This article was originally published on What’s New in Publishing, on 15th January 2019.
The question of how the media can make money from the internet has been central to my career, and the answer has been obvious since very early on. As well as advertising revenue, the media needs consumer revenue to survive. But making that happen still seems like an impossible goal to many.
At News International, I led a project which was a bold and early initiative answer to this conundrum. Our solution, code-named Alesia, answered the question of how we could grow to millions of subscribers (and beyond) in the same way as Netflix, Spotify and Sky have: offer a large amount of content, from a wide range of brands, in return.
Some people are now calling for a similar, aggregator-style system as a solution to the news media’s current state of crisis. It’s easy to see why: these kinds of services have been outstandingly successful in signing up large numbers of subscribers. It’s an attractive offer for the consumer, who gets easy access to a wide choice of content for a relatively low price. And for publishers, it provides access to a bigger pool of consumers than they could sign up to their own single title subscription.
So what’s the problem? Why not launch a Netflix or Spotify for news? Because I’m not sure that a model that has worked so well for other forms of media will work quite the same for news. And what might seem like a good deal for readers won’t necessarily be good for the industry as a whole.
Different products need different models
Firstly, to state the obvious, music and TV are quite different from news. Someone might listen to the same piece of music tens, or even hundreds, of times and still enjoy it. People spend hours bingeing on TV series sometimes years old. The most streamed show on Netflix in the UK, is Friends. Its final episode aired in 2004.
News tends to be shorter-lived. We might be talking about today’s Brexit meltdown for years, but we won’t be reading or watching today’s news stories for more than a few hours. News stories hold economic value fleetingly. Unlike music or film, news requires constant re-investment to continue to have value. The economics of streaming services – extending and extracting the value of shows new and old – just would not work as well for news.
Is all news equally valuable?
Another major difference between news and other forms of media is price. Unlike music, which broadly costs the same regardless of what it is, newspapers have always had highly differentiated pricing and products.
This becomes a problem in a super-subscription environment, because users pay the same fee regardless of how much, or what, they read. The concept of price differentiation evaporates. Articles in The Sun and The Times are, for a user, the same price. But they’re not the same cost. And are they worth the same?
If they aren’t, but readers pay the same for access to them, how can subscription revenue be divided fairly between publishers? Who gets what? And who decides?
When you have a fixed amount of money to share out, but a variable and unlimited amount of consumption by users, you need an algorithm to decide how much individual news products are worth. You can’t pay out more than they spend, and you need to try to make it fair.
This is harder than it sounds. Algorithms, however sophisticated, create winners and losers among publishers and consumers alike.
For example, if the algorithm pays publishers based on how many articles get read, publishers with long reads are at a disadvantage versus those who have a larger number of shorter, snappier items. If it rewards “dwell time”, publishers who are good at producing pithy articles could lose out. Even when created with the best intentions, algorithms almost axiomatically create perverse outcomes.
Even with a fair algorithm, it’s still not ambitious enough
The potential for algorithmic perversity might be the least of publishers’ worries – it’s better to have revenue of some kind than face inevitable destruction, right?
So let’s be optimistic, and picture this: you’ve launched your aggregator platform and managed to persuade all the publishers to take part. You’ve developed a really compelling product and user proposition. You’ve signed up millions of subscribers. You have written an algorithm which divides the money up in a way everyone is happy with, and you have managed to find a way to put high-priced, low volume products alongside low-priced, high volume products in the same service without any of them crying foul.
But there’s still a problem. Once you’ve achieved that – which is no mean feat – you still have to face the fact that you, and the publishers, have created a market for the industry which is fundamentally limited by design.
It’s revenue, but it’s not a thriving market
Super-subscription services will inevitably reach saturation point, meaning subscription revenue will plateau. Raising prices, as services like Netflix are predicted to do, becomes the only option for increasing revenue – but it’s hard to pull that off without increasing churn.
There is no doubt that a ‘Netflix for news’ would produce a much-needed new source of revenue for the industry. But when that income is fixed, and the potential number of users has peaked, market growth will hit a limit. Revenue won’t increase in response to more content being consumed; it will just be shared more thinly between publishers.
In the long term, the incentive to invest in product and content will fall because market opportunity can’t grow any bigger in response to that investment. Not only is revenue limited by subscription rates in a “Spotified” world, so is market growth.
Super-subscriptions would be first aid for dying news brands, but misses their full potential and has little to offer new entrants
A super-subscription model will do little to solve the problems facing the news industry in the long term. It will give the existing players a temporary reprieve, but leaves an internet still far from the vibrant, thriving market it could be. For new entrants, fighting their way into the system will always be about acquiring sufficient market power, because the fixed revenue – the subscription price – means publishers who are involved will defend their share.
Creating a market which can thrive
Fortunately, there is a more compelling opportunity available, one that is easier, cheaper and less risky to launch, with uncapped revenues and a better aligned set of incentives.
Imagine an internet in which every time a consumer reads something (or listens, or watches, or plays) the publisher makes some money. The more people consume their product, the more money they make. If the same person consumes lots of products, they all make more money.
What would happen?
The best content, well-produced, well-marketed and wisely priced, would make the most money, so the incentive to invest would change radically.
We would see a lot more competition for users’ attention (and money). Smaller content producers will be less unfairly impacted by their lower market power, because their revenue share will be directly linked to their popularity.
A capped subscription price can only calculate revenue for smaller producers by measuring their share as a tiny proportion of the market as a whole. A model that directly links revenue with popularity does not create the same kind of distortion.
More products would be launched, and creative innovators would be incentivised to make their content compelling because they’re offered a direct reward for their success. Consumers would, in turn, increase their consumption because they’ve been offered a product that’s worth paying for.
The market would grow every time someone decided to read more content and the job of the creators would be to get ever more creative about how to get them to engage more. And, most importantly, there are no limits set on the potential revenue for online content.
We’re doing it now
If you want to see this in action, take a look at Agate. It’s a digital wallet system that lets users pay for what they consume, and provides publishers with direct customer revenue. Agate works seamlessly across multiple sites and platforms, enabling consumers to read widely without juggling multiple accounts and subscriptions. Like Spotify or Netflix, users pay using one platform to access a wide range of content, but without the commitment of a subscription.