News App SmartNews Eschews Subscriptions For Good Old Advertising

“The Sell Sider” is a column written for the sell side of the digital media community. Sponsor Message [Alternatives To User-Level Targeting In Programmatic]( [The New York Times at PROGRAMMATIC I/O New York]( [( [AdExchanger | The Sell Sider] "[The Sell Sider](” is a column written by the sell side of the digital media community. After this exclusive first look for subscribers, the story by AdExchanger’s Allison Schiff will be published in full on [AdExchanger.com](on Wednesday. When Japan-based SmartNews raised its most recent funding round – $28 million in August – the company’s valuation hit $1.1 billion. It’s an eye-popping appraisal for a news discovery app. There aren’t many ad-supported unicorns galloping around the digital news biz these days. SmartNews has raised just over $116 million since 2013. The app, founded in Tokyo in 2012, has around 20 million monthly active users in the United States and Japan, and it aggregates news content from more than 400 publishers in its network, including The Associated Press, Bleacher Report, HuffPost, Los Angeles Times, NBC News, Reuters, USA Today and Vox. The secret to SmartNews’ success isn’t a secret, though, said Fabien Nicolas, the app’s VP of US marketing. Make quality information free and accessible and people will thank you with their attention. Subscriptions are exclusionary by nature, he said, which is why SmartNews monetizes with ads, rather than go the Apple News route. Only somewhere between 10-15% of the US population pays for news, and in Europe it’s even less, according to internal SmartNews numbers. “We feel good about providing quality information to the remaining 90% of people,” Nicolas said. AdExchanger spoke with Nicolas and Shuntaro “Paul” Maeda, VP of ad product at SmartNews. AdExchanger: News publishing is a rough business and getting rougher. Why is SmartNews seeing success while others struggle? FABIEN NICOLAS: There’s been a decline, or at least a stagnation, in CPMs on the web and on TV, which poses a challenge for many publishers. The top priority we have with our publisher partners is to help them grow their mobile readership. They might not have the resources to grow their native audience beyond their core, most loyal readers. We send referral traffic their way and play a role in introducing their brands to new audiences. Is advertising your primary mode of monetization? SHUNTARO MAEDA: We have our own platform, SmartNews Ads, which is one of the largest ad platforms in Japan. We don’t just send traffic to publishers, we also share revenue with them. But it’s quite different in Japan versus the United States. The Japan market is very agency-focused – Dentsu and Hakuhodo bring most of the demand – and the platforms are far less dominant than in the United States. Foreign advertisers can’t reach audiences in Japan just by using Google and Facebook. We also find that advertisers like us because we only run ads in the SmartNews app itself – placements we can control – rather than in other apps through an audience network. We provide all of the core targeting options, like age, gender and interests, and custom audiences, too. What about programmatic? MAEDA: Our partners can buy ads with us programmatically, and we’ve built our own machine learning technology to understand our users and their behavior better, but these ads are only running in our app. Some advertisers are tetchy about advertising against news because of brand safety concerns. How do you combat that mindset? NICOLAS: That’s a less polarizing issue in the Japan market where advertisers are more concerned about ad fraud than brand safety. But we do get questions in the United States from partners and potential partners that want to bid on our inventory. What I say is this: Unlike social platforms or YouTube, which have a lot of user-generated content that might be unsafe, we only integrate with trusted partners, and there’s a manual curation process with an editorial team to make sure that the content is quality and there’s no plagiarism. We only work with trusted sources of news. It’s not a 100% guarantee, but it’s as high as we think it can be. How do you decide what content to surface? NICOLAS: People often think we surface content based on how viral it is, but that’s just one signal we look at. We also care about the number of people looking at an article, the average amount of time they spend with us, whether they scroll down and finish reading – quality signals. Looking at quality is the way to go. We’re not interested in surfacing clickbaity articles. How are you planning to grow your US footprint? NICOLAS: We’re focusing on people – and there are still a lot of them – who consume their news on the web, mobile web or on TV. There’s an older audience of people, mostly 60-plus, who get the majority of their news on local television. There’s a huge opportunity to help them transition to a local news offering they can consume on their smartphone. What are some of your growth strategies in Japan, where you have the most penetration? NICOLAS: Last year, we did research in Japan to try and figure out if our users had any pain points. We found that our users were true news junkies and really engaged, but they were also skewing male, over 40, and many were based in Tokyo. We decided that we needed to win with a younger, female audience, 18 to 39, and outside of the major city. We realized that these users aren’t necessarily wealthy, that they often grab lunch outside of their office, and that they’re probably already reading the news during their lunch break. We developed a lunch coupon offering in partnership with big brands, like McDonald’s, KFC and a national chain in Japan. That helped us double our user base in Japan in less than 12 months, and the lunch coupon idea has been copied by some of our competitors. What ad products are you working on? NICOLAS: A big thing we’re working on is allowing advertisers to bid based on the lifetime value (LTV) of our users, to pass LTV-related information about our users to advertisers on the performance side. A user who’s likely to spend $500 on a food delivery app is worth a lot more to an advertiser than someone who’s likely to spend $50. That’s the sort of data that helps with acquisition and with reengagement. This interview has been condensed and edited. 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