Advertising vs. subscription models

People working in and around digital media often like to talk in absolutes, and one debate that’s dragged on in recent years is whether publishers should orient their operations around either advertising or subscription revenue as a core driver for their businesses.

Those arguing one way or the other will continue to find examples to highlight as evidence for why ads or subscriptions provide the “best” model, but for many publishers it’s becoming increasingly clear that a blend of advertising and subscriptions provides the optimal approach for maximizing revenue, driving sustainable growth, and meeting the needs and expectations of audiences. And as more publishers revisit and alter their paywall approaches, many are gravitating toward “freemium” subscription models primarily designed to balance the two.

The advertising vs subscriptions narrative has been fueled predominantly by a handful of high-profile companies that vocally placed themselves in one camp or the other. At one of the spectrum publishers and platforms such as The Athletic, The Information and Substack stated their commitment to subscriptions, while at the other end publishers chasing scaled audiences with more commoditized content have repeatedly championed the benefits of ad-supported models instead.

In many cases these binary stances are strategic, and designed to create a point of differentiation in the market, play to the interests of investors, generate attention and press coverage, or to rationalize business models on which some publishers realistically have little choice but to rely. But in practice, nearly every publisher or media company that says it will never do ads or never do subscriptions ends up doing both, because ultimately it’s in the best interest of their business.

After purchasing The Athletic earlier this year The New York Times is now rolling out advertising across the property in an attempt to break even, for example. Meanwhile The Information is selling ad space in its newsletters, and a growing number of Substack creators are using the platform to publish newsletters funded exclusively by sponsors. Even Netflix, with its famously anti-advertising stance, now expects to run ads by the end of the year.

Meanwhile, publishers that vocally eschewed subscriptions in favor of “advertising-only” approaches are building paid products designed to extract revenue directly from their audiences, and are beginning to offer access to courses, educational materials, research reports, data products and other premium resources on a subscription basis.

While it’s true that most publishers will only convert a relatively small subset of their audiences to paying subscribers, those that refuse to explore subscription products and models may find they’re leaving money on the table and, perhaps more importantly, foregoing opportunities to build strong long-term relationships with their audiences.

Exactly what subscription offerings can or should look like will inevitably vary from one publisher and audience to the next. As I’ve explored previously, “freemium” subscription models are emerging as a viable and attractive option in many cases, via which specific segments of content and audiences are monetized via subscription and the remainder is underwritten by advertising and sponsorship. And as their early forays into subscriptions mature and evolve, many publishers are now rethinking their use of broad meters and hard paywalls and exploring more nuanced and realistic paywall strategies and subscription offerings instead.

The benefits of combining advertising and subscriptions

Based on our conversations and advisory work with a range of publishers at Toolkits, those monetizing their output via both advertising and subscriptions typically see a range of benefits from the combined approach – particularly if they’re operating a freemium model. These include:

Increased revenue 
Though some might choose to believe otherwise, for the majority of publishers not all the content they produce is worth of paying for, or capable of justifying a premium subscription price point in subscribers’ minds. Exceptions apply, but publishers might find that opening up content of lower quality and differentiation and monetizing it through advertising can unlock incremental revenue while simultaneously helping to drive audience growth, content discoverability and traffic (as outlined below). For subscription-focused publishers, layering on a robust advertising strategy can often be used to monetize audiences effectively all the way down the path to subscription – and beyond.

Revenue diversification
Revenue diversification is a goal for most businesses but it’s particularly pertinent for publishers, which operate in an environment where audience demands and behaviors, technologies, the interests of third party platforms, and a host of other variables are constantly shifting around them. Multiple streams can help boost overall revenue when operated effectively alongside each other, but they’re also vital for insulating businesses during challenging economic climates or periods of rapid market change. Subscription revenue helps stabilize publishers’ operations during sudden downturns, for example, when advertising budgets often disappear overnight.

Greater audience growth and content discovery
For any publisher locking content behind paywalls, discovery and audience growth is a constant concern. Underwriting a portion of content with advertising affords them the opportunity to reach new audiences – often via search, social and other channels – before building habit and engagement and ultimately driving readers toward premium subscription offerings. This more organic approach is typically far more cost-effective than relying on paid advertising and promotion to acquire new subscribers, and often results in stronger, more loyal subscriber bases with deeper ties to publishers’ brands and content.

Better alignment with audience needs and expectations 
No publisher audience is a monolith, and freemium approaches combining advertising and subscriptions can allow publishers to serve the needs of their overall audiences more effectively. Casual readers are afforded the opportunity to access and engage with content without paying, while premium subscriptions allow publishers to more deeply serve power users and specific segments of their audiences. To that end, we may see more publishers slicing their premium offerings thinner and launching arrays of subscription products targeted at more granular segments of their audiences in the months ahead.

Subscriber data to help fuel advertising sales
Publishers routinely find they are able to generate more revenue from advertising placed in front of paying subscribers than non-paying audiences. Subscribers are generally far more engaged with publishers’ content and brands, and publishers are typically able to collect particularly strong signals from them to help inform segmentation and ad targeting on behalf of advertisers. As publishers strive to collect more first-party data, paying subscriber bases – and logged-in users more broadly – will prove an increasingly valuable asset for driving advertising and sponsorship businesses.