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Digital publishers will need to find resilience through subscription revenues, rather than advertising income, in the coming months as market uncertainty continues with the coronavirus pandemic.

Consulting giant Deloitte’s conclusion came alongside the publication of its latest Digital Publishers Revenue Index report, produced with the Association of Online Publishers.

The survey reported a lower-than-expected quarterly drop in UK digital publishing revenues between April and June this year to £96.6m, down by 14.3% year on year. 

This drop was less steep than anticipated, the report said, because the UK was in lockdown for much of this period, and it was mitigated by a 45% increase in subscription revenue to £34.5m over the period.

However, display advertising, the largest revenue category, was down 25%, while recruitment, sponsorship and online video also suffered declines over the quarter. 

Total digital revenue was also down by 6.4% on a 12-month rolling basis up to the end of June. The decline in display advertising revenue was particularly significant, decreasing by 19% (which equates to £45.4m) in 12 months, while online video, sponsorship, recruitment and other classified were also down. However, subscription revenue grew by 27% to £112.3m over the 12 months.

UK digital publishers revenue (April-June 2020, figures from Deloitte and AOP)

“The industry’s focus during Q2 quite rightly fell on growing readership and subscriptions – the challenge for Q3 and beyond will be to sustain it," Dan Ison, lead partner for telecommunications, media and entertainment at Deloitte, said. He cited further research that 36% of UK consumers read more news online during the pandemic and 42% expect to continue to do so once social-distancing restrictions have lifted. 

Ison added: “Building new ways for consumers to consume and enjoy content will ensure that the subscription spike is not short-lived, but continues to support the industry as it navigates market uncertainty. In time, advertising revenues will build again, but it will be subscription revenues which provide publishers with the resilience they so badly need in the months ahead.”

Consumer titles’ revenue decreased by 7.5% over the year to June 2020, with display advertising revenue declining by 20.4% on a rolling 12-month basis. Subscription revenues were particularly strong among B2C publishers, however, growing 41.9% in 12 months. 

B2B revenues saw a more modest decline of 0.9% over the same period, with display advertising down by 0.4%, while recruitment and miscellaneous revenues fell by 24.5% and 16.1% respectively. Subscriptions increased by 8.1%.

The AOP also surveyed board members between July and September and found that confidence in the digital publishing industry has “rebounded strongly” from the fall earlier in 2020. The report authors suggested that “initial fears about the detrimental impact of Covid-19 on publisher revenues may have been overestimated”. Meanwhile, confidence in members’ companies’ financial prospects rebounded equally strongly, the report added. 

The importance of growing non-advertising revenue was universally recognised, with 100% of members surveyed selecting this strategy as a high priority over the next 12 months, compared with 88% in Q3 2019. 

No member saw advertising revenue growth as a high-priority strategy, compared with 13% in Q3 2019, supporting an industry-wide focus on revenue diversification. Two-thirds (67%) of members identified cost reduction as a high strategic priority, up from 38% in Q2 2019.

Richard Reeves, managing director of the AOP, added: “A drop in digital publisher revenue was unfortunately inevitable in Q2 2020 given the Covid-19 pandemic and the impact of the associated national lockdown. But it is heartening to see the decline was not as steep as the industry initially feared, and that some revenue categories such as subscriptions continue to see strong growth. 

“It is also promising to see publisher confidence rebounding, with all our members surveyed prioritising non-advertising revenue growth in a quest to diversify income streams, and some even considering expanding their businesses through acquisition. With another lockdown now in place, publishers don’t have an easy road ahead but these figures provide reassurance the industry is working together in a positive direction.”

The Q2 2020 DPRI report is based on a survey of 17 UK digital publishers, of which 13 are B2C and four are B2B.