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Rise of Subscriptions and the Fall of Advertising

Bob Gilbreath
Mar 19, 2017 · 14 min read

“Advertising is a tax on the poor” — Scott Galloway

The media channels haven’t been in love with the advertising-supported business model lately, either. Not only do they make a lot less money by trading in analog dollars for digital dimes, but they are under constant pressure to keep up with the rapid pace change. Big brands are forcing publishers to cover the cost of 3rd party verification thanks to a system that is being overwhelmed by fraud. There is a “stack” of ad-tech add-ons from venture-backed startups and sexier social networks that are taking a growing piece of every budget.

“If you interrupt with ads, [people] play less.” — Sebastian Knutsson, Chief Creative Officer, King Games

In the media world, Netflix should be credited as the first to recognize this way back when it was a DVD mailer. Netflix recognized that it would be in danger of losing subscribers once they had seen all of the movies on their wish lists. So it invested in an algorithm to make personalized recommendations of movies and television shows that people had not heard of or were not sure about. This algorithm became so important that the company offered multiple million-dollar payouts to teams that could slightly improve it.

  • The New York Times now makes more money from subscriptions than advertising, and is thinking how to make advertising as valuable as the journalism it creates.
  • Great story here from Joe Pulizzi, founder of the Content Marketing Institute about how he switched from an ad-supported model to a direct fee-for-content model. Everyone’s happier, especially Joe, who sold the CMI for a tidy sum.
  • Twitter just announced that its users are up but revenue is down, proving that their ad model doesn’t work. Maybe subscriptions are the answer? Smart analysis here.
  • The American Press Institute released a survey of consumers and their subscription to news. Among the key findings: (1) more than half of all U.S. adults subscribe to news in some form; (2) 37% of adults under age 35 are paying for news; and (3) most people find the price they pay is a very good or fair value. — 5/2/17
  • The Information, a startup news source for the startup/VC world that is subscription-only, suggests that we might see players like Amazon Prime include bundles of publishers in its monthly membership. I love this idea — 5/19/17
  • The New York Times writes about how The Washington Post is seeing a lift in paid subscriptions every time it’s reporters uncover a scoop. So it’s hiring more reporters! — 5/20/17
  • You might have heard of the concept of “leapfrog technologies” in which developing markets skip straight to the cutting edge. For example, rural Africa is going straight to solar vs. creating a network of power transmission. Well, the Chinese market seems to have no problem paying for content — skipping the ad-supported stage altogether — 5/23/17
  • Some data on how WSJ subscribers went up but Google punished it in future search ratings after the site turned off free views from search results — 6/6/17
  • Netflix will overtake ESPN in content spending in 2018. Interesting swing overall, but more so because Netflix is creating new content vs. bidding for sports broadcast rights — 6/7/17
  • Good update on some of my stats above and final point that “the next pivot in new media startups is away from ads and towards paying readers” — 12/1/17
  • Broadcast TV ratings in November ’17 were down 16% vs. last year; and cable was down 11%. “There’s only so many hours in the day, and people are devoting more of those hours to streaming services like Netflix, Amazon and Hulu.” — 12/14/17
  • The Atlantic has a good summary on the media challenges of 2017 with the summary: “In its inexhaustible capacity for experimentation, digital media has pivoted to programmatic advertising, pivoted to native advertising, pivoted to venture capital, pivoted to Facebook, pivoted to distributed, and pivoted to video. Here is a better experiment: Pivot to readers.” — 11/29/17
  • The Chief Growth Officer of Publicis, Rishad Tobaccowala, suggests that total advertising spend could decline 30% in the next 5 years as people shift to commercial-free media. “‘We don’t value their time,’ Tobaccowala said, estimating that the value the ad industry places on consumer time is “less than minimum wage.” — 2/2/18
  • As Facebook (threatens/)prepares to get into local news, the NYTimes suggests a “crazy idea”: paid subscriptions. — 2/7/18
  • The New York Times hits $1 billion in subscription revenue, growing past the “Trump Bump” — 2/8/18
  • A report shows that Netflix viewing takes $3 to $6 billion in advertising revenue off the table, evidence that subscriptions are literally killing the advertising model for media companies — 2/19/18
  • The “ad tax” of national TV advertising increased by 3.9% to 11 minutes per hour in January 2018–2/21/18
  • Interesting perspective on how a subscription-supported Facebook could solve a lot of the companies and users’ problems — 2/17/18
  • While consumers’ time consuming media continues to rise, the ad-supported share of that time is down to its lowest point (ever) at 44% — 3/2/18
  • Meanwhile, an exec at Fox thinks about dropped ad load to 2 minutes per hour — 3/7/18
  • Spotify had a strong IPO this week, driven in part by its 70 million paying subscribers, roughly half of its total user base — 4/6/18
  • Amid growing uneasiness about Facebook’s personal data harvesting and ad targeting, the company hints that a paid version is on the horizon — 4/10/18
  • Barrons writes of a new “digital divide” in Silicon Valley as some companies rely on advertising while others avoid (its issues). The article requires subscription (que the irony), but this graphic was shared — 4/21/18
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  • Another in-depth Netflix story from New York Magazine provides a juicy nugget: Netflix has created 2,000 micro-clusters of consumers to create content for, while traditional broadcast networks’ “business model is heavily weighted toward pleasing advertisers, broadcast and cable outlets such as NBC or Lifetime rely on [large] demos — women under age 35, men 25 to 54, African-Americans 18 to 49.” In other words, advertising simply doesn’t allow a media model that can fund niche interest content. — 6/10/18
  • Some experts claim that Netflix and other streaming video sites will eventually open up to advertising-supported models. But Verizon shows this might not work after all, as it shut down its Go90 ad-supported video site this week — 7/2/18
  • Netflix announces that it has a 10% share of all screen time in the U.S., an amazing number. Interestingly, the company now says it’s biggest competitor isn’t other video streaming services, but online games such as Fortnite. — 1/17/19
  • Brilliant strategic analysis around why Facebook and Google upset the ad-supported content business model. In a nutshell: “the only way to build a thriving business in a space dominated by an Aggregator is to go around them, not to work with them.” — 1/28/19
  • It’s early, but there’s a growing number of ways for Podcasters to bring in paying subscribers. Watch this space! — 2/15/19
  • Facebook suggests that offering an ad-free/subscription model is harder than we might expect — 2/20/19
  • Medium is expanding its subscription model — 2/21/19
  • Smart piece on why Netflix is unlikely to create an ad-supported offering — 3/19/19
  • Apply diving bigger into content — without advertising — 3/26/19
  • More reflections on whether or not Netflix will eventually allow advertising, including a stat that 57% of subscribers say they would cancel if so — 5/2/19
  • Wired magazine shares how putting up a paywall worked for its business. The number of digital subscribers went up 300%. Personally I think the fairly reasonable price point of $10/year is a big part of why this worked for Wired — 5/3/19
  • Ev Williams of Medium continues to bet on a subscription model for Medium — 5/22/19
  • Ben Thompson runs a terrific weekly email newsletter on business strategy, which I happily pay $10/month for. Some people ask him about allowing a single-article price, and he declines. The point here is that it’s much smarter for him to charge $10/month to a small, dedicated group, rather than allow a $1/article fee for a larger group who is only interested once in awhile. — 7/8/19
  • Netflix subscribers are down, but the company emphasizes that it has no interested in launching an ad-supported option. This is despite the hope and hand-wringing by many of my peers in the advertising industry who are watching their business erode (here’s an advertising insider’s perspective on why it’s not going to happen). Ben Thompson’s point above shows the issue with allowing different purchase options: It kills the core subscription golden goose. — 7/18/19
  • TV Networks go back to loading more advertising, further eroding viewer interest and loyalty. The money quote: ““If you have to wait six minutes for your content to come back in a world where people have remotes and can quickly switch to Netflix or Hulu, that exacerbates the issue.”—8/2/19
  • Medium continues to move forward on its subscription+writer revenue share model. Today it changed from payment based on “claps” to “time spent reading”. This seems to be a smart decision based on the value people get (e.g. time spent is a pretty big sign of value!) rather than hoping people remember to clap. — 10/22/19
  • This article is behind a paywall and not something I currently subscribe to, but the headline alone and first few lines suggests a good point: The business model of podcasting really should be around paid subscriptions. The ads are generally awful, interruptive, and can’t be much money unless you’re one of the leaders. It’s also a good amount of work to do a good podcast. Focus group of one: There are many that I would pay for because I’m addicted. — 10/25/19
  • Podcasting is growing, and more creators and listeners are seeing the value in paid subscriptions vs. repeating the same annoying mattress ads. Pretty interesting argument here using major personalities in audio to make the case. — 4/17/20

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