June 21, 2022

Subscription Business Remains an Uphill Climb

Every year, the Reuters Institute releases its Digital News Report, which is chock full of fascinating insights. This year is no different. While there is concern about trust in the news (down to 26% in the United States, according to their survey), for my analysis, I am primarily interested in how the business side is holding up.

And, as you might imagine, it’s better than it used to be but still indicative of a massive uphill climb. According to the report:

In some countries, we find a high degree of market concentration, with around half the subscriptions in the US going to the New York Times, Washington Post, and Wall Street Journal. … Over half (53%) pay for a local or regional title in Norway, with high numbers in all the other Nordic countries as well as Germany (35%) and the United States (27%).

Persuading younger people to pay remains a critical issue for industry, with just 8% of news subscribers in the UK being under 30 and just 17% in the United States. This quote from our focus groups sums up the attitude of many of those who grew up in an era with mostly free online sources:

“I don’t like when the New York Times asks me to subscribe to read the news. It’s a scam. News is meant to be free.” Male, 27, USA

I know that the younger generation wants to receive news for free, but I have never heard it taken so far as to consider charging for news as a “scam.” But unfortunately, there remains a serious problem for news organizations in explaining why they exist.

My suspicion is there are a lot of things at play here. First, the news was free for so long; it will take time for people to get comfortable paying for it. Second, as Mike Orren, CPO at Dallas Morning News, says, there’s a right psychographic for local news, and it’s: “People that own homes, pay taxes, vote, and have children.

But there’s a third that might not be as obvious. I would argue that the borderline self-righteousness that the news business takes could do it some harm once you start to move outside of the core readership.

Consider this… The Washington Post has its tagline “Democracy Dies in Darkness.” If the news is so vital for our core democracy, it almost feels like a must for people to read it so that democracy doesn’t die. And yet, news companies are charging for information and putting a barrier between the reader and that information. If the news is so essential for the very fabric of our society, charging for it gets in the way of protecting said democracy.

To be clear, I am not saying that news should be free—this is kind of an expensive business—nor am I discounting the value that journalism bring in reporting on things we, an informed electorate, need to know. However, if you say that your product is fundamental to a thriving society, how do you explain keeping it from people?

I saw a WSJ ad on Twitter today, and it read: “News you can trust. Insights you can use.” It’s talking about what the user gains: insights. I don’t think it’s the strongest copy, but at least the user feels they’re getting something (insights) when they pay for it.

I would love to see the Washington Post lead with coverage of how, hypothetically, people lost a certain amount of money because of corruption in government. It’s not about democracy and darkness; it’s about people’s wallets. People need to see benefits for what they’re paying for. And something as marvelous as “Democracy Dies in Darkness” is hard to conceptualize.

But there was also some good news in the report. I’ve long argued that people would only ever pay for up to four text-related subscriptions: national, local, something related to their jobs, and a leisure publication. According to the report:

In almost all of the listed countries, the majority of subscribers pay for one publication. But in the United States and Australia, around half (56% and 51% respectively) now pay for two or more – often a national and local paper combination. Second subscriptions in the United States include political and cultural magazines such as The Atlantic and The New Yorker, partisan digital outlets such as Blaze Media and Epoch Times, or passion-based titles such as the Athletic (sports). We also see growing levels of payment for platform-based news subscription products Apple+ and Twitter Blue.

As the report says, only 19% of people pay for news in the United States. Of that, 56% pay for two subscriptions. It shows that there is a massive uphill climb ahead for news organizations. However, the fact that people are choosing two and picking different categories of information gives me confidence.

The news business is tricky. In society, it plays a pivotal role. But these are also businesses. So we must ensure that we lead with why people should pay and what benefits they’ll get. Ultimately, it has to be personal. Otherwise, people will always think news should be free and that it’s “a scam” to charge for it.

WaPo should keep Arc

I’ve long felt that being in the software business is a wrong move for most media companies. You can’t rewrite a company’s DNA; news and software are fundamentally different businesses. But the Washington Post is a chimera—a being that has two sets of DNA.

That’s why I believe it’s making the right choice by not selling Arc. According to Axios:

The Washington Post is looking to double down on its investment in its tech publishing arm, Arc XP, despite outside sales interest valuing the company in the low nine figures, sources told Axios.

The company sees more long-term value in trying to grow the business than sell it now, executives told Axios.

“I personally think that in the long run — and by long run, I mean, three, four years, not 15 years — Arc XP will be the biggest source of revenue for the Post, and certainly the most profitable source of revenue for the Post,” said Shailesh Prakash, chief information officer at The Post.

Axios reports that Arc XP “brings in roughly $40-$50 million in annual recurring revenue.”

In the previous section, I said that WaPo’s tagline might complicate its quest for subscribers. But it’s also how the company feels. Therefore, building a software business that can one day be profitable is exactly what WaPo should do to ensure it can consistently deliver on its self-induced mandate.

This makes me think about the Guardian a little bit. It is owned by the Scott Trust Limited, which has about £1.15 billion in assets (as of a year ago). The trust was set up in the 1930s to ensure that the Guardian could consistently deliver on its mandate, even after the owners were gone.

And so, you might start to look at Arc as a similar setup for WaPo, but in a very Bezos-like way. In a nutshell, could Arc be built to a point where it’s valued at $1b+? And then, could that money be locked away for the Washington Post to use to ensure that it never ceased to exist through both the good and bad times?

It’s, of course, speculation, and I have no idea what Bezos is thinking. But in an interview with the FT in 2014, the former Washington Post President said:

Since taking control, Mr Bezos has asked Washington Post executives to explore how they can position the business to succeed digitally for the long term, Mr Hills said.

“He is asking a different question. He is asking the question of: ‘What can you do to have a great digital audience 10 years, 20 years from now?’” Mr Hills said. “Under previous ownership, the very reasonable question we were asking was: ‘How do we make money in the next two to three years?’

“This different orientation opens up a wide range of new opportunities,” he added. “That’s the interesting part of the story.”

Bezos is thinking on a different time horizon than most media companies. You could argue that the only other media companies that genuinely feel this way are The New York Times, Bloomberg, and The Guardian, as mentioned above. The first is owned by the same family for generations; the second is owned by the founder; the third already has its trust set up.

If software is more valuable than media, it makes sense to incubate this business to an immense scale and then sell it versus selling it prematurely. Whether it’s because Bezos wants WaPo to have a “forever” fund is a different, speculative question. But it’s certainly interesting.

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