Amazon just provided a nice little reminder of why it’s risky to build a journalism business on affiliate fees » Nieman Journalism Lab

Amazon just provided a nice little reminder of why it’s risky to build a journalism business on affiliate fees » Nieman Journalism Lab
Written by publishing team

When digital advertising rates decline and e-commerce increases, affiliate revenue appears to be a very attractive business model, one that many news outlets are looking to grow. Last fall, when The New York Times bought product review sites The Wirecutter and The Sweethome for $30 million, Times Executive Editor Dean Baquet noted in a memo to staff that while The Times has already engaged in affiliate links “in areas such as our theater and movie reviews restaurants, and bestseller lists, “The acquisition of Wirecutter “represents a strong step toward adopting more of this approach.”

One downside to the model, though, is that—while publishers already fear they’re giving big tech companies like Facebook and Google too much power over their revenue strategy—it’s, well, heavily dependent on the whims of big tech and it’s Amazon. (While many companies besides Amazon have affiliate revenue programs, Amazon is by far the largest and most well known.) And — you know very well if you’ve watched Amazon and book publishers compete for contracts over the past few years — depending on Amazon. It can be risky.

Amazon announced last week that it is making its affiliate revenue program less generous in some categories (though more generous in others). However, the biggest difference is that it eliminates volume pricing benefits from March 1. Marketing affiliate Skimlinks, which works with publishers such as Vox, New York Magazine and The Wirecutter, succinctly explained the changes:

Instead of earning based on the volume of products you sell, you’ll now earn a flat rate across individual product ranges, which means you’ll get the same commission on every sale whether you sell five or 500.

Before, if you sold 50 bread mixers that cost $100 each, you would earn a 6.5% commission, or $325. Under the new system, where you earn 4.5% commission on every sale, you only earn $225.

The biggest sites that make money from affiliate revenue — including, probably, The Wirecutter — have contracts with Amazon that list dedicated affiliate revenue rates, and it’s unclear how these are affected. “We will not comment on the details of these new affiliate rules,” a New York Times spokesperson told me. “But we remain confident in Wirecutter’s business and Amazon remains an important partner for us.”

The former Gawker Media sites in Univision’s Gizmodo Media Group have long been a major player in affiliate revenue. A Gizmodo Media Group spokesperson told me, “We have a great relationship with Amazon that benefits both businesses and our readers – this change does not apply to our business partnership.” Amazon did not respond to a request for comment for this story.

These sites may be protected from strikes at this time; Smaller sites – including, to be fair, a slew of spam marketing sites created solely for the purpose of making money from Amazon’s revenue program – are the ones who will feel it. But contracts come for renewal. And as booksellers and book publishers have learned, it has proven difficult to get consumers to change their shopping habits away from Amazon. As one commenter wrote in a Hacker News post discussing the changes:

Affiliate links have less and less impact on persuading people to buy from Amazon, because Amazon has become the number one place where people buy things anyway. If I read about something on Wirecutter and decide to buy it, I will buy it from Amazon whether or not they have a link to Amazon. Amazon knows this, and when they start to dominate online sales in a particular category, they can afford to let go of their affiliate commissions knowing full well that it won’t really affect their sales.

The changes also raise interesting questions about how, if affiliate revenue and “service” content become a larger and larger part of news companies’ business models, affiliate revenue programs like Amazon can pit companies against each other. One Hacker News commentator asked, “Did Bezos do this to hurt the New York Times and thus help the Washington Post?” Maybe not this time around, but that could certainly be an issue in the future if Post moves to more affiliate revenue – and why not?

Changes in affiliate revenue programs may also change product coverage in news organizations. With the changes, for example, Amazon is paying a higher price on luxury beauty products (10 percent, when it was previously between 4 and 8.5 percent). As affiliate revenue becomes a more important source of income, news organizations can make decisions about what to cover or review based on what pays the highest affiliate fees. This isn’t much different than launching new divisions or segments to attract premium advertisers – it’s just an interesting wrinkle to consider.

Image by Noelas used under a Creative Commons license.

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