My go-to analogy of the publishing business is a children’s soccer game. When the ball goes to one part of the field, a clump if kids surround it. It goes to another part of the field, the clump follows.
This has played out time and again, as publishers hunt for the formula that’s largely been elusive in digital media: sustainable, resilient business models. The scale era of digital publishing prioritized amassing large audiences in the service of advertising. The thesis was fairly simple: Never before was it possible for a publication to have such a large audience, thanks to search engines and social platforms. On top of that, digital advertising was growing at a brisk clip as advertisers reallocated spending from declining legacy media to growing (and more measurable) digital advertising.
That bet was sensible but flawed. In reality, publishers were renting the audiences of giant tech companies. The giant audience numbers they bragged about were illusory, since they could be taken away in the snap of an algorithm change. The shift to digital advertising did take place. Yet the majority of that growth was gobbled up be the tech platforms themselves. The duopoly became an oligopoly with new oligarchs emerging in the form of retail media. With performance marketing eating the world, the smart application of data was the name of the game. Publishers could not compete.
The pivot to video, which was really a pivot to Facebook, symbolized strategic drift and the reality that in casting their lots with platforms, which was intertwined with the bets on scale, publishers have given away their strategic autonomy to become something akin to tech vassal states, nominally independent but under the effective control of overlords.
In March 2011, after a near-death experience during the Great Financial Crisis, The New York Times put up a metered paywall. I can recall plenty of skepticism at the time. The Huffington Post was going to outflank the Times with a far leaner model while the Times was mired with the costs of the Baghdad bureau. (This was always the shorthand for the mismatch between the costs of an ambitious news operation and the commercial viability of such an operation in the ad market.) The Times was basically giving up on advertising as the core of its business in favor of moving to subscriptions.
Despite the doubts, the Times was wildly successful, now boasting 10 million subscribers across a suite of products beyond its main news report to include cooking, games and more. The clump in publishing followed suit, as many publishers followed suit to add subscription programs. And the shift has, in large part, worked. More publishers than ever are being paid by at least a chunk of their audience. “It’s just the most honest business model,” as one respondent told us.
And yet there are signs of peak subscription. Our research found that 57% percent of publishers expect their subscription revenue to grow in single digits this year, remain flat or decline. The heady days of growth are in the rear view mirror, as inflation bites. According to Reuters Institute, one in five U.S. consumers already pays for online news. The market is getting saturated.
There is anecdotal evidence of this. The Washington Post was seen in 2016 as a credible rival of The New York Times. Only now the Post is seeing its subscription business contract, with a 15% drop in total digital subscribers from 2021 to October 2023. The company is on track to lose $100 million this year.
With this as a backdrop, The Rebooting conducted a survey of 201 publishers in October 2023 to find the state of publisher subscription programs. The research shows that the heady days of subscription programs with rocket ship growth are in the past. The market has matured, and the name of the game is increasingly turning to retention – see the Post for a cautionary tale of what a churn spiral looks like – and wringing more money out of subscribers, even as they still need to fill the top of the funnel with discount offers.
One of the big lessons from the scale era is that the best way to make money is several ways. Too many publishers cast their lots with a single source of revenue, usually advertising. That didn’t work out for most publishers, as evidenced by the decline of former stalwarts like BuzzFeed and Vice, which were tabbed in the mid 2010s as the likely heirs to the commanding heights of publishing.
We asked publishers to rank on a scale of 1-5 the importance of various strategic goals in regards to their subscription businesses. What we found is that publishers are seeking a healthy balance in their businesses. The clear top priority was to diversify revenue, followed by the need to understand their audiences better. This fits with conversations I regularly have with publishers that recognize a sin of the scale era was publishers not having direct relationships with most of their audience.
The top “job” that subscriptions do, without a doubt, is to provide a steady new revenue stream that isn’t lumpy and fickle like advertising. “It's a much more predictable business model than advertising that gives us confidence to invest in our future,” said one publisher. Said another: “Content for media businesses are really a fixed cost. Ads are not predictable, subscription is. We launched subscriptions to build a reliable cash foundation, one that is predictable.”
But that’s quickly followed by the perhaps larger long term strategic goal of aligning more closely with audience needs. The demise of the third-party cookie has served to accelerate this in the priority queue because the open programmatic market has grown tougher, and the weight of digital advertising has shifted to known audiences.
“These responses underscore just how many strategic priorities we see in the market – growing first-party data, increasing direct engagement and interaction with readers, increasing revenue, diversifying revenue, etc – all map back to launching some kind of subscription business,” said Patrick Crane, director of sales at BlueConic. “These subscription launches are not being put in place as a replacement for ad revenue, but as an additive. In the post ZIRP/scale era, the best revenue model is more of them.”
The early days of subscription programs are exciting. Numbers go up. Each month, each quarter, more people convert. The “pivot” to subscriptions came at a propitious time because it also coincided with a period of abnormally low customer-acquisitions costs. It’s no coincidence that publishers were able to rack up big numbers of overall subscribers, many on cheap introductory offers, at the same time as the explosion of direct-to-consumer e-commerce businesses.
That’s changed. Data regulations by governments and Apple have made customer acquisition harder and costlier. Many subscription programs reliance on intro offers left them at risk of a leaky bucket situation in which more customers churned than could be added efficiently to the top of the bucket.
This shows up in the growth rates reported by publishers with subscriptions programs. We asked them to place their growth rates within bands. What we found was only a minority were still in hyper-growth mode of over 20% growth. Instead, most publishers are seeing modest growth in subscription revenue, with the most common growth rate (30%) being under 10%. For 27%, their subscription revenues have remained flat or declined.
According to consumer research by Toolkits, 81% of consumers who have subscriptions have more than one while 64% of consumers have kept the same number of subscriptions without adding more and 7% have cut back. Few publishers convert more than 10% of their audience to paying subscribers. Publishers are chasing a shrinking pool of potential customers.
“As subscribers die or move on we are unable to reach new ones,” said one publisher. “Our website requires enormous investment to maintain, and yields ever-declining results.”
Only 11% identified revenue growth as their biggest challenge, indicating that despite many preaching the gospel of ARPU (average revenue per subscriber) many publishers believe the time isn’t yet right to focus there at the expense of shrinking their overall subscriber base.
“Strategically we’ve seen most publishers focus on acquisition first, then, churn, and once the growth/loss metrics start to stabilize, shift to ARPU management,” said Crane. “I’d bet that if you mapped this against the number of years a subscription product has been in place, it would map pretty closely to these pie slices.”
Two thirds of respondents said they were focused over the next year on using the first-party data generated by their subscriptions programs to reduce churn. When we asked people what they believed an emerging trend to be in the next 1-2 years, the overwhelmingly most popular answer was: churn. Escaping a churn spiral is difficult to do. And the speed of degradation can be swift, as The Washington Post can attest.
This cycle is playing out for publishers. The big numbers racked up by The New York Times, and the hope to escape from the boom and bust of ad models, led many publishers to have unrealistic expectations for their subscription programs, yet again casting them as a white knight. Instead, like everything else in media, subscriptions are hard. Only 38% of publishers in our survey expressed satisfaction with with their progress.
For those dissatisfied, some reasons given:
“Those who had subscriptions did better than those who did not, but that doesn’t mean it's easy to launch and make successful,” said Crane. “Subscriptions are a forever business, not something you launch and never think about again.”
Subscriptions were often presented as a substitution for advertising. Brands like The Athletic and The Information started with the promise that subscriptions meant no advertising. This wasn’t just a marketing ploy. They built their businesses around this proposition, defying the iron rule of media: the best way to make money is several ways.
Of course, those days of subscription extremism are mostly over. Outliers like Substack still preach subscription models as a replacement for advertising, but even Netflix and HBO (now Max) have ad-supported tiers. The New York Times still has an advertising business. And new brands like Puck and Punchbowl, which launched as centered on subscriptions, make more money from advertising than subscriptions.
“Subscriptions are part of a strong revenue strategy, but not an entire revenue strategy in itself,” said BlueConic’s Crane. “We see our best customers using the first-party data generated through their subscription efforts to enhance their advertising efforts, and exploring how they can involve advertisers in their subscription efforts.”
And that’s because subscriptions are really an outgrowth of a first-party data strategy, in the same way that the pivot to video was really a pivot to Facebook and the commerce/affiliate programs are a subset of SEO. Subscriptions are a forcing function for publishers to better understand their audiences. The outgrowth of that is data that can be applied beyond subscriptions, including in advertising programs.
The rub of this: It’s very difficult to pull off. Publishers rated their efforts to balance the competing priorities of subscriptions and advertising as middling at best. The most popular assessment of the balance was OK (32%) with the second most popular being poor (28%).
Subscriptions are a forever business.There are no shortcuts to building sustainable media businesses. The maturation of subscriptions businesses is a natural progression, as publishers shift from growth at all costs to battling churn to a “pivot to ARPU.” Part of that maturation process is seeing subscriptions as a key part of an overall audience-centric user strategy.
For example, one executive major publisher at a recent dinner The Rebooting held shared that his company had ceased showing pre-roll video ads to subscribers, because their data showed that subscribers who watched video were far less likely to churn, making the CPM on video ads not worth the tradeoff.
“Growth at all costs is no longer the metric for company success, and profitability and margins are back in vogue,” said BlueConic’s Crane.