Sterling Falls: Good News for Publishers, Bad News for Advertisers

God save the Queen
Creative Commons License photo: BraNewbs

As a webmaster and publisher, what exactly does the credit crunch and the dramatic falls in the value of the pound mean for you? (This article is primarily targeted at a UK audience).

I feel that this is a seldom discussed issue as very few publishers are fully aware of exchange rates and the impact on their ability to make money. In this article, I will discuss the consequences for British publishers of the dramatic falls of the value of the pound and the possible business opportunities here.

What’s happened?

I’m sure we’re all sick about hearing about the credit crunch… the global financial crisis. I’ve found myself avoiding the news because quite frankly I’ve had enough of hearing about our financial woes. As the chancellor of the UK has just admitted, it looks like the UK will be entering a recession. Economists say a country is in recession if its total economic output (a proxy for quality of life) falls for two successive quarters. Because of the bad news about the UK economy, investors have been rapidly moving money out of the Sterling. This has caused the value of Sterling to plunge. According to Google Finance, Sterling was sitting very close to 2 dollars to 1 pound a couple of months ago. It today plunged as low as 1.53 dollars to 1 pound. And analysts are predicting a further drop down towards 1.4 dollars per pound.

What does that mean?

facing the ocean
Creative Commons License photo: numberstumper

The weaker pound is good news for exporters, and bad news for importers. Web advertising is somewhat unique in that almost all advertising networks trade in dollars. So publishers export advertising to the rest of the world (they sell advertising in dollars) whilst advertisers import it from the rest of the world (they buy advertising in dollars).  Let me clarify:

A website publisher earning $10,000 per month would have recieved about £5,000 per month. If the value of the Sterling falls to 1.4 dollars, that income increases to £7,140 per month. That equates to £25,000 of extra income every year.

However, it’s bad news for advertisers. An advertiser spending $10,000 per month would have to shell out £7,140 per month instead of £5,000 – a price increase of almost 50%.

As the audience of this blog tends to include a large number of web developers, especially from the UK, this is good news for you. In fact, if you haven’t thought about monetising your blog or website, it’s well worth doing now.

It’s not necessarily good news though…

Creative Commons License photo: pfala (injured)

The more eagle eyed readers will have noticed something. As it’s costing more for British advertisers to place adverts, they’ll place less of them and be willing to pay less money to advertise. So even if the exchange rate of the pound falls, the actual amount of income recieved might not actually go up as much as expected. Right? Kind of.

If your website caters for British audiences then it is likely the vast majority of your advertisers will be British companies. If you’re selling advertising to a British company, you’re not really exporting anything – only selling it to a domestic company, but using dollars.

If you cater for international audiences and companies, you’ll be a winner.

But what else about the financial crisis?

Well, regardless of exchange rates, companies are a lot less likely to advertise right now. Given we’re entering a recession, money is tight. Companies cannot be confident about how much money they really have available and whether consumers will respond to their advertising. Like for everybody else, the financial crisis is bad news for exporters too.

Whether the fall of Sterling is a long-term correction or just a short-term blip, I can’t say. But what’s important for us to all realise is that the game has totally changed. We need to rethink the way we all spend our money. But in the very short term, I believe there is a big opportunity in the market for British publishers.

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