When we ran The Nanfang from 2010–2016, we paid very close attention to the experimentation with online news business models. The frequent closures of newspapers, consolidation of advertising revenue at Google and Facebook, and proliferation of new digital publications, while legacy ones struggled, were consequences of a huge transition in the industry driven by the internet, smartphones, tablets and social media. Buzzfeed, Vice, Business Insider and other digital publications began attracting huge audiences and serious investment, becoming the darlings of internet media. Facebook, and to a lesser degree Twitter, were referring millions of people to news sites while staff raced to keep up with Facebook’s changing algorithms. The majority of these publishers were taking large sums from VCs and building the same business model: attract as many visitors as possible and sell banner ads or sponsored content against those numbers.
By 2016, after we had played this game to varying degrees of success, it became apparent to us at The Nanfang that this couldn’t work long term. To have a big audience, you had to generate stories with headlines and images purposely architected to “go viral” and be shared as widely as possible on social media. Our more in-depth stories on Chinese society, or business, just didn’t generate the same broad excitement, even if they provided much more valuable information. We admit to publishing stories we didn’t particularly like or feel comfortable with but did so anyway because we knew they would generate millions of click-throughs that would help our bottom line and subsidize the stories we did like. Obviously, this model wasn’t going to help us build a reputable, serious brand over the long term, as we noted in our closing blog post:
The one topic that remains fascinating is where journalism is heading, in terms of being a sustainable business. The profound changes in the industry are having far-reaching impacts, as traditional purveyors of journalism lose readers, ad revenue, and credibility; replaced by splintered groups of (primarily) websites catering to very specific audiences. The funding of these (not always truthful) websites is unclear, while those trying to stand on their own struggle with balancing quality with the need for sponsored content to the pay the bills, raising money from eager investors, or crowd-funding. But without deep-pocketed investors or a side business to subsidize it, a general interest news website that produces high-quality content and earns enough via subscriptions or advertising is extremely rare. As newspapers have discovered, online ad revenue isn’t that great.
It’s amazing how quickly things can change.
Producing content and earning enough revenue through subscriptions may have been rare in 2016, but it has quickly become the norm rather than the exception by 2018. The much-maligned paywall is in vogue.
The concept of throwing up a paywall and charging readers to access content isn’t exactly new, even if it wasn’t particularly common in 2016: the Financial Times and Wall Street Journal have long used some variation of a paywall, but they are publications focusing specifically on a white collar audience willing to pay for business news and data. There weren’t many successful case studies for a publication like ours; in fact, the vast majority of general publications, throughout the 2000s, kept their information “free” while new publications launched and grew following the same model. Users, once accustomed to free content, balked at the idea of having to pay. A constant refrain I heard at the time: “If it’s behind a paywall, I’ll just go read it somewhere else!”
Eventually, though, news took a page from the music business.
Pirated music took a huge gash out of music industry profits in the late 1990s and early 2000s thanks to the likes of Napster, Limewire, and others that popped up anytime one app got shut down. It was a fantastic free-for-all, even if some songs were low-quality rips from the radio or an entirely different song from its file name.
Apple launched the iTunes Music Store into this environment in 2003, giving listeners the ability to legally pay for downloaded tunes. The price was right (usually 99 cents per track), the store was easy to use, and the user could count on the file being of high quality. Apple sold 50 million songs in its first year, which could easily be loaded onto its smash hit: the iPod. In time, it became almost socially unacceptable to download pirated songs from torrent sites.
The music experience showed people would pay for things that they had previously accessed for free, provided it was valuable to them, the price was reasonable, and the means of acquiring the good was simple and convenient.
The New York Times was the first large-scale generalist newspaper to give this is a shot. It rolled out a paywall in 2011, a controversial move at the time. Even during The Nanfang years, it wasn’t obvious that a paywall at the Times would work. In hindsight, though, it may have proven to be the single most important decision in ensuring the ongoing viability of the paper.
This report is from Recode earlier this year:
The publisher’s online subscription business, embarked upon somewhat sheepishly in 2011, has now cultivated over 2.2 million paying readers. An additional 400,000 or so pay for the Times’ standalone Crossword and Cooking apps.
But what’s particularly noteworthy is how quickly the business has grown. The paper brought in $340 million in online subscriptions for 2017, a 46 percent spike over the previous year. Even more impressive: that’s also the average annual growth rate since the paywall started in 2011.
Twenty years ago, advertising revenue made up over 60 percent of the Times’ revenue with about 27 percent from subscriptions. That number has basically inverted, making the Times much more dependent on reader subscriptions than advertisers. It is now selling subscriptions all over the world, something that would never have been possible with a printed newspaper.
The Financial Times has had a paywall for over a decade, and it’s also proven successful. Like the Times, subscription revenue from the FT’s 900,000 subscribers now makes up about two-thirds of total revenue. Meanwhile, the Wall Street Journal now has 1.4 million digital subscribers, up from nearly 1.1 million just last year.
Once scorned, paywalls have become an accepted norm. Publications that previously may have never considered paywalls, like Business Insider, Bloomberg, or Wired are building them or have them already. One of the first things Amazon CEO Jeff Bezos did when he bought the Washington Post was to invest in the newsroom, hiring 100 new reporters and editors, and then put the content behind a paywall. The Post, too, has just topped 1 million paying digital subscribers.
The trend is clear, and it’s an encouraging one: people are becoming more conditioned to pay for content they value, and it’s helping sustain independent reporting. News organizations have a long way to go, but they are much better off than they were even a few years ago.
Meanwhile, sites that rely solely on clicks — like Vice, Buzzfeed, Vox, and Mashable — are running into financial trouble. Sustaining a business on digital advertising is hard enough, but even more difficult when relying on Facebook’s ever-changing algorithm for referral traffic.
I am far outside of Vice’s demographic and have never been fond of Buzzfeed, but occasionally read Mashable and enjoy Vox. I want them to succeed, but they are currently battling some strong headwinds and are ripe for change. Once firmly in the mainstream, their business models are looking more and more untenable.
While big news brands may have found a recipe for survival, there is a risk smaller publications will be left behind. Business news is extremely valuable for people who need it, and I’d expect the price of these publications to be quite elastic. Then there’s room for “generalist” publications that report on international relations, politics, terrorism, climate change, and other “issues of the day”. The New York Times, Guardian (coincidentally without a paywall, but with frequent reminders for readers to donate), Daily Telegraph and Washington Post fall into this category. So what about papers like, say, Canada’s Globe and Mail? Or the LA Times?
I attended an event in Hong Kong last year where Jamil Anderlini, the Asia Editor for the FT, addressed this question. He said, and I’m paraphrasing based on memory, that there will be a few “big brands” that survive, like the FT, New York Times, and Guardian, but smaller publications that don’t have the readership or pockets deep enough to compete will likely close their doors. He used the Globe and Mail as an example.
I agree with this, up to a point: the key, even for regional publications, is differentiation.
We figured out, even during The Nanfang years, when no paywalls and large audiences were the norm, that it would make more sense for publications (other than a few big brands) to focus on differentiation. The San Francisco Chronicle probably isn’t getting good value from its investment in sports coverage, because Giants fans know to visit ESPN.com or The Athletic. The Globe and Mail probably doesn’t need to have a reporter on Wall Street when people who care about the market are already reading Bloomberg. The Washington Post won’t be covering City Hall in Fresno, and Canada’s National Post isn’t looking at contentious re-zoning proposals in Cache Creek. Local news may have, by its very nature, a much smaller audience, but it is critical information to that audience, and my hunch is people will pay for it if it’s high quality and reasonably priced. The goal for local and regional publications is to shift resources into beats that are highly differentiated and maximize value for their local readers.
Bloomberg Media CEO Justin Smith, who was the former digital head at The Atlantic (and who I once had a very long talk with at the launch party for Quartz in Hong Kong), shares this view:
…paywalls and the subscription model in general for general interest, broader content brands have really struggled. Two types have worked: Extremely high-quality journalism brands, whether in case of The New York Times or focused business publications like The Wall Street Journal or Financial Times, or professional brands that you can use for your work. Outside of those, newspapers to news sites to digital-first brands that have tried to convert to paywalls have largely not worked as a meaningful, scalable revenue stream that can rival other revenue streams.
I am encouraged that publishers have found a new model that appears to work, and even more pleased that people have decided, probably partially because of attacks on the media by the US President, that journalism is critical to democracies and worth paying for. There’s still a rocky road ahead though, and more online and offline publications will probably fold before the industry is solidly back on its feet.
Before wrapping this up, I want to draw attention to a particular outlier: Joshua Topolsky. Josh used to write for Engadget, the tech site, and is a co-founder of Vox. He launched a new publication called The Outline just two days after we folded The Nanfang in December 2016. The site features an incredible design and layout philosophy, and focuses on three core issues: power, culture, and the future. While his content is interesting to discuss on its own merits, it’s his ad philosophy that has drawn the most attention. Topolsky was recently interviewed on the Recode podcast (above), and said this:
“I’m open to the idea of asking for money from people. But I think there’s an unapproached opportunity in advertising that’s been bungled for 20 years by most people in this industry. Good advertising is good, and when it’s good it’s great.
The TV ad works because it’s good for TV. The magazine ad works because it’s good for magazines. You know what Instagram and Snapchat and Facebook, to some degree, and Pinterest figured out? There’s an internet ad that works really well. It just isn’t the box that is on every website.”
I’m cheering for Topolsky because I hope he has the secret key to unlock a viable advertising model for online publications; after all, the only thing better than having one business model that works for journalism, is two.
If I was starting The Nanfang today I would do it totally differently. The days of viral stories referred from Facebook are probably over, at least as the foundation for a business. It’s no longer about getting the most traffic. Publications are smarter, they are investing in journalism, quality is improving, and people have demonstrated that they’re willing to pay.
The journalism industry — even the internet! — has changed a lot since we launched in 2010. It’s not yet time to pop the champagne, but we are getting early signals that the industry’s darkest days may be behind us.