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Advertising isn’t Going Anywhere

Lately almost every quality publisher is experimenting with paywalls and subscription services.  They are now viewed as a panacea against the need to handle consumer data, and a hedge against the increasing use of ad blockers.

Of course subscriptions to newspapers and magazines were available back in the days of print, too. So why did print publications also run advertising?

One simple reason: subscriptions cannot support most publishers, unless they are in a niche category without a competitor. The Information, a technology business publication aimed at wealthy investors, falls into this category. But most publications do not. Even the Wall Street Journal, the leading financial publication and one that many people WILL pay for, cannot get by  on subscription revenue alone. Nor can the leading news sites like the New York Times and the Washington Post  support themselves solely by instituting paywalls.

Why not? Because the average middle class consumer, who has been reached in the past through advertising, cannot afford to subscribe to everything she needs to read, see, and hear. We live in the Information Age, and very few of us can afford to ignore the need to stay abreast of a very rapidly changing world.

She’d like to get the national and world news from a reliable source, so she visits the New York Times. But finding it too biased, she must also often visit the Washington Post.  Neither of them covers news from her hometown, so she reads her local news site. And since she’s a homeowner, she reads a lifestyle publication. Or a fashion magazine. Or Consumer Reports.

To save money, she cut the cord on cable TV a year ago, so for entertainment she relies on Amazon Prime video and Netflix. But some shows are only on Hulu. Her husband subscribes to ESPN. He’s also a reader of Bloomberg and Wired, and they just instituted paywalls, too.

And then there’s Spotify.

At the end of the year, she and her husband look at their iTunes bill and their credit card bills and realize that they have spent over $2000 on subscriptions to both video and text sites. They blew right through their budget. So they decide to cancel their subscriptions to save money.

Eventually they trade off the need for privacy and gravitate to sites where they can get news and entertainment free, just by tolerating a few ads. In the mean time, publications that have instituted paywalls find that they are experiencing a great deal of churn among their subscribers, leading to unpredictable revenue projections. Despite their paywalls, they must also run some, although perhaps not quite as many, ads.

And that’s how the great paywall experiment plays itself out. Advertising isn’t going anywhere.

 

 

 

Facebook Offers Publishers Another Chance at a Haircut

One thing is for sure: Facebook’s domination of both audience and of digital advertising spend has caused one set of problems after the other for publishers. Essentially Facebook, which does not like to identify itself as a media company, is trying to find ways for visitors to stay in its app rather than clicking through to a publisher site. This has frightened publishers, for obvious reasons. In fact, it has frightened them so much that they have begun to see Facebook as a true competitor rather than just a distribution channel. Every time Facebook makes a change, which is often, publishers stand to lose more advertising dollars.

To this end, many premium publishers have already gone to a subscription model to increase revenue. The New York Times allows ten free articles a month. The Economist allows three free articles a week, and the Wall Street Journal has a hard paywall. This in addition to advertising.

Now Facebook has jumped on that bandwagon as well. Facebook is going to allow people to subscribe to publications through its app. The feature will roll out by year’s end.

Although publishers have asked for this since the advent of Instant Articles, the details of how it will work and how publishers will be paid are not clear:

There are a lot of details to be worked out, including what the model would look like, what subscriber data publishers would get and how the revenue would be distributed. Facebook has moved toward a metered model, and while nothing is final, the latest proposal involves a metered model where users could read up to 10 articles for free a month before being required to subscribe. Publishers would be able to decide if each article is subject to that meter, free or behind a hard paywall, according to people familiar with the discussions.

There’s another big question: how will readers subscribe? If it’s through Instant Articles, Facebook will have to convince publishers who have already bailed on it. The move comes after many publishers, seeing no value from Instant Articles, moved toward Google’s Amp pages. The New York Times bailed early in the year, and even smaller publishers do not push all their content through IA.

Of course subscriptions could be sold through the App Store and the Google Play store, although Apple takes a 30% cut of whatever is sold through its store. And you’d expect Facebook to want a cut as well, so…

One thing is certain. Publishers who aren’t on the ball and using every technique at their disposal to maximize revenue will once again take some sort of haircut. And they’ll be spending the summer figuring out how short that haircut will be.