs. Further, it plays into the PR industry's expertise in creating rich thought leadership and executive positioning programs.

Consumer magazines and TV news sites too are increasingly adopting sponsored content in a similar way. Therefore, it is possible that the best way forward in the consumer sector is to champion an idea or a social purpose.

Additionally, sports and entertainment remain very viable verticals where brands can test the sponsored content waters.

Digital Natives Set the ToneSponsored content wasn't invented by social networks. However, the sector’s rapid embrace of this business model drove its close cousins - digital-native media outlets like Gawker and AOL - to follow the same road in a big way.

BuzzFeed has been particularly aggressive here in adopting the format as its sole means of monetization. And its approach has been hailed with splashy media coverage. Mashable and Business Insider too have received many accolades for pushing the boundaries of what’s possible here.

This creates a domino effect. It encourages more traditional players to follow in their footsteps, innovate on their own and further validate sponsored content as a viable business model.

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SPONSORED CONTENT: AN ETHICAL FRAMEWORKEdelman believes that sponsored content on major news sites is best grounded in an informational approach that invites public discourse. This is new territory. It requires an ethical framework that reiterates the need for good judgment and common sense. The interests of business and the press must be aligned with those of the public’s.

To respect and improve the public conversation, Edelman will champion the following ideals when guiding the development and execution of sponsored content programs in the U.S. news media. This ethical framework tackles the critical issues of disclosure, quality and process. The firm will create a similar way forward in other key global markets and is inviting clients and the industry to join in and shape this dialogue as well.

Disclosure(1) Edelman will disclose that editorial-style “sponsored content” in the news section on major news sites like The Huffington Post, The Washington Post and Forbes.com is in fact sponsored. This should be accomplished by using a clear and acceptable vocabulary. The firm will strive to work with publishers that are equally dedicated to clearly delineating what content is paid for vs. what's editorial in every channel.

(2) For each piece of sponsored content Edelman produces for news sites, the firm will advocate including the opportunity for the audience to substantively participate in the conversation. This is consistent with the firm’s conviction that clients should actively and meaningfully participate in a connected world to increase trust, deepen relationships, change behaviors and foster and sustain economic success.

Quality(3) Sponsored content programs will be primarily utilized to amplify that which is owned and/or earned media - not to replace it. Paid amplification joins search and visual content in the center of the Edelman Media Cloverleaf model as an accelerator of transmedia storytelling.

(4) Journalism is no longer a publish-once-and-done exercise. In a fluid medium, news stories can now be constantly updated and sometimes expanded to reflect new information. All sponsored content Edelman produces for news sites/apps will seek to follow such conventions.

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Edelman Media Cloverleaf

Process (5) Edelman will maintain a firm non-conditionality policy. It will not engage in quid pro quo discussions that intertwine that which is paid for and that which is earned. These are separate processes and discussions. Further, it continues to maintain a strict policy that it does not engage in so-called pay-for-play schemes where compensation influences earned journalistic content.

(6) The firm will separate its day-to-day earned media work with journalists from the paid work in structuring news media partnerships. The latter will be handled by a separate team of media buyers the firm is hiring in the U.S. Those who actively cultivate day-to-day editorial relationships in an effort to secure third-party earned coverage will not be engaged in paid negotiations with the publishing side of news media companies for sponsored content - and vice versa. This mirrors the so-called church-state divide in the press.

The firm hopes that this initial framework will initiate an ongoing, rich and public dialogue about the ethics of sponsored content and new norms. Further, these will be adapted to reflect any new industry conventions that may emerge.

(Note that these pertain only to the firm’s sponsored dealings with the U.S. press - e.g. journalistic enterprises. Edelman follows industry guidelines to govern other types of paid partnerships.)

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CONCLUSIONUnless the U.S. news media finds a new way to monetize, it appears that sponsored content is here to stay and may become more prominent. Each outlet’s embrace of it is predicated on need. The more intact a publisher’s business model remains, the less likely it will need to find a new one. However, the model is still evolving and there are many unknowns.

For example, the global picture is more nuanced. In future field research Edelman will examine the diverse approaches, opportunities and challenges that exist across other key geographies.

For now, the opportunity in the U.S. for the PR industry to expand its relationship with the press could be significant. The profession’s work with journalists remains the core. The rise of sponsored content as a new advertising format tilts toward PR’s inherent strengths and this creates new opportunities.

That said, the ethical challenges are formidable and must be addressed at the same time. The framework put forward in this document is just the beginning of a potentially long dialogue and process. None of these new opportunities should jeopardize the many decades of trust the profession has earned with journalists.

The PR industry can play a key role in the development of this new advertising format. Experimentation should be encouraged. And just as the social media revolution expanded the profession’s remit, so may sponsored content - but perhaps in a much more profound and accelerated way.

. . .

About the AuthorSteve Rubel is chief content strategist for Edelman, the world's largest public relations firm.

In this role Rubel is responsible for evolving the firm's thinking and strategy around disruptions in the broader media landscape and for piloting innovative client-media partnerships that blend paid, owned and earned strategies. He serves as a strategic advisor to the firm's senior leadership as well as its clients.

Rubel was among the early PR pioneers in social media and today is one of Edelman's most visible industry thought leaders. He has written a monthly column for Advertising Age since 2006. Further, he was one of the first marketers to join the LinkedIn Influencer content network. He is followed by over 80,000 people on Twitter.

He can be reached at steve.rubel@edelman.com.

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