Apple Loves Subscriptions. Unfortunately So Does the News Industry.

By Jayne Scuncio March 8, 2019

This story was originally published by Barron’s titled, “Apple Wants Users to Subscribe to Apple News. Publishers Aren’t Playing Along.” It was written by Tien Tzuo, CEO and cofounder of Zuora (NYSE: ZUO), and the author of “SUBSCRIBED: Why the Subscription Model Will be Your Company’s Future – and What to Do About It.”

 

No doubt about it — it’s been a tough start to the year for Buzzfeed, AOL, Yahoo, Huffpost, Gannett and Vice. Roughly 2,000 journalism jobs disappeared in the space of just a couple of weeks.  The apocalyptic mood was probably best summed by Chris Hayes recently asking on Twitter, “What if there is literally no profitable model for digital news?”

Of course there’s a profitable model for digital news. It just happens to not involve a) taking piles of money from VC firms who are looking for ridiculous, outsized returns b) offering commodified, disposable, click-bait content and c) trying to compete against Facebook and Google for digital advertising dollars.

But don’t take my word for it — just ask Tim Cook. He’s currently in the midst of trying to wrangle a bunch of big-name publishers to contribute to a new Apple News subscription service that’s kicking off in March. The reported terms are pretty stark —  Apple is proposing to keep 50% of the revenues, and keep all of the subscriber data. My advice to those publishers: just say no. Despite all the gloom and doom you read about the news industry, independent subscription models are a significant bright spot. Publishers relinquish this business model to tech platforms at their peril.

Today there are all sorts of digital news organizations that are not only surviving, but thriving. Some of them you’ve heard of — like The New Yorker, which generated roughly $115 million dollars in subscription revenue through its paywall last year, a remarkable figure. You’ve probably read about the fact that The New York Times has more readers and journalists than ever, and that Business Insider has also passed the $100 million mark and is profitable.  Not to mention the fact that The Washington Post, the Wall Street Journal, and The Guardian are all hiring and expanding, as well as other national titles like Wired, The Atlantic and Vanity Fair.

So far, so good, for the big national outfits, you might say. They have reputations and resources (even if there was serious talk about The New York Times going bankrupt in 2004).  What about smaller, regional papers? Well, take a look at The Seattle Times. As this widely circulated Digiday piece describes, last year the paper teamed journalists with audience development professionals in order to focus on stories that drive subscriptions, not clicks. As a result, subscriptions are up 21% to over 41,000, with no layoffs in sight. And with a metropolitan population of over 4 million, they have lots of room to grow.

Here’s what David Simon, former Baltimore Sun reporter and creator of The Wire, had to say about the piece on Twitter: “If you don’t have a product that people will pay for, you don’t have a product. The fight to return to a consistent online revenue stream is the only one that matters for journalism. And that means holding onto veteran staff and selling steak every day, not sizzle.” Amen to that.

Lots of other news outfits are thriving by focusing on great, compelling stories you can’t find anywhere else.  If you’re a hopeless news addict like myself, you’re probably also familiar with outfits like Vox, Axios, The Information, The Athletic, and Stratechery, which are all on firm financial footing. You may not know about Skift, Stoicism, or Talking Points Memo, but they’re also doing well.

So what are these organizations doing to not only avoid layoffs, but build profitable, long-term businesses? The short answer is that they are creating smart, compelling content that people are willing to support with their dollars. And if you’re in the digital news industry and you still don’t think people are willing to pay for content, then you should probably looking for another line of work. Or at the very least, stop blaming the millennials.  

Today’s consumers (and particularly millennials) are increasingly comfortable with supporting smart digital services of all kinds —  Spotify, Netflix, food boxes, productivity apps — as long as they stay timely, relevant and focused. According to the Reuters Institute Digital News Report, Americans who already pay for streaming media services are five times more likely to pay for online news than people who don’t pay for online media.

Guess who else enjoys subscription models? Advertisers. Subscriptions make advertisements more relevant than generic clickbait ads, and therefore more valuable. As I note in my book Subscribed, After the Financial Times began using its paywall to ask for generic professional details, it was able to charge its advertisers twenty to fifty percent more for access to its high value readers.

That probably explains why Conde Nast is putting all their titles behind a paywall. Remember when paywalls used to be controversial idea? Not anymore. Today all of these digital news firms understand that some kind of direct revenue relationship is paramount.

“Honestly, I wish we had done this yesterday. It’s going to be a game-changer,” Pamela Drucker Mann, Condé’s chief revenue and marketing officer, recently told Women’s Wear Daily. “Then at the same time, from an ad perspective, we become a more important company. They see this and say ‘Oh, you have all of these people willing to pay for your product, I want to be more integrated in your content’ — there’s a paradigm shift there.”

Finally, these organizations understand that from a growth and investment perspective, slow and steady wins the race.  As Rafat Ali, founder of the excellent travel news site Skift, recently noted: “Don’t blame investors for investing, that is their job. The *only* job founders have, meanwhile, is to build a sustainable, long term business. ‘High growth at all costs’ is NOT a necessary condition to it, merely a causation founders build themselves in their minds.”

The venture capitalists funding all the cool new ad-based news sites like Buzzfeed and Vice were very happy to lecture the news industry about the new way of conducting journalism. The new digital news sites were going to “go broad” and sweep up all those exploding digital advertising dollars. It didn’t work out. That business model is dead.

I’m not saying that this isn’t a very challenging environment. I understand that overall newspaper readership started declining well before the advent of the Internet, and that almost two thirds of  advertising dollars have disappeared over the past ten years. But my company Zuora handles the subscription revenues of a lot of domestic and international newspaper publishing groups, and as a cohort we’ve seen their transaction volume grow over 30% on average over the past five years (The Seattle Times, for the record, is a client). The growth is there.

Stay lean, stay smart, earn the support of your readers, and be wary of investors bearing gifts. Digital news isn’t dead. Far from it. If it continues to create a product that people are willing to pay for, journalism will be fine.

And just say no to Apple.