Global tech giants Google and Facebook are swallowing an ever-greater part of the Estonian advertising market. Their share of the market grows an estimated 10 percent a year, while the turnovers of local companies stagnate.
Raido Raamat, executive manager of agency Media House, said that it is difficult to gauge digital companies' market share as neither Google nor Facebook publish advertising turnover and market share data for individual countries.
"My gut feeling tells me that volumes have grown at least for Google and Facebook despite the economic crisis," he said.
Raamat said that tech giants' market share grew by an estimated 10 percent year-over-year in 2020.
The pandemic and purchases increasingly moving online have also played a part.
"This clearly means that at least Google's market share is growing," he remarked.
Raamat said that media agencies are not happy with a part of the data remaining hidden. There is also no proper overview of the market share of domestic players.
"The only concrete data we have is what we put together in the Estonian Media Agencies Union. The figures suggest a fall of 14 percent compared to 2019."
CEO of Ekspress Grupp Mari-Liis Rüütsalu said that studies carried out by the Nordics and other countries suggest domestic markets are stagnating.
"Growth moves out of countries and into the hands of global platforms. Domestic turnovers are reshuffled, with print advertising giving way to digital alternatives etc.," she said.
Google and Facebook own a lot of advertising space
Raamat said that tech giants also have a solid grasp on advertising space. "That said, major Estonian portals allow Google to buy advertising on their sites, meaning that it must make financial sense," he admitted.
He pointed out the fact that Google and Facebook advertising prices have started to climb and are catching up to domestic counterparts.
"Rather, their success lies in tech development and creating new opportunities. As soon as a unicorn comes up with a bright idea, it gets acquired by one of the giants. The pattern is the same for everyone," Raamat said.
Rüütsalu puts the volume of advertising revenue flowing out of Estonia at €100 million a year or roughly the same as what the Estonian market generates, foreign companies excluded. Latvia saw €225 million in advertising revenue move out of the country last year.
"Whereas we need to keep in mind that the market is smaller in Latvia than it is in Estonia. Google has grown its turnover more than fivefold and Facebook nearly tenfold in Latvia over the last three years!"
Advertising revenue not likely to return
Head of business weekly Äripäev Igor Rõtov said that media houses should not hold out hope for advertising revenue returning in recent volumes. Rõtov said that while market share remains a secret in Estonia, we know that online giants hold 80 percent of the media advertising market in Germany, with just 20 percent left for media houses.
"I believe the situation is better in Estonia, while it is getting worse. Fighting them is hopeless. The time when media revenue came from advertising is gone and will never return. Companies need to concentrate on subscribers," he said.
Rõtov said that Äripäev has perhaps been faster than other media houses in its switch to the new model, while the only model that facilitates rapid development is one based on digital subscriptions.
He believes the change will happen in the next two or three years. "Talking to publishers in Europe and the United States, that is the prevalent view."
Digital giants could be taxed
CEO of Ekspress Grupp Rüütsalu said that the situation is one of unfair competition as companies with local offices have to pay taxes, while those without one pay none.
"Everyone who is active on the same market should be subject to the same rules," she said. "If the state cannot ensure fair competition by taxing entities currently operating outside of our tax system, it needs to create an equally favorable environment for the locals. For example, exempting local media companies from VAT."
Rõtov said that one could either lay down a digital tax or incentives for the local media.
"Another option is for Google and Facebook to pay for media content next to which they sell advertising," he said.
However, there is no realistic solution for the media landscape changing. "My view is rather pessimistic here. Global media giants are so effective and powerful that a breakthrough is difficult."
Raamat said that an advertising tax for global tech giants is not on the horizon.
"We can see that the government's recent advertising tax policy rather favors international behemoths like Google and Facebook. Some countries have laid down a VAT for them that would at least provide an overview of their turnover here," he said.
The advertising tax debate is political as the country does not want to fall out with major U.S. companies.
"If an attempt is to be made, perhaps this would be the opportune time. While Donald Trump was very keen on protecting U.S. companies, there might be an opening under Biden. It would hardly be unheard-of. Rather, what is peculiar is having companies operating in a different business environment without paying taxes," Raamat said.
Igor Rõtov said that media companies need to revise their revenue base.
"Even if all of it works, advertising will not return in recent volumes," he said.
The CEO said that while advertising made up 80 percent and subscriptions 20 percent of Äripäev's revenue back in 2007, it is just the opposite today.
"Believing that we can somehow restore that revenue by taking some kind of legal methods is an illusion," Rõtov said.
Changing the revenue base of media houses could have a positive effect
As a media executive, Rõtov is optimistic concerning the new business model tech giants are forcing on the media as it changes the way editorial desks operate and sees journalists concentrate on content rather than generating clicks.
Äripäev switched to being published weekly instead of daily when the coronavirus crisis started. Rõtov said that the fact this has not altered subscriber figures even took the company by surprise.
"Our general subscriber count has grown, with four-fifths of subscribers accessing online content first. That will persist for some time. The other effect we managed is being able to cover all our costs based on print and online publications," he said.
Rõtov said that altered subscriber attitudes also play a role.
"We can see the younger generation subscribing to Netflix, playing computer games. It has become a common value offer," he said.
More rules for local companies
Mari-Liis Rüütsalu said that platforms' inability to moderate their content has governments and local media companies scrambling to overturn false information.
"While the European Court of Human Rights has ruled that Delfi is responsible for every single online comment (provided due diligence has not been complied with), platforms are still operating in no man's land," she said.
While platforms are not responsible for content, they have begun to block accounts or moderate content in other words. Rüütsalu gave the example of Twitter blocking former U.S. President Donald Trump's account. At the same time, media companies are held responsible for comments they publish and expected to pay taxes.
"I would suggest the Estonian government first pursues communication through its own channels, local commercial and public law media before taking to social media. If every politician first presents their opinions, positions and decisions on their personal Facebook page, that too sends a message," she added.
Editor: Marcus Turovski