The Internet transformed the way people consume and share news, but that move online also put pressure on journalism and the Publishing industry. And the financial uncertainty faced by individual news organizations ultimately threatens a free and independent press.
Nearly three decades since the major newspapers established their now-famous websites, the critical role that these companies play as democracy’s watchdog is in peril. Investigative journalism helps to keep governments, corporations, and the powerful accountable -- but that’s threatened by the industry’s business models.
In response to the business pressure they’re facing, news organizations have been forced to lay off professional journalists, produce “click-bait” content in lieu of deeply-researched journalism, yield to political pressure through the economic interests of the holding companies, and navigate a cozy relationship between the publisher’s owners and politicians or corporations.
For journalism to remain independent and strong, the industry’s business models must be strong enough to withstand outside pressure, ensure that the best and brightest are hired as journalists, and align the interests of both users and publishers.
What changed when journalism went online
As soon as news began to appear online, companies migrated to a revenue model that depends on online ads. In turn, led to a decline in revenue as a result of falling CPMs (Click Per Mille, or the cost of 1,000 views of the ad), a high dependency on advertising platforms, and a commoditization of publisher brands via social networks and news services.
Because the online advertising model is built on clicks and third-party tracking of users, the publishers started optimizing content for clicks -- creating low-quality, populistic, anger-fueled content that might be good for engagement, but doesn’t help to inform the populace about the issues at-hand. What’s more, this strategy often lowers the investigative quality of the work.
“Digital advertising models require large volumes of pageviews, which can incentivize sensationalism, virality, or “copycat” editorial efforts rather than encourage quality, independent journalism… digital advertising engenders a race-to-the-bottom to produce the lowest-cost, highest-volume content.”-Matt Skibinski, The Lenfest Institute
As budgets shrunk, publishers began firing expensive journalists and replacing them with cheap, unprofessional or syndicated content. The total number of publications declined and holding companies began rolling up many different outlets into large, private equity-owned news conglomerates. These changes further weakened independent journalism and reduced the number of divergent ideas. All of these changes were the result of building on digital advertising as the core monetization model.
Are subscriptions the new panacea?
By the 2000s, business models began to change once again. Led by The New York Times, which successfully launched a digital-only subscription service, many publications followed suit and launched a subscription service combined with a paywall. These paywalls limit the number of free articles a user can access each month, and push them to become subscribers.
The revenue per user from a subscription model was very significant and the number of subscribers became the goal metric, replacing the number of clicks. However, that created new problems ranging from paywall piracy to subscription fatigue.
A Goldilocks dilemma for subscribers
Moving readers to a subscriber-based model introduced new challenges related to which users are best suited to subscribe, and how many subscriptions they’re willing to purchase.
- Who should subscribe? Consumers who view online access to a specific publication as a replacement of a physical newspaper -- reading it cover to cover -- subscription makes sense. These are highly engaged users with one publication and they get the value from a subscription. However, a new consumption model has also emerged in which people read content from links shared on social media, between friends, or from Twitter -- and that doesn’t encourage subscription to one publication since these people read a variety of publications.
- Who is satisfied with the freely available content? Research shows that subscriptions make up 2% to 8% of users who hit the paywall. By contrast, 90% or more of users will never subscribe to the publication as they are only interested in a specific article, and aren’t looking to consume most of their content from that publication.
- Subscription fatigue. Only 20% of Americans subscribe to news sites, with 66% of those subscribing to only one publication. There’s a phenomenon known as “subscription fatigue” for users who are constantly bombarded with subscriptions to everything from shaving blades to clothes to music. Users who want to read content are blocked from reading it by a publisher that hopes a small fraction will subscribe -- and this creates a bad experience for both users and publishers.
- The news market is evolving into a zero-sum game. Publishers are competing for the small fraction of users willing to subscribe out of the total universe of users reading (or trying to read) their content. For example, someone who subscribes to The New York Times will probably not subscribe to The Washington Post. However, that same consumer might read specific WaPo articles for a small price. By blocking access to the content, at any price but subscription, publishers are “leaving money on the table” and creating a bad experience for 90% of their users by focusing on converting the unconvertable (to subscription). The convertible audience of users, ~20% of Americans, are already subscribed so that a new subscriber for one Publisher is a churned or lost user for the other.
- Market concentration. In the U.S., 50% of the subscription news revenue goes to the big three news outlets: The New York Times, The Wall Street Journal and The Washington Post thus the current status quo is good for them. The vast majority of publishers must compete for the other 50% while the top 3 continue to get stronger, financially and technically, faster than the rest - making it harder and harder to compete with them. As the pie does not grow fast, the top 3 will encroach on any area of Publishing where there is a positive margin to be had, and at a very low cost for them since they have such a large, and profitable base. They have entered or will enter, any profitable vertical - local news, financial news, technology news, cooking, health... Wherever there are subscribers to be had, they will go. No independent publisher is safe.
Current model encourages problematic behavior
While a main goal for publishers is getting consumers to subscribe, this type of business model actually encourages other habits that prove problematic.
- Ideological echo chambers. Since a majority of revenue comes from subscriptions, publishers have become uber focused on the reading patterns of the paying cohort of their audiences. This creates “ideological echo chambers” rather than encouraging a wide range of opinions and viewpoints for readers.
- Users are trained to circumvent paywalls. Consumers get creative to circumvent paywalls and ignore paywalls by “cheating” or “stealing” content. This type of behavior happened in the 1990s and early 2000s, when consumers obtained digital video or music files via peer-to-peer networks or Napster-like services. Power users who read a lot of content are very adept at this behavior by Googling the article title to find a free syndicated version, clearing their cookies, using incognito mode or asking a subscriber to send a copy. Publishers have trained users to steal, and that diminishes the value of this content.
- Consumer frustration. Consumers are frustrated with publisher websites and user experiences as they use very aggressive marketing strategies to signup subscribers (from user who do not want it) or monetize their dwindling advertising base. Numerous pop-ups, email capture forms, huge video ads and multiple confusing offers. These tactics are similar to the 1990s-era internet, in which user experience was sacrificed to optimize ads. Consumers won't stay with a service that doesn’t value them and degrades itself.
The status quo isn’t working for anyone
The current model of paywalls and singular focus on subscriptions is problematic for everyone. Consumers don’t get to read what they want, while publishers are faced with declining revenue.
Even for consumers who care about journalism and want to do the right thing (pay), are faced with an impossible choice of either subscribing to everything or not reading the article. These users have expressed their intent to read an article and don’t have any legal, non-subscription way to do so. And regardless of a consumer’s net worth, ideological belief in supporting journalism or interest in the article, no consumer can possibly subscribe to all publications.
Meanwhile, publishers grappling with declines in revenue are forced to focus on a small fraction of readers -- those consumers willing to subscribe -- while ignoring 90% of their user base.
Finally, no one has adequately solved the challenges faced by both consumers and publishers. While Google, Facebook, and Apple have tried different models, their business objectives are fundamentally counter to a publisher's needs.
The tech platforms weaken the independence of the publisher, both economically and as a brand, by locking publishers into the current digital advertising ecosystem and then harvesting users’ data for the benefit of the tech companies. Thus, news content business models need to be expanded from an all-or-nothing proposition to broaden choices that satisfy consumers’ tastes and publishers’ economic needs.
We need a new model (enter Paygo media, stage left)