Recently, I did some revenue forecasting for a client who is considering entering the digital news/content space. The product offering is pretty unique, but it will be entering a very saturated market with large, established competitors, traditional competitors like The New York Times and Wall Street Journal, niche publishers like The Information and Vox and behemoths dominating the space like Facebook and Google. While there are paths to profitability, the exercise left me believing that the traditional publisher model is unlikely to survive in our digital-first world. Let me explain why.
There are generally two ways content publishers or aggregators make money: by charging a subscription fee and by selling ads that appear alongside content. This is true for print and digital communities alike, but I’m going to focus solely on digital.
First, let’s look at revenue generated from advertising.
According to Zenith, global online advertising revenue topped out at $204 billion in 2017. They also forecast it to grow over 4 percent in both 2019 and 2020, which sounds great—until you see where most of that money goes. In 2017, 61 percent of global online revenue went to either Google (44 percent) or Facebook (18 percent) based on numbers published by Statista. When you look at how the remaining 39 percent of ad spend is broken up among publishers, you find that most have an average revenue per user (ARPU) of about $1.
Economics like this is what’s driving most publishers to adopt a subscription model for their online content. However, this picture isn’t particularly rosy either.
In a recent post, The New York Times said they have roughly 2.8 million digital-only subscribers as of Q1 2018. Subscriptions now account for 60 percent of the New York Times’ $1.7 billion annual revenue. Despite the NY Times positive outlook, the pool of potential subscribers is pretty small. A Reuters Institute study indicated that in the U.S., only 16 percent of people paid for an online news subscription in 2017—and this is with the “Trump Bump.” The year before, that number was 9 percent.
So, what is a would-be publisher to do? Why not borrow a page from the cable network playbook?
Right now, publishers are both content creators and distributors. It’s been this way since newspaper and magazine publishers got into the business. The model worked well when everyone relied on print media. They could double-dip, taking in revenue from subscription fees as well as from advertising revenue. Unfortunately, the internet broke this model and it’s not going to heal.
By contrast, when cable networks first started appearing on the scene, companies like Comcast, Cox and Time Warner Cable paid the networks a small fee for each subscriber the cable company had in exchange for the right to distribute their content. This model obviously has its challenges, too. Last year saw the highest rate of cord cutting since the trend began in 2010. But the rejection of large cable packages doesn’t mean that content creators are toast. More often, what we are seeing is greater distribution of their sources of revenue. For example, AMC Networks has delivered seven consecutive years of solid growth in this environment.
According to MoffettNathanson, the number of subscribers to the five leading Internet TV service providers doubled between 2016 and 2017. And cable networks get the same subscriber fee regardless of whether it comes from Comcast, Dish, Hulu or Google. The coming years should make this dynamic even more interesting as companies like Disney, Netflix and Amazon double-down on their own OTT offerings. As they compete head-to-head for viewers’ entertainment dollars, there is a clear need for exceptional content.
Major publishers like Conde Nast, The New York Times, Wall Street Journal, BuzzFeed and many others have this quality content in spades.
The publishing industry could (and should) adopt a model similar to the cable one. This would allow publishers to focus on creating great content and leave the distribution to the media companies with the largest audiences—companies like Google, Facebook, Apple and Amazon. These new distributors would, in turn, pay publishers a subscriber fee for the right to distribute their content.
In a scenario like this, a publisher like Conde Nast could focus on creating content across its many categories. They could then create a relationship with Amazon to distribute that content for a reasonable subscriber fee. In this case, a subscriber might be a Prime member. In the case of Google or Facebook, it might be a monthly active user or a verified user. Amazon, Google or Facebook are then free to monetize their base any way they like.
This model is already in place for video content. Think about how much money companies like Amazon, Facebook and Twitter have been paying for the rights to broadcast live sports events. Twitter spent $10 million to secure the rights to broadcast 10 NFL Thursday Night Football games in 2016. They reportedly took in $50 million in revenue and made about $15 million in gross profit. This is a great deal for the NFL, but Twitter could have spent its money locking up exclusive rights to The New York Times, Wall Street Journal or People content online instead. An exclusive deal locking up distribution rights for great content, in a digital/social media-driven news age makes a lot more sense as a means to draw and engage an audience.
I can’t help but wonder how much more Twitter could have made if they had instead converted 10 percent of the 89 million people who visit The New York Times every day into a daily user who views two to three articles on every visit.
The opportunity to evolve the publishing revenue model is here. And with it, we can usher in a new golden age of content for well-written news and lifestyle content.
