6 Glimmers of Hope for Digital News in 2019

George Carlin’s “inside every cynical person is a disappointed idealist” sums up my experience working in digital media from 2011–2018. I know I’m not alone in this. And yet, cynicism doesn’t sit well with me: I’m an idealist.

In theory, digital media is a simple business. Rafat Ali, Founder & CEO @ Skift puts it well: “You pick a sector, cover the shit out of it, get an audience, you either sell them, which is advertising, or you sell to them, which is subscriptions or paid services, that’s it. There’s no other way to do media.” But Skift is a B2B publication focused on the very lucrative travel, dining and wellness industry.

Unfortunately B2C digital media has somewhat conditioned users to expect free ad-supported content — especially when it comes to news — and that’s essentially destroying the industry.

Nowadays the adage “in 2009, it was: the internet is killing (print) journalism. In 2019, it’s: the internet is killing (internet) journalism” is very much in the air. CNN reported that the news media industry lost a whopping 1,000 jobs in January accounting for layoffs at BuzzFeed, Gannett and Verizon Media (HuffPost, Aol and Yahoo News). Vice Media laid off another 250 employees in February. In November 2018, one-time millennial news upstart darling Mic (with as much as $60 million in venture capital funding and valued in the ‘mid hundreds of millions’) laid off the bulk of its 165 employees and sold its scraps to Bustle Digital Group for around $5 million.

The reality is B2C publishers’ ability to compete for ad budgets depends on their ability to engage and grow their audience and prove the value and effectiveness of advertising to advertisers. No easy feat given competition from Facebook, Google and now more and more Amazon, with their massive audience reach and user-level ad targeting capabilities. eMarketer estimates the Duopoly (Facebook & Google) took 57.7% and Amazon 4.1% of the $110 Bn US digital ad market in 2018 and it expects the Duopoly to take 55.9% and Amazon 7.0% in 2020.

In addition to these fierce competitors, B2C publishers must also contend with advertising commoditization and downward pricing pressure due to programmatic advertising technology, advertising networks and exchanges, real-time bidding channels that use 3rd party user data to buy audiences at scale (as opposed to advertisers contracting with publishers on a direct basis.)

Publishers’ best efforts to drive up pricing through custom branded content (aka native advertising) created by in-house studios is high overhead and results in lower profitability than traditional (display) advertising.

Then there’s the fact more and more savvy users, mostly millennials, install ad blockers to combat advertising fatigue. And who can blame them? Ads are distracting. Advertisers are in fact paying publishers to distract us by calling attention to their brand / product / service!

At this point you might be wondering: wait a minute… where are the glimmers of hope??

Glimmer of Hope #1:

Quality publishers are reducing their reliance on fickle advertising revenue by converting more and more free users into recurring paid subscribers.

The New York Times has the most paid digital subscribers of any publisher. NYT’s subscription arm has been deliberate about adopting a commerce mentality by investing in data-driven marketing systems to accurately assess users’ likelihood to subscribe and then uses that insight to convert them into subscribers.

In 2018 NYT’s digital subscription revenue ($400 million representing 3.4 million subs and 56% of digital revenue) exceeded digital advertising revenue for the first time and public shareholders are happy: NYT’s share price went over $30 for the first time in a decade.

The Wall Street Journal is estimated to have over 1.3 million paid digital subscribers (though a majority of these subscriptions are B2B, funded by employers) and Jeff Bezos’ Washington Post crossed the 1 million paid digital subscriber mark in 2017. The Post’s affiliation with Amazon has allowed it to carve out exclusive subscription offers for Prime members (as many as 100 million in the US as of 2019) and it has seen subscriber growth highest among millennials.

The 2017 Reuters Institute’s Digital News Report found millennials were the age group with the highest % paying for news online: the share of Americans aged 18–24 who paid for news increased from 4% to 18%, and the 25–34 group rose from 8% to 20% between 2016 and 2017. (This trend has been dubbed the “Trump bump”.)

According to the US Census Bureau, millennials (born 1982–2000) make up a fourth of the US population or 83 million compared to 75 million baby boomers (born 1946–1964). Millennials are also more diverse than previous generations: 44% belong to a minority or ethnic group. Even more diverse than millennials are the youngest Americans (under 5 years old): in 2014 this group became majority-minority with 50.2% being part of a minority or ethnic group.

Notable mention: two new very ambitious, completely ad free membership-only ‘slow journalism’ publishers — Tortoise co-founded by former head of BBC News James Harding and former President of WSJ Katie Vanneck-Smith (based in London and NYC) and The Correspondent (based in Amsterdam).

Glimmer of Hope #2:

Apple has launched a new news and magazine app, Apple News+, to scale paid subscriptions.

Likely underlying the subscription propensity among millennials is the fact they have been conditioned to subscribe to streaming services: Netflix has 62 million, Apple Music 28 million and Spotify 26 million US subscribers as of Q1 2019. So now Apple News+ is betting on users subscribing to news and magazine content.

Apple acquired the magazine-reading app Texture a year ago and launched Apple News+, a paid subscription version of its free Apple News app, in March 2019. Apple News+, like Apple Music, is available on iOS devices (iPhones and iPads) and costs $9.99 per month (after a 1 month free trial). The sleek mobile interface offers curated and personalized access to 300 premium publishers. Apple takes a (rather high) 50% cut of the subscription revenue and distributes the remaining 50% to publishers based on reading time (*the rumored method of dividing revenue).

Apple News+ allows publishers who don’t have paid subscribers to carve out an incremental revenue source. However, some are skeptical of the massive platform controlling their relationship with users and fear Apple might cannibalize existing paid subscriptions. In fact, NYT and The Post have so far opted out.

Glimmer of Hope #3:

Startups are innovating on subscription technology to help publishers create more custom offers to convert users into customers.

Piano (merged with TinyPass in 2015) provides data-driven back-end paywall services to publishers and has been seeing a surge in business ever since Facebook’s News Feed algorithm started to prioritize friend content over media after the 2016 election. Piano helps publishers (who might not have the resources to build an in-house team and system like NYT) adopt a commerce service model by providing them the tools to treat users like customers.

And for the crypto crowd, Unlock founded by Julien Genestoux (a former Medium engineer) is in very early stages of building a decentralized open source paywall using smart contracts to enable ‘content locks’ on Ethereum’s blockchain infrastructure.

Notable mention: Patreon founded by musician Jack Conte has raised over $100 million in venture funding to build a platform that connects independent creators (of photos, videos, films, podcasts, games, and education) directly with ‘patrons’ or paid subscribers. (Patreon provides a dashboard with business stats if you really want to geek out.)

Glimmer of Hope #4:

Metered paywalls are popping up everywhere to drive subscriptions.

Condé Nast is planning to put all its free digital content behind paywalls by the end of 2019. So far, the New Yorker, Vanity Fair and Wired are behind metered paywalls that require users to subscribe beyond 4 articles per month. Vogue, GQ, Bon Appetit and Glamour will soon follow a similar model.

To what extent will these new paywalls cannibalize Condé Nast’s advertising revenue? Millennials may have an appetite to subscribe but older generations are still conditioned to expect free content. So the jury is out.

This very ad-free platform launched Medium Members in April 2017 to provide unlimited access to all content for $5 per month and a metered paywall of 3 free articles per month. (This post is deliberately not behind the paywall.)

Glimmer of Hope #5:

Some publishers are actively embracing the small but growing commerce affiliate revenue opportunity.

In December 2015, during Hulk Hogan slash billionaire Peter Thiel’s libel trial against Gawker Media, it was revealed that as much as a third of Gawker’s revenue came from native advertising and affiliate links predominantly on product review site Gizmodo — and much of it came from Amazon.

A few months later NYT bought beloved niche product and gadget review site The Wirecutter for $30 million. While NYT doesn’t break out Wirecutter revenue in its 10K, its “Other” revenue segment saw the most growth +30% vs. 2017. I estimate Wirecutter’s affiliate links made up $40-$50 million or 5–7% of NYT’s digital revenue in 2018 so they have a ways to grow to reach Gizmodo/Gawker’s proportion of revenue.

Around the same time, in October 2016, New York Magazine launched a dedicated and devastatingly clever shopping recommendation brand called The Strategist. Now NYM’s commerce effort includes The Strategist, The Cut, Vulture, Grub St. and Select All. While it doesn’t disclose affiliate revenue, a quick scan of the sites reveals much of it is coming from Amazon. In fact, they even mine Amazon’s “hyper enthusiastic” customer reviews for content gold.

In a section dubbed People’s Choice you can find anything from The Best Sinus Rinse Kits on Amazon, According to Hyperenthusiastic Reviewers (“my sinuses feel the way those Downy dryer-sheet commercials promise to make your towels feel. AND I DIDN’T EVEN TAKE AN ANTIHISTAMINE. This machine reduces my symptoms so drastically I feel like a fool for going 20 years without it.”) to The Best Foot Massagers on Amazon, According to Hyperenthusiastic Reviewers (“it has me moaning in pleasure the minute my feet are on it.”)

Needless to say, it is very difficult to compete with Amazon in the $7 billion affiliate advertising market with Prime’s 100 million US subscribers and one-click buying making the mobile checkout experience so easy. But startup Narrativ is trying to loosen Amazon’s grip by allowing other retailers to bid on the opportunity to replace Amazon links in-article (through what they call SmartLinks.)

Glimmer of Hope #6:

Tech-savvy publishers are carving out incremental B2B revenue by licensing out proprietary editorial, advertising and/or subscription technology.

Vox’ Chorus, New York Magazine’s Clay come to mind. But the one I’m most excited about is Washington Post’s Arc Publishing Platform. Its goals are ambitious: improve the digital publishing process, optimize advertising, and develop subscriptions all on one integrated technology platform.

Might Arc become as ubiquitous in publishing as AWS in cloud services? It’s too early to tell. Unlike AWS, Arc is not a first-mover.

Arc will have to contend with myriad vendors in a very crowded space (WordPress, Piano, Google, Verizon Media to name a few). And therein lies its competitive advantage, too: Arc provides a one-stop shop for publishers.

The Post’s Chief Product and Information Officer Shailesh Prakash told NiemanLab it expects to “power over 400 websites and serve over 10 billion page views per month as ongoing implementations go live” by Q1 2019. Prakash goes on to say publishers tend to save 15–20% by switching to Arc but in some cases as much as 60–70% because they have so many vendors. These are meaningful cost savings for publishers and could very well help drive profitability.

Granted, revenue aside, Arc also creates an incremental user data opportunity for The Post. This data can be used to drive readership and revenue for the third party publishers licensing Arc from The Post. But it can also drive readership and revenue for The Post. And maybe even for Amazon.

Anyway, this is all to say beyond Google, Facebook, Apple there’s another massive, ambitious technology platform disruptor in media town: Amazon.