As if we needed another lesson in the downsides of the media shackling their business models to third-party platforms, Snap Inc.—the company behind the popular Snapchat messaging app—is reportedly changing the terms of how it compensates publishers who use its Discover feature, a kind of newsstand where media companies can post short videos. According to Digiday, those who use the feature will no longer get an up-front licensing fee for their videos, but instead will get a share of advertising revenue generated by them.
“There were a lot of people who didn’t take the licensing deals, and I think some people who didn’t were bummed because the audience and ad revenue growth slowed down,” said a Snapchat Discover publishing exec. “If you were able get a high enough of a license fee based on Snap’s belief that the platform would keep growing, you were able to shield yourself.”
This feels a little like another Facebook-style “bait and switch” tactic, where publishers get hooked on a source of revenue only to have the rug pulled out from under them (as Facebook has done multiple times now, especially with video). But it’s a little more complicated than that. This is actually the second switch that Snap has made on publisher compensation, and it amounts to a 180-degree pivot back to the way things were originally.
When Discover first launched in 2015, the ability to share in advertising revenues was one of the main incentives for publishers to take part, and it was a significant draw in part because Snapchat was seen as a rocket-fueled growth story. Then in 2016, the company told media partners that it was changing tactics, and it would no longer be sharing ad revenue—instead, it would pay up front licensing fees and keep all the ad revenue.
So what are we to learn from this reversal? It seems obvious the licensing fee model didn’t really serve the company’s needs, and that could have something to do with Snap’s current financial situation. The share price has come under pressure of late because of slower-than-expected growth in the app’s user base.
In that context, it’s possible that paying out a share of future revenue looks more financially appealing to Snap than paying an up-front fee that may or may not be recouped. And that’s particularly the case if, as some publishers have said, the performance of Discover has not been stellar. Unfortunately, the new/old model leaves publishers to bear more of that potential burden than they would have under the licensing model (although Snap did say that it is testing e-commerce features, which could soften the blow).
Perhaps the only lesson that media companies could learn from all of this is that gambling on third-party platforms for growth and revenue can be a tricky business, especially when that platform is as young and untested as Snap.