The future of digital news

If you are a new media entrepreneur, please get in touch!

Executive summary

It’s an interesting time for digital news — while Buzzfeed, Vice, and Mashable have gone through massive layoffs and valuation cuts, major publications like the New York Times and Wall Street Journal are enjoying the highest subscription levels in years.

We believe that US national news will consolidate into 4–5 national brands (including NYT, WSJ, Washington Post) that rely primarily on subscription revenues. These brands will accrue the vast majority of subscribers, while other national media organizations will struggle or be forced to shift their focus to smaller niches. In order to grow subscribers, national brands will add various subscription options such as cooking, crossword, health, or even just donation / patronage options.

Local print news will be decimated due to a lack of paying customers; perhaps their only way to survive will be through extremely lightweight models like Patch, where one journalist covers several towns and churns out 5–10 stories a day on click-heavy local news like weather and real estate.

Advertising has declined as a share of revenues for major news publications, but still contributes ¼ to ⅓ of revenues. Video advertising, however, has not led to meaningful revenue growth; the “pivot to video” has not improved outcomes for media companies such as Mic, Buzzfeed, Vice, and Mashable, which all recently went through layoffs and valuation cuts.

While it’s not clear what a sustainable revenue model will be for news in video format, consumers continue to increase the time they spend watching asynchronous shows on Netflix, where shows are not live and hit shows are watched for years into the future. Documentaries on streaming platforms like Netflix can be a revenue source for media companies; unlike news, documentaries do not get stale over time. Vox Media’s “Explainer” series on Netflix is an example of this.

There are a number of companies attempting micropayment models where consumers pay for individual articles, but it will be a tough sell for consumers that are used to the “all-you-can-eat” model of Netflix and Spotify.

News publications with serious subscriber bases should resist the temptation to join news aggregators (outside of their current strategy of providing very limited free articles here and there for lead generation purposes). By joining news aggregators, the publishers no longer control the relationship with the customer, will not have data on the customer, and will have to constantly compete in a “race for clicks” with other publishers, leading to lower quality journalism.

The very reason why subscriber bases have exploded for leading publications is because customers ARE willing to pay for serious journalism. Subscribers pay for the NYT, WSJ and other major brands because they have real newsrooms, break relevant news, follow journalistic standards, and generally report the facts (never mind that their opinion sections can be very low in quality!) In the niche category, Vox has managed to get a foothold by contributing quality political reporting from their newsroom in Washington DC.

If successful publishers like the New York Times and Wall Street Journal do not join aggregators like Apple News, then news aggregators will remain a niche part of the media landscape. I believe that customers already view the NYT and WSJ as the aggregator of news — therefore, among the target demographic I believe most people will pay for one or two of the major publications, and get the rest of their information from free content on the internet.

Many new digital media sites relied on Facebook and Google to build up their audience bases, and got burned when the algorithms changed to prioritize content from family and friends. Mic had raised nearly $60M from top-tier venture capitalists before abruptly laying off most staff and selling for $5M. Venture investors have shied away from media — according to the Washington Post, they closed 27 deals worth about $206 million in 2014 but are on track to close just 19 such deals worth $130 million in 2018.

Despite the upheaval, Vas Ventures remains interested in new media and believe there will be other opportunities on the horizon. We see the opportunity for niche publications like magazines or trade journals like Skift, which run lean and capture highly enthusiastic subscribers. We are sure that there are other innovations that will follow in video, content creation, and commentary.

If you are working on a media startup or have ideas for the future of media, please get in touch! My e-mail is andy@vas.ventures.

Other reading and links

National news media will consolidate into 4–5 major brands

• For general news / breaking news / politics, the largest news media companies (e.g., NYT, WSJ, Washington Post) will do the best job and will see subscriber growth continue to grow
• Already, the top news organizations have 30x — 50x the number of subscribers compared to second tier papers like the LA times (e.g., NYT has 4.3M subscribers, while LA Times has 105,000 subscribers)

News publications are now primarily reliant on subscriptions for revenues

• Successful publishers are most focused on growing paying subscriptions. For top news media companies, subscriptions drive the majority of revenues (e.g., approximately ⅔ of NYT revenue is from subscriptions)
• NYTimes is now experiencing the fastest growth in “supplementary subscriptions” — their cooking subscription and their crossword subscription. For example, in Q3 2018, there were 143,000 new subscribers in digital news, and 60,000 new subscribers in cooking / crossword

Membership models have also worked for certain publishers

• Slate launched Slate Plus, which grew to 16,000 members 2 years after launch (most pay $50 / year for access to bonus and early content, extra podcast content, reduced ads, etc.). In 2016, they projected that Slate Plus will eventually account for 10–15% of revenue, but 40–50% of gross margin
• The Guardian has a subscription program, but also has leaned heavily in asking for voluntary contributions (in the spirit of funding journalism), and in recruiting patrons (£1,200, £2,500 and £5,000 per year). 230,000 of the 300,000 US supporters are one-off contributors

Advertising plays a diminishing financial role for major publications

• For large publishers, advertising is still a meaningful (though diminishing) role in revenues. Advertising accounts ¼ to ⅓ of NYT revenues, but has fallen as a share of total revenues over the last few years. About half of advertising is digital and half is print; however in 2017, digital advertising grew by 14% and print advertising fell by 14%.
• In media and particularly for smaller publications, the vast majority of advertising revenues accrue to Facebook and Google. According to Slate’s Will Oremus: “Online advertising is looking more and more like a contest that publishers can’t win — not on a large scale, at least. Advertising can help to cover some of their costs, but online ads alone won’t pay for big, serious, high-quality journalistic enterprises the way that print ads once did. Facebook and Google have usurped individual media outlets as the places where most people find content online. So advertisers increasingly go straight to those platforms, cutting publishers out of the loop.”

Many publishers saw video as a “silver bullet,” but it has so far not improved revenue prospects

• Vice and Mashable reached lofty valuations through a “pivot to video” — the initial hope is that video ads would yield better margins than display ads. However as Nieman Lab states, the news industry “has only the scars from a thousand pivots-to-video (and a thousand failed video strategies more broadly) to show for its efforts so far.”
• As examples, Mic abruptly laid off most staff and sold for $5M, despite a $100M valuation just one year earlier. Mashable sold for $50M (far below their prior $250M valuation). Vice and Buzzfeed both missed their 2018 revenue targets by a large margin. Overall, 2,200 media jobs were eliminated in 2019

While it isn’t exactly news, short form documentary has shown some promise for media companies

• Vox has launched a show on Netflix called “Explained,” which has seen some success
• However, the topics addressed on “Explained” are not exactly news (e.g., “Monogamy, Explained”) — it’s more like documentary. Unlike news, it doesn’t get stale — it can be watched on Netflix for years and still be relevant
• According to Netflix’s head of content Ted Sarandos: “Our move into news has been misreported over and over again. We’re not looking to expand into news beyond the work that we’re doing in short-form and long-form feature documentary.”

Micropayments will be challenging

• Blendle is the most prominent example of a micropayments platform, and is backed by the New York Times
• Blendle has worked well in its home market of Holland, because there is a very limited number of quality sources of journalism in Dutch, and nearly all are behind a paywall
• In the United States, there are many more sources of free content; I believe that having to pay for each story you read FEELS very different from the “all-you-can-eat” model we are accustomed to from Netflix or Spotify

Local print news is in trouble; to survive, they must focus on reporting highly local news using very lean operations

• Patch is one potential solution option for local news; they generate $20M in annual revenue without a paywall.
• Their strategy is to use 1 journalist to cover several towns (instead of a full team of reporters and editors in one town). Each journalist generates 5–10 stories a day — super high output. A lot of the stories are the local happenings (e.g., real estate, weather) that “won’t win Pulitzers, but are gobbled up by readers.”

Apple News is attempting to create a paid news aggregator

• Flipboard is a free news aggregation app, launched in 2010, that has 145 million users. However, their revenue model relies on revenue-sharing deals on ads with publisher — and ads are a declining share of publisher revenues
• Apple News has 85 million monthly users, and is installed as a default on iOS devices. They have been generating buzz for months that they will launch a paid subscription product on March 25.

However, Apple News will struggle if it cannot persuade major publications to join — and they should not join

• Aggregators are bad for papers that have strong subscribership, because it will cannibalize their readership.
• From Stratechery: “Publishers do not form a direct connection with users; that connection is with the aggregator. Publishers get no meaningful data (including no email addresses); there is no means to increase engagement or monetization down the road. And Publishers must compete with every other publisher for attention”

Customers already view major publishers as reliable aggregators of news

• Brands that consumers trust ARE the news aggregators
• People subscribe to NYT and WSJ because they employ professional journalists, have journalistic standards, and their newsrooms more or less report the facts (whether you love or hate their opinion sections)
• I believe that most readers will subscribe to one or two publications for news, and otherwise rely on free content