The News Industry Could Learn a Thing or Two from Netflix

A bundling service may be the only way to save this industry

Pre-internet, the business model for the news industry was straightforward. Journalists wanted to reach as may readers as possible, and advertisers wanted to reach as many potential customers as possible.

The alignment — reach as many [readers and potential customers] as possible — was obvious, and profitable for the publishers in particular.

— Ben Thompson, Stratechery

However, even though the Internet has given publishers theoretical access to all the millions of eyeballs on the Internet, it has also set their readers loose. Companies like Google and Facebook can give advertisers something even more valuable than a big audience — a specific one.

From 2008 to 2015, newspaper ad revenue declined 61%. Over the same period, the news industry collectively reduced the number of journalists from 68,160 to 41,400. Print ad revenue will likely never recover and no digital revenue stream has yet been able to make up for its loss.

Even publishers born in the digital age, termed “digital natives” have struggled. In late January, hundreds of people lost their jobs in media, many of them from publishers like Buzzfeed, Vice Media, and Huffington Post.

It’s time for news and media organizations to re-think how they create value and how to stem the tide of profit and resources slipping out their door.

Adapting for Survival

Insofar, the two most common changes adopted by publishers to address declining readership and profitability are setting up paywalls and joining aggregator platforms.

Paywalls, Subscriptions and Membership Models

A 2016 survey by the American Press Institute indicates that paywalls have become the norm. Of the 98 US newspapers with circulation above 50,000, 77 use some type of online subscription model. 80% of these paywalls are metered, “soft” paywalls which limit the number of free articles a reader can access before being asked to pay for a subscription.

Adoption of paywalls has led to mixed results. The New York Times was one of the earliest success cases, and now has 2.6 million paying readers, with online subscription sales accounting for 60% of 2017 revenues. The same model has been successfully adopted by the Washington Post and the Wall Street Journal.

Yet, between 1999 and 2015, news publishers took down their paywalls 69 times — 41 times temporarily, and 28 times permanently. Sometimes, it was because important news broke; other times, because readership had declined too much. Operating a paywall is a careful balancing act between profit, readership, and a publisher’s responsibility to make information accessible to the public.

Joining an Aggregator Platform

Digital native publishers have grown by piggybacking on the growth of Internet companies. The Internet has made information cheap, with current events and reporting available from hundreds of different sources. Today, the real value seems to be captured in distribution, a role performed by aggregator platforms.

Around two thirds of Americans now get their news online, wth over half of that coming from social media platforms.

Initially, publishers such as Buzzfeed, that understood the benefits of the Internet before others, greatly benefitted from the exposure of these platforms. Platforms in turn, have also tried to form fruitful partnerships with publishers. Apple News was introduced in 2015, alongside iOS 9. Facebook launched its Instant Articles format also in 2015, to promote faster loading pages. Google followed with a similar product, Accelerated Mobile Pages, in 2016.

However, at the end of the day, the relationship between platforms and publishers is still incredibly imbalanced. Nowhere is this imbalance more obvious than in the revenue sharing breakdown.

The big question with Facebook is most of Facebook’s revenue is in News Feed, and that’s where they’ve not shared revenue.

Jonah Peretti, Buzzfeed Founder and CEO

Similar complaints plague Apple News. According to Slate Magazine, the revenue they make from 50,000 page views on their own site is equivalent to 6 million views on Apple News. Apple News is now trying to sign publishers up to their news subscription service where Apple will take an incredible 50% cut from subscription fees and split the remaining half amongst the publications users read.

So Which Way Forward?

For most publications, paywalls and aggregator platforms are at best, temporary solutions. The long-term sustainability of any initiative should be evaluated by the behaviour they incentivize.

As it stands, the goals of readers, the press, and advertisers have been difficult to align.

“Newspapers are equal parts business enterprises and civic institutions.”

— Penelope Muse Abernathy, The Rise of a New Media Baron and the Emerging Threat of News Deserts

Free press has a responsibility to act in the public interest and hold institutions accountable. In general, good content of any kind should be produced in the interest of its audience. This is at odds with what advertisers want as they increasingly look towards optimizing their ad spend by improving conversion rate metrics or reaching more eyeballs.

In addition, to remain free, press should not become a government funded institution or rely on billionaire bailouts. Nor should the press be at the mercy of an aggregator platform that will ultimately hold all the cards to how readers will see publishers or even whether publishers are included at all.

For readers, our relationship with content has evolved from digesting carefully curated magazines and Sunday papers to virtually free access. This means that our relationship with the press is increasingly with individual articles and not with publishers. That’s why most publications will find it difficult to implement successful paywalls and will likely never achieve the volume necessary to justify the decline in readership.

An Aggregator Product from Within

Services like Netflix and Spotify have paved the way for a solution that can help the news industry reconcile these differences by involving readers directly in financially supporting the press.

Publishers should bundle their offerings together in a product that delivers on how their audience consumes content today, while taking back the distribution control they’ve given up. Imagine a mobile app that gives readers full access to all publications for a fixed monthly price. Or even, give readers the ability to choose a select few subscriptions for a lower monthly price.

This solution would allow news publishers to retain usage data, test to determine what works, and recover the gap in technological capabilities that currently exists between news publishers and big tech. It also dramatically improves the consumer experience by consolidating stories from various publishers in one place and providing opportunities for personalization — a far more representative model of the relationship we have with news today.

The news industry cannot rely on platforms like Facebook, Google or Apple News to play this aggregator role for them. As they’ve demonstrated through partnerships over the past decade, platforms aren’t interested in sharing power or money. In addition, as we’ve seen Netflix do, the logical next step after an aggregator establishes itself, is to re-integrate vertically and own the entire value chain. Netflix ultimately has control over the valuable display real estate. Finally, Netflix owns all the data collected through its platform and Netflix is the one that ultimately gains the best understanding of viewers.

Cliché but true: if the news industry wants to avoid being disrupted, it must take a risk and disrupt itself.

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Curious about people & organizations | Growth, design & tech enthusiast | Coffee (sometimes) snob | Opinions are my own

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