August 25, 2023

Paid Growth: A Necessary Tool for Thriving in a Post-Platform Era

There is a snobbish attitude regarding the use of paid growth in newsletters. Publishers that have overly relied on search and social to grow pat themselves on the back that they’ve “organically” grown and tend to look down on those us in the newsletter world who are more aggressive with paid growth.

Not only is this attitude idiotic, but from a survival perspective, publishers will need to become smarter with paid growth if they’re going to hope to thrive in a post-platform world.

The reality is, organic search and social distribution as a means of driving traffic are going to decline. If Google’s Search Generative Experience (SGE) works and more people get their information right in the SERPs, that’s going to mean fewer people coming to our sites. Facebook is already blocking links in Canada and X appears to be throttling links to competitor sites. We are moving into a post-platform era where there will be fewer, free sources of traffic than there were prior to all of this.

None of this is to say that this traffic will go away entirely. It is in Google’s best interest to continue driving traffic to publisher’s sites because it obviously needs us to create the content to teach its AI. If we have no growth, revenue will drop too much, and that’ll mean less content produced. But the spigot is going to be tightened to some extent.

What’s so interesting is media is the only industry on the planet that looks down on using advertising to grow. And it’s ironic considering we are all trying desperately to sell ads to other companies, explaining that it’s great for them. But when we look at our own businesses, we scoff at it. Like I said… it’s idiotic.

And so, what are publishers going to do? They had better get comfortable jumping into the world of paid growth because whether they like it or not, this is where additional growth is going to come from.

Part of the problem is that we’ve all grown comfortable with how easy it is to get eyeballs on a piece of content. If your site has any amount of domain authority, Google will index a new article quickly, you’ll start ranking for keywords, and I suspect people will begin finding the article. Or you post it on a social platform and the people come rushing.

It wasn’t always that way. Prior to the internet, finding an audience was hard. You had to do a ton of work to get your magazine on a newsstand or acquire a list and promote to those people directly. You might send the magazine to them and then hope they became a paid subscriber. The reality is, it was a lot of effort and it often didn’t work.

In 2010, The Awl published a short piece that said:

A study of 224 publications that were launched between 1986 and 2006 and honored as a best new publication by the Library Journal found that: “34 percent of these newly launched ‘best’ magazines failed within the first five years, with 13 failing within their first year alone. And while another 37 percent of these magazines are still being published, Black notes that this number is skewed because it includes some launched as recently as 2006.” (Other studies show a “90 percent overall failure rate of magazines launched between 1985 and 2002.”) But now? Or at least, between 1994 to 2003? 54 percent failed in the first five years. The good news is that they don’t really make new magazines anymore, I think.

We talk about media being in crisis today, but the reality is, media has always been a tough business. And a major reason for that is because of how hard it is to acquire an audience. From the perspective of free traffic, when platforms become walled gardens, it’s going to become harder.

Fortunately for publishers in 2023, we won’t have to go back to the same tactics used prior to the internet. Instead, we’ll be able to rely on those same platforms that historically gave us free traffic, but now, we’ll need to pay for it. It’s just going to become more expensive.

This means a few things.

First and foremost, publishers will need to set aside budgets for growth that they might not have in the past. In Q2 2023, The New York Times spent $28 million promoting its subscription business. From an operating cost perspective, that’s approximately 5%. But let’s not forget how much free traffic The New York Times gets in a month.

For example, in July of 2023, it got 202 million visits from organic search (Google basically), according to SimilarWeb. What happens in a future world if a third of that traffic disappears? That 202 million visits would turn into 135 million visits—a delta of 67 million visits. I’m not suggesting that NYT’s budget needs to grow in proportion to the drop in organic traffic, but if it wants to continue growing—or sustaining—it’s not going to be able to rely on that massive top of funnel that it has today.

Second, publishers will need to get better at understanding how much they can afford to spend on subscribers. There are two data points that are important to understand here: lifetime value and payback period.

Lifetime value (LTV) is the amount of profit you expect to generate from a user from start to finish. This is important because it gives you an upper bound on how much you can spend on paid growth. For example, if the LTV is $150, you obviously cannot pay $300. The investment simply does not make sense. The problem with LTV is it only tells you your expected return without taking cash runway into consideration.

That’s why we have the payback period, which is how long it takes to recoup your investment on a paid action. For example, if you have a $10 CAC to acquire a subscriber and you earn $1 per month on that subscriber, it’s going to take you ten months to recoup that investment. This is unbelievably important from a cash flow perspective because it dictates how much you can afford to invest.

Let’s use the above example of a $10 CAC and $1 per month revenue. If you invest $1,000, you’ll have 100 users. That means, after one month, you’ll generate $100. If you keep your investment consistent, in month two, you’ll have to spend $1,000 again—$900 of new money plus that $100 of generated revenue to acquire another 100 new subscribers. As time goes on, you reach a point where you’ve earned back your investment—the payback period—and your P&L goes profitable.

What’s the glaring mistake in the above formula? It doesn’t take into consideration any churn, which we know exists whether it’s a free newsletter or a paid subscription. Calculating payback period and truly understanding your return on ad spend is one of the most important things you can do when trying to grow with paid sources. If you are going to take paid growth seriously, I highly encourage you to look at this article by Eric Benjamin Seufert. It’s some of the best writing on the topic and I wish I had written it myself.

What this means is that operators need to figure out ways to compress that payback period. You need a lot less capital to invest if your payback period is five months compared to the original ten. This, by the way, is why so many have expressed excitement about SparkLoop and Beehiiv’s recommendation engine. These tools allow you to promote other newsletters after a user has signed up for yours, unlocking immediate revenue. Being able to monetize a user at the time of subscription dramatically reduces the payback period versus having to monetize over time.

Third, brand is going to matter a ton. If I go look at SimilarWeb for The New York Times, it gets nearly 60% of its traffic direct to site. This is a function of people seeking it out. I suspect we’ll see scenarios of publishers investing more resources into brand building if for no other reason than to encourage that direct-to-site traffic with the goal of a subscription.

Fourth and finally, the most important non-financial metric you can track, whether it’s paid growth or organic, is the engagement rate. A reader you’ve acquired organically that never reads your content is just as useless as a reader you’ve paid for that doesn’t read your content. Engagement is the name of the game and that is what you need to prioritize. How you acquire a user is far less important than whether the users care about the content.

The reality is, the era of free traffic is over. Acquiring users will get harder. We have to use the full tool kit to make sure we have a successful and thriving publication. That means paid growth has to be in the equation.

Thanks for reading today’s AMO. If you have thoughts, hit reply or join the AMO Slack. Get your ticket AMO Summit being held here in NYC on October 26th. If you want to come, register now. Ticket prices increase in September. I hope you have a great weekend and see you on Tuesday!