September 10, 2021
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What We Can Learn From The Wirecutter Paywall

It oftentimes feels like business models are dogma. You are either pro-subscription or pro-advertising. There is a right way and a wrong way to run a publication. I’ve had far more debates about this topic than almost anything else.

That’s why it wasn’t surprising to see the early responses to the news that The New York Times would be putting a paywall in front of Wirecutter. According to The Wall Street Journal:

Starting Wednesday, readers can purchase a stand-alone Wirecutter subscription for $5 every four weeks, or $40 annually. Those who already pay for the Times’ premium digital subscriptions or home delivery will continue to get unlimited access to Wirecutter, with no change to the subscription’s price.

Wirecutter makes all of its money from affiliate sources and it’s a pretty penny. Acquired in 2016 for $30 million, Wirecutter is reported to have earned more than $20 million in 2018. Could it be $40 million now? The Times doesn’t break Wirecutter out, so it’s hard to pinpoint exactly.

Nevertheless, it’s clearly got a strong business going. Why would it want to change that?

I’d be lying if my first thought wasn’t skeptical. And I immediately returned to some of the business model debates I’ve had. The New York Times has made it abundantly clear that it’s looking to maximize subscription revenue above all else. Of course, it was going to plaster a paywall on Wirecutter, I thought.

And yet, when digging into the details, it starts to become clear that this is a more in-depth strategy for the Times. Consider… The metered paywall for the Times-proper is, what, 2-3 pages? After the first story, readers are prompted to create a free account to get one more story. But then that’s it. You have to pay.

Yet, Wirecutter is putting a paywall in front of the 10th article that a visitor reads in a month. That’s a very high number. Back in 2019, The Shorenstein Center on Media, Politics and Public Policy at Harvard Kennedy School released a report called the Digital Pay-Meter Playbook. Shorenstein found that 57% of publishers had their meter limit at 5 or fewer stories. Only 17% went over 10.

One additional point was reported by Shorenstein:

Publishers with “sustainable” digital businesses report stop rates between the 80th and 90th percentiles of all publishers studied (or at above 4.2% of all readers). The publishers that reported more than 6% of unique visitors reaching their stop threshold had “thriving” digital subscription businesses – robust teams, and well-developed audience engagement strategies.

If we put that into context, for a thriving publisher with 1,000 unique visitors, they only expect 60 to actually hit the paywall. That’s not how many people pay, but rather, how many only hit the paywall.

That means one of two things here. First, as is the case with most publishers, the vast majority of visitors to Wirecutter only visit the site a few times a month. And second, the risk here is pretty low. If 6% of people are going to hit the paywall (let’s assume the Times wants to be thriving), then that’s the risk.

The upside is that it convinces some percentage of that 6% to become a paying subscriber. The downside is that those people don’t look at any more articles until the next month when they return again.

Mat Yurow’s Twitter thread about the news further cements my thinking on this. Yurow spent a couple of years at the Times, working as head of strategy at Wirecutter. His thinking on why The Times was adding a subscription to a scale affiliate business was smart:

The logic is not found in looking at Wirecutter subscriptions in isolation – rather you need to look at it in the context of the All Access bundle. If WC is added to that bundle can it convince a few extra people that there’s value in subscribiging? Seems likely.

In order for that [to] work though, there needs to be the perception of value – an extra $5/mo – signaled by the standalone cost of the WC sub.

If it wants to get people to become All Access subscribers, adding another product without increasing the price (but assigning $5 in value to it) is a great way for people to believe they’re getting a deal. Right now, All Access costs ~$27 and a reader gets the journalism for $17, Cooking for $5, and Games for $5. Now a user gets all that plus Wirecutter for the same price of $27.

This could be a ripe audience for subscriptions. The Journal reported that only 3 million of the 12 million monthly Wirecutter visitors “are also subscribers or registered users of the Times.” Of those 9 million that haven’t converted, can this offer get some of them converting?

This isn’t just a user acquisition play, it’s also defensive. There’s no denying that the news cycle has calmed down this year. With less rage about the guy in the White House, are more people churning their Times subscription? Growth is as much about keeping your current subscribers as it is finding new paying customers.

To entice people to remain subscribers, the Times might be looking for various add ons that appear to be valuable, but are actually a rather low risk for the company. Again, if only 60 people out of 1,000 are hitting the paywall, it’s more than monetizing Wirecutter from an affiliate perspective. Any lost revenue because that 6% bounce can be thought of as a marketing cost.

If we look at it, it’s a very simple strategy. Wirecutter is not giving up its affiliate business. The vast majority of people are likely never going to hit 10 articles a month. Therefore, the paywall doesn’t exist for them. Bring on those sweet, sweet Amazon affiliate checks.

For the small percentage that hit the paywall, it could be the difference between them becoming a Times subscriber or not. And if nothing else, maybe it keeps a subscriber from churning.

There’s a big lesson to pull from here…

When many people debate subscriptions, commerce, advertising, and the various other business models, they look at it through the lens of one model to rule them all. Subscriptions are great. I love them for A Media Operator. But advertising is also great. I love them for my day job at Morning Brew.

But what I love more than anything is double or triple dipping. It’s understanding how the audience engages with our products so that we can win multiple ways. And that’s something we need to consistently remind ourselves when we’re architecting our businesses.

When we think about diversifying revenue, we think about it in a very defensive way. If one source dries up, at least there are others there to keep cash flowing. But what about the offensive opportunities? What about monetizing users in multiple ways such that we can see the overall LTV increase?

I circle back to one of my favorite media companies, FreightWaves. The business that the team likely cares the most about is its high-priced software, Sonar. And it could be dogmatic and say that it would run no ads on the site because those interfere in promoting Sonar.

Instead, FreightWaves generates millions of dollars in advertising revenue while simultaneously promoting its software product. It has become so efficient at this, it now has negative CACs—when you actually earn money on your customer acquisition rather than paying.

Too often, people think very linearly and myopically about their business model. “I am a subscription media company” or “I am an advertising media company.” The best operators figure out how to monetize with both. That’s what we can learn from Wirecutter. We can really eat our cake and have it too.

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