Brand Safety and Belt-Tightening Are Hitting Social Media Ad Revenues

Dan Meier 02 March, 2023 

Twitter has flown into trouble since Elon Musk’s takeover in October, losing up to 80 percent of staff, decimating its content moderation team and reinstating enough banned accounts to fill a dystopian music festival. Brands and advertisers have made their disapproval clear, nearly halving the social media firm’s ad revenues as more than 500 of the company’s top advertisers flocked away from the platform.

UK-based independent agency Total Media is among the buying houses bypassing Twitter, citing brand safety as its primary reason. “Since Elon Musk acquired Twitter, and the subsequent massive layoffs, we have advised our clients to stop advertising on the platform,” says Guillermo Dvorak, Head of Digital at Total Media. “One of our biggest concerns is the escalation of hate speech, bots and fake profiles, which although an issue before, are now more of a worry, as without the proper resources to monitor it, the risk is too high.”

“Brand safety is paramount,” concurs Ed East, Global CEO and co-founder of marketing agency Billion Dollar Boy. “Brands need to be confident that the platform they’re investing ad spend into is as risk-free as possible. Musk upended some of Twitter’s content moderation policies, creating an uncertain environment which is toxic for brands. In the absence of reassurance that branded content won’t appear next to unethical user-generated content, advertisers have understandably left the platform – especially heritage brands with carefully curated reputations who often have the biggest ad budgets.”

But Twitter is not the only social media company seeing stagnating ad revenues, suggesting the downturn goes beyond brand safety concerns. Snap’s revenues were flat and Meta’s down in Q4 2022, both forecasting further decline in Q1 2023. The pair pointed to Apple’s App Tracking Transparency (ATT) changes and broader economic pressures as limiting factors, but agencies also note the cost of advertising on social platforms, driven up by pandemic levels of social media usage.

“One of the biggest issues is the overreach of digital advertisers after the lockdown,” explains Total Media’s Dvorak. “Investors assumed that the growth experienced during the global lockdown was sustainable, which led to an increase in demand for digital advertising. As a result, the price to advertise online went up. However, now demand has decreased the market needs to adapt.”

Social capital

Pricing helps explain why TikTok is bucking the trend and growing its share of ad spend, beating the combined revenues of Twitter and Snapchat in 2022, according to Insider Intelligence. “Under the circumstances it’s no surprise that brands are increasingly price-conscious as inflation bites,” notes Billion Dollar Boy’s East. “It explains why advertising on TikTok has grown significantly – the top 1,000 advertisers in the US increased spend on the platform by 66 percent in Q4 2022. That’s because CPMs on TikTok are almost half the price of Instagram Reels, a third cheaper than Twitter and 62 percent cheaper than Snapchat.”

That said, TikTok is a relative newcomer and could yet hit the same ceiling as its longer-established competitors. “It’s still fairly new to the scene, so higher growth rates are a more natural and expected occurrence,” comments Kaela Green, Vice President, Paid Social at ad tech firm Basis Technologies. TikTok is also facing regulatory scrutiny in the US and EU over security concerns, which could raise its own set of brand safety issues.

In the meantime, TikTok’s short video format and creator payments have quickly been copied by competitors looking to cash in on the short-form craze. But Meta has admitted struggling to monetise its Instagram Reels product, while Blue Wheel Media found that engagement with ads on TikTok was up to 10 times higher than Instagram. YouTube’s new Partner Program is creating more of a buzz however, with agencies reporting growing interest from brands in the revenue-sharing model. “Short-form video content is becoming the best way to capture attention, and you can see that by the growth from TikTok, YouTube shorts and Instagram stories, this should be the focus of Twitter,” remarks Dvorak.

Twitter has attempted to challenge TikTok on price by offering free ad space, proposing to match ad spend up to $250,000, though this scheme has the potential to backfire. “Free advertising could encourage a wider variety of advertisers to Twitter, which might not help the platform to restore trust with the more established brands,” argues East. “It also devalues ad space on Twitter, which will damage their future negotiating stance and profitability.” Other plans to freshen the companies’ revenue streams include charging for access to the platform’s developer API, and ‘Twitter Blue’ subscriptions allowing tweets to have more characters than actually work at the company.

“It feels like it’s uncertainty around the platform’s future combined with layoffs resulting in swirl of support teams that’s impacting advertising decisions the most at this point,” concludes Basis Technologies’ Green. “However, more limited targeting options, ad formats, and lack of confidence around DR results from advertising campaigns are not new struggles, and were impacting advertising prior to Musk’s takeover.”

Ultimately Musk’s leadership is one of several forces pushing Twitter down the pecking order for advertisers already questioning the value of spending on social media. “While the price of advertising may be one factor contributing to the decline in ad spend across social media, it is not the only challenge,” adds Dvorak. “The industry faces a multitude of obstacles, including changes in consumer behaviour, global economic factors, and the demand for innovative advertising solutions. Marketers need to be proactive in addressing these challenges to stay ahead in the game.”

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