How to “invent” a newspaper in 2018

The Skimm, a service that delivers daily news summaries and explainers via its email newsletter and app, recently raised a $12M round and promptly got tongues wagging.

Honestly, it’s great to see The Skimm, a news startup(hurrah!) helmed by two women(double hurrah!) who understand growth and their audience find success. It’s also true that The Skimm seemingly recycles other publications’ content and delivers accessible summaries every day to millions of readers. A newspaper, the Skimm invented a newspaper.

Pretty much every major newspaper has email newsletters of their own. I can say with some certainty that they are fairly successful in drawing readers to their stories. The New York Times, arguably one of the more successful digital news brands has 50 (free) newsletters under its umbrella and these went out to 13M subscribers (circa 2017). The Skimm’s newsletter goes out to 6M free subscribers. I’m not sure which stat comes out looking more impressive. A 6-year old startup has amassed nearly half the readership of the email product created by one of the most influential newspapers of the world.

Seen differently, the Times’ daily newsletters could be a very valuable business of its own.

The old-fashioned print-fan in me finds it both awe-inspiring and head-clutching-ly frustrating to see young tech companies seemingly reinvent old wine while media companies gasp for breath. Millions subscribed to print publications for decades before the industry began to plummet and lose its most loyal readers. And in the last five years, we’ve seen consumer brands borrow a business model perfected by news companies a century ago to build popular subscription businesses (Netflix, Dollar Shave Club, Stitch Fix, Blue Apron et al).

The Skimm (or a comparable media startup) raises funding on the promise of future growth. Its founders say they don’t see their company as a newsletter business instead referring to themselves as an “audience business” implying the company could leverage its growing engagement and consumer love to open up new revenue channels.

If this is true of the Skimm, it is also true also of legacy publishing businesses. Media(content) companies, however, are considered un-fundable, a dying breed and direct-to-consumer subscription businesses were/are catnip to investors.

I constantly think about this — if newspapers were to be reinvented in the present day, what business model would they adopt to run sustainable, profitable businesses? Should any self-respecting business give its work out for free?

This isn’t an attempt to “invent” paywalls — that palpitation-inducing kryptonite of the media-verse. Many newspapers grandly installed paywalls around their content a decade ago only to quickly abandon them. In 2005, the Times’ Select offered access to columns and op-eds for ~$50 a month and took it down two years later. Around the same time Johnston Press, a regional UK publisher used their online sites as a way to drive offline purchases and eventually failed . Many paywalls quickly came down as readers resisted paying for online content after being spoiled with free content in the exploding content cesspools of the internet.

Driving subscription was hard; temptingly, page views were global and advertising revenues were growing, and ‘readers won’t pay for content’ was universally accepted wisdom. So it was that the decades-long practice of having a print subscription faded as publications went online in the early and mid-90s and news became free.

Circa 2018, there is much to love about subscription businesses. They are relatively stable, predictable and sticky. The business model that newspapers perfected and unceremoniously abandoned sells everything from razors and birth control to high fashion. Almost all great subscription businesses do these four things well:

1. Habit-building: Subscriptions build habits, are sticky, and are likely long-term relationships that are hard to move away from.
2. Captive audience: the strongest services/businesses build exclusive relationships with their customers. ie., majority of those with a monthly subscription with say Blue Apron are unlikely to sign up for a second meal prep service subscription.
3. Targeting — Over time, subscription businesses know more about each customer so as to better service them, reducing potential of returns/increasing customer happiness with product.
4. Upselling: Knowing a customer’s preferences means companies can increase average revenue per customer, reduce costs and increase margins.

So successful is the format that companies have convinced people they need monthly supplies of a nearly everything we consume.

Quick illustration — the same number of people pay for personal styling each month as for the digital New York Times (which says a lot about our times). Stitch Fix[1], which went public last year delivers ‘fixes’ or a selection of clothing chosen by personal stylists to millions of subscribers each month.

Per their latest earnings, Stitch Fix has 2.4M subscribers, and $296M in quarterly revenue (avg $41 per customer per month) achieving all this in just 6 years. The New York Times has 2.6M digital subscribers paying $12.3 per subscriber per month on average bringing in $96M in quarterly revenue and ~$3.9B in market cap.

StitchFix ostensibly took a page out of the book of a little known media(ish) company called Netflix, perhaps the greatest offline to digital crossover of them all.

Media experts have a million theories on the news business’ death spiral. I will put my money on one specific factor. Well-run businesses don’t devalue their own products. Period. This is exactly what news companies did when they decided to give away their work-product for free.

Granted, newspapers were going online at a time when paying for services/products online was pretty radical.

Or was it? The Financial Times was never free for its online readers[2]. The FT hit their highest historical figures last year and has 900,000 subscribers and counting. Thanks, Internet. The Wall Street Journal too has always had a paywall.

Between 2011 and 2017, the Times’ digital subscription revenue has grown 46% and its digital revenues completely eclipse their print business. I often chat with media startups and we talk about the problem of converting impact into revenues. Here’s what we figured the approach the best media businesses, and successful subscription services took:

1. Have a paid product from day 1
2. Do not discount your product/content except with the view of driving conversions to paid subscriptions
3. Nurture your community and build exclusivity
4. Use data (with integrity)[3] to drive personalization and engagement

The Times is a fascinating case study in perfecting these same rules. I strongly believe that smaller, regional newspapers could follow their playbook in building strong, cashflow generating businesses and focusing on consistent growth.

The good news about The Skimm raising capital is the optimism it reflects for other media businesses. Perhaps someone else can come along, build beautiful, addictive and high-quality news products that will be as addictive as your monthly Fix.

[1] I love Stitch Fix. Katrina Lake is a genius.

[2] Save for a small number of stories the FT made/makes available.

[3] Please don’t destroy democracy.

Originally published at medium.com on March 22, 2018.