A Plan to Shift Profits Back to Publishers
Part 1, Publishing Content vs. Delivering it, argued that delivering content to an audience (not including “side door” visits), is the requirement for a publishing business to be sustained by ads. It’s a real page turner (aka 3 minute read) — you should check it out first.
The Internet has separated publishing from delivering, creating a business model crisis for the news industry. Change is necessary. Change happens by putting professional publishers back in the role of delivering their own content, by becoming a trusted source for their audience, making article discovery a given, thereby releasing Google and Facebook’s power over the industry. [Part 1 helps unpack that]
Our plan to make that happen:
- Get people paying for written content again…
- by taking advantage of the consumer attractiveness of a bundle…
- while avoiding the downsides a middleman would bring.
Why getting people to pay is important
Skin in the game. In my prior gig as CEO of Ticketleap, we found that only 52% of people who register for a free event will show up. Charging $10 increases it to 86%. This data supports an already intuitive point: if you pay for something, you’re more likely to use it. If someone pays for a trusted source, they’re likely to seek content from that source, in one way or another, on a consistent basis.
An actually important revenue stream. It sounds circular: charge money → to deliver content → to show ads → to not have to charge money. But it’s not one or the other, the point is that they feed off of one another, and that’s a good thing. It’s not likely that one revenue stream will dominate like ads did in the newspaper era. Today, subscription dollars are not just subsidizing circulation and generating skin in the game, they’re likely to be a big (if not the biggest) stream of revenue for written publications, along with several others, including ads. Although there will be plenty of cases of publications funded entirely by subscriptions and others entirely by ads, I don’t think we should be so blunt to pick one model and declare that the lone answer for the industry. The New York Times agrees.
Five asides are worth noting here:1. Ads-only can work. Skin in the game isn’t required for a publisher to build an audience. Some publications thrive today by serving tasteful and effective ads to an attractive-to-advertisers direct audience (favorite examples: Daring Fireball and Industry Dive). But it turns out that publications that can pull this off are few and far between, and, more high quality publications should exist than currently do. Skin in the game is a new dynamic that helps tip the scales.2. Subscription-only can work. Even if a publication has an audience and can charge ads, it doesn't mean they should (favorite examples: Stratechery, The Information). A publication will decide whether or not to show ads based on the nature of their audience, their brand, and their willingness to tolerate programmaic ads or spend time selling them.3. Free content will still persist. Writing is the most accessible form of content creation. It's easy to do, free to host and distribute, and allows its author to develop an audience. For that reason, it will continue to be done to bring attention to something else (a personal brand, a company brand) and therefore given away for free (like this piece!). I believe this phenomenon does not render all content commoditized and believe there is a place for premium content, produced professionally.4. Exception to the "delivery" rule? Let’s say you agree that delivering content is necessary to be able to serve tasteful, effective ads. You might think, isn’t it possible to charge a direct subscription fee, bypassing ads altogether, without having to deliver my own content? Couldn’t the web (Google, Twitter, Reddit, newsletters, etc.) continue to curate articles for my readers, and, they’ll just run into my paywall enough times to want to subscribe? My answer is: I don’t know, but I think yes, to the extent the third party curation tools can be relied on to consistently and effectively match content to reader. I don't think that will be the norm for most publications.5. Third party curation remains important. Third party curation, (e.g. aggregators like Google and Facebook, apps like Google News and Apple News, to communities like Reddit and Hacker News, and individual curators via Twitter or email) will remain important. First, there will always be plenty of freely available content to sift through, where deciphering signal from noise is especially necessary. Second, even paid publications I think will find themselves producing content in up to 3 buckets: straight news (which will typically be free and distributed through curators, as a brand builder), free pieces that go beyond the news and offer real insight and analysis (also as content marketing), and finally, paid premium content. We still need curators around for everything except that last piece. Their job isn't going anywhere.
In summary, direct subscription dollars are important because they represent meaningful revenue, and, they put a publication back in the postion of delivering its own content, making it possible for them to also make money via tasteful ads, if they so choose.
Why consumers aren’t paying now
It’s not easy to get people to pay. Three primary issues.
1: People don’t like managing subscriptions, so the thought of managing one for each source of content is a big turn-off.
2: Paying for more than one source gets expensive quickly. Demand curves for individual publications are steep, resulting in a high revenue maximizing price. Since they’re public, The New York Times serves as a good example:
3: When people subscribe to paid content in a certain medium, they want variety and completeness. This, to me, is the least obvious but the most important. It’s the case partially for the 2 reasons above, but beyond that, from a cognitive load standpoint, they’re willing to pay to subscribe if it’s a one-stop-shop for what they’re looking for. Otherwise, there’s too much thought required to organize and add it all up, so the sale doesn’t get made, and the status quo is maintained. Micropayments takes this negative to the extreme. People are willing to pay for content if it results in fewer decisions, not more. Laziness is not to be under estimated; convenience sells.
Packaged to sell, and packaged for profits
From a consumer perspective, a bundle (the right bundle) is the obvious antidote to these downsides. One subscription, for a reasonable price, with access to premium content from a reasonable number of trusted sources of their choosing. It’s working in video, it’s working in music. The details will be (must be) different, but I believe it will work with written content too. Medium Founder & CEO Ev Williams makes this point beautifully — it’s definitely worth reading his take as well.
Do the economics work for publishers? Yes, but, the business of being “a channel” within a bundle has different strategies and paths to revenue goals than the business of being the whole bundle, so it takes some explanation. The key lies in the magic (ok, math) of bundle economics, which allows publishers to capture revenue outside of their own demand curve — something they cannot do on their own. This works because the bundle itself has a much flatter demand curve than an individual publication, and publishers within the bundle simply get their horizontal slice of that revenue. It’s lowering the price and going for volume, but crucially, it’s doing so with the help of others which sets a relatively high floor on revenue per customer. Chris Dixon wrote a great piece explaining this further, entitled How bundling benefits sellers and buyers.
Take The New York Times, which earns about $30 million per month in digital news subscription revenue as of Q1 2018 (Source). It’s hard to know exactly what their revenue would be if they dropped the price and went for volume, but let’s assume our estimated curve is in the right ballpark. It shows that 20 million people would subscribe if the price were $0.72 per month. While that’s a significant increase over their 2.3 million existing subscribers, it’d cut revenue in half. There just isn’t enough space under an individual publication’s demand curve to set a low price.
The bundle’s flatter curve breaks the publisher free from their own steep one. Let’s assume that 30 million people are willing to pay up to $15 per month for a bundle of 9 publications of their choosing, and that transaction fees are $2.40. That scenario would earn publishers $1.40 for each subscriber who chooses them within the bundle.
Continuing the scenario from above, if 2/3rds put The New York Times in their mix of 9 publications, that brings them $28 million per month after transaction fees. That’s around the break even point at which they’d be better off selling their “Digital All Access” product within the bundle vs. direct.
Although this scenario has 2 big unsubstantiated assumptions (30 million bundle subscribers and 2/3rds choosing NYT), it’s at least illustrative of the math in a feasible bundle scenario, and, it retains 2 upsides:
- It’s possible the 30 million assumption is way too low in the long run. Netflix has 125 million subscribers and counting, Spotify+Apple Music have 115 million, Cable TV has 100 million, and peak newspaper circulation was 63 million, or, 85 million using today’s population numbers.
- Although we haven’t yet talked specifically about what we’re building, it’s worth noting that consumers do not have to subscribe to the maximum of 9 publications. Therefore, the average split is likely to be higher than $1.40.
An important aside, if applicable, to utilize tiered pricing to mitigate cannibalization risk of direct (full price) subscribers:Given that the revenue maximizing price for individual publications is high, only consumers that are uniquely into that publication are currently subscribed. The better strategy for publications in this position might be to combine bundle economics with tiered pricing. That is, continue to sell the highest level of access to the most loyal base, while also providing a lower but still valuable level of access as part of the bundle, aimed at a different (likely younger, less news-obsessed) demographic.
A bad spot to trust a middleman
The math is enticing, but there’s a giant caveat with the notion that a bundle would be better for publishers. It would cede a lot of control to the company that puts it together. That aggregator would control the customer relationships and, once the bundle became popular, it would likely have too much leverage which would leave publishers squeezed on profits once again. Predicting the degree to which this will happen is to predict how important an individual publisher will be to the bundle. If the bundle needs specific publications to maintain its value, a healthy economic relationship can exist, however, if no single publisher is that important to the aggregator, publishers have become commoditized with respect to the bundle and a disproportionate share of the profits will flow to the aggregator. Due to the sheer volume of written publications, and because we’ve already seen this play out at the article level (being aggregated by Google and Facebook), this would be a likely outcome and one worth actively avoiding.
The way to avoid a company playing the middleman role is to have a protocol play it instead. I wrote about this in a separate piece: When Protocols Replace Companies, specifically touching on written content:
That leaves 3 key jobs for the written content bundle middleman:
1. Economic coordination (routing subscriber payments to publishers)
2. State management (tracking who has access to which publications)
3. Ongoing governance (evolving the rules of the network over time)
Read that piece for more detail, but, good news on the middleman front: The tools to build protocols which are capable of all three of those jobs were recently invented.
A changed relationship with Google and Facebook
Once on the other side of this shift, professional publishers can enjoy a much healthier relationship with Google and Facebook — one which many have already begun to transition to. The healthier relationship views those services as platforms to distribute and grow their brand and their audience (as content marketing channels, effectively), rather than engaging with them as the kiss-the-ring aggregator of their commoditized content and the allocator of page views and profit scraps.
I feel like it might be rare to geek out on this, but, if you're so inclined: Ben Thompson (who coined the phrase aggregator) and James Allworth have had some thought provoking conversations recently about the differences between a platform and an aggregator via Exponent, their podcast. It centers around episode 153, but spills into the surrounding episodes as well.My own mini-take: I like the key distinctions they settled on. They didn't say otherwise, but, I'd add that a service can be a platform for some and an aggregator to others. The binary label they get is determined by what they are most often, perhaps as an average weighted by impact.
Putting this all together in OpenBundle
Part 1’s diagnosis of the problem, and the solution proposed here, are in the context of the work we’re doing at OpenBundle. We’re building a protocol and two thin clients to help bring to life the written content bundle consumers want, and are currently forming our launch cohort of publishers.
This is the first time we’re talking about OpenBundle publicly, so, to avoid burying that lede at the bottom of a 10 minute read, I’ve made a separate piece. The third and final to the series: Introducing OpenBundle.
Want to help?
If you’re into this vision, there are 2 things you can do to help:
- The “keeping me up at night” thing right now is getting enough publishers to participate at launch so that an attractive bundle is formed. If you run (or know someone who runs) a publication which has a paywall or is considering one, please contact me directly at tim@openbundle.io or reach at openbundle.io/publishers.
- If you’re a potential future subscriber, we’d love to hear from you too. Join the waitlist here openbundle.io/join and drop us a note.
Head on over to Part 3 to complete your journey.
