Subscriptions v. advertising models: Can they co-exist?
August 27, 2019
The renewed interest of the subscription revenue model has turned heads in the digital publishing industry. Some publishers have found success in pivoting to this revenue model. However, thousands of other publishers are wondering if subscriptions are realistic options for them. While the ad revenue model has been the historical gold standard, dominance from the major platforms and a lack of transparency across the ecosystem has forced many publishers scrambling. So, is one model really better than the other? Or can these models coexist?
Think about any digital subscription service you are currently paying for, right now. What is the first thing that comes into your mind? Netflix? HBO? Perhaps, Spotify, or Apple Music?
If the first thing that springs to mind is a subscription to a digital publication or news site you are one of about 13.2% in the United States, according to Statista’s Global Consumer Survey. Unfortunately, despite consumers willingness to sign up for subscription based content, news has been one of the most difficult areas to monetize. In part, this is because so many people consume it through social media platforms.
Who will pay for what?
We do see a willingness on the part of audiences to pay for audio and video subscriptions. (Though the jury is still out on how many they’ll pay for in an increasingly crowded market). However, big-name news sites like The New York Times, The Washington Post, The Financial Times, along with just about every other digital publication you can think of wants to shift from advertising based models to reliance on subscript
Of course, some people do pay for digital publication subscriptions. The question is, of course, how many people will pay — and for how many different subscription products. Publication sites, particularly those in the traditional news business, are fighting to compete with each other over who can lock-in the audience segment that is willing and able to pay for content.
Also, philosophically, the subscription revenue model at scale is essentially splits the internet into two categories: online users who can afford (or are willing to pay for) content, and online users who can’t (or won’t). Certainly there are other concerns about the subscription model. However, the overarching problem is that many users visiting your website cannot or will not pay for a subscription.
The basics of monetization
Back in the prime-print days, publications would hire a sales team to target relevant companies, wine-and-dine these companies, and sell them advertising space in their paper. Now that publishing has transitioned to digital, direct advertising relationships have been intercepted by ad tech companies and social media platforms.
These days, programmatic networks and platforms dominate digital advertising. Programmatic advertising removes the relationship factor of ad sales. Instead, exchanges are done electronically, often through the new middlemen of digital advertising: Google, Facebook, and Amazon. They claim ownership of these valuable advertising relationships.
Marketers are retargeting to reach the audience they once found in print publications and reaching them other ways. They believe that they don’t need to advertise in The Wall Street Journal, because they can find Wall Street Journal readers on Facebook.
Print revenue is declining fast and a great deal of digital advertising is no longer being sold directly by publications. This leaves publishers searching for other methods to monetize their content.
Subscriptions do solve that problem. They allow publishers to directly monetize their audiences again. The model also has fewer middlemen and is a more stable, less-disruptable business.
Some large-scale publications ask readers to pay a monthly fee to view some or any of their content at all. The problem is, few have been able to make that work and many visitors are frustrated when they hit a hard paywall or run out of metered views. And, knowing that we can’t expect readers to subscribe to several sources for similar information, large-scale publications compete against one another for subscription revenue. While some niche publications have been able to create a sustainable subscription model, they still face the issue of subscription fatigue.
If the consumers won’t pay, who will?
Publishers produce content and need to earn revenue to continue doing so. Readers engage with this content yet many don’t want to pay for it. It’s a dead-end cycle. So, who pays?
Luckily, advertisers still want readers’ attention just as much as publishers do. And advertisers are willing and able to pay for it. This is a classic win-win-win model. Readers don’t have to pay, publishers get paid to produce content, and advertisers reach desirable audiences. We continue circling back to an ad based model because it is the only revenue model that benefits every party involved.
The disruption of the ad revenue model in the digital publishing industry has caused great shifts. Publishers cannot continue running a business as they always have. They have to balance consumers desire for free content with the need to monetize it. With major platforms dominating the digital advertising world, the weight lies on publishers and advertisers to work together and explore creative ways to make the ad revenue model work for everyone.
Transparency will be critical to make things work. As users increasingly become sensitive to privacy and the value of their data, platforms are finally on the back foot.
Publishers that understand the value of each of their visitors will those ultimately primed to succeed. Recent advances in machine learning and personalization enable new understanding as well as increasingly valuable offerings. This may finally allow us to bring balance back to a historically successful revenue model for both advertisers and publishers.
By Tyler Bishop
Published August 26, 2019