The economics of news & how to monetize quality journalism

Is it too late?

While most weeks in 2020 can be described as one of *those* weeks, the month of May has been particularly unkind to journalists. Conde Nast, The Economist, Quartz, Buzzfeed, Vice are just some of the more recognizable names that reduced ranks recently. The Poynter Institute keeps a running tally of newsroom cuts attributed to Covid-19 - particularly heartbreaking are the many local papers that are either severely cutting down or shutting down all together. Then there’s the Atlantic, which in spite of record readership and a spike in new subscriptions is still cutting 68 employees or 17% of its staff, demonstrating that even those who are seemingly executing very well commercially can’t sustain a business model that’s no longer in line with the times. 

This, of course, didn’t happen overnight. At the risk of oversimplifying a complex topic, two marquee shifts in how news were monetized are the underlying cause of most of modern journalism’s commercial woes:

the disappearance of a steady income from classified ads and that original sin of the internet that made consumers expect to be able to read stuff online “for free”

Journalism in the US used to be a reliable money-printing business with margins of 30% and higher right up until the early 00s. It was simple: people wanted information, and the only way to get information was to buy a paper or three, making it easy for subscription model to flourish. Healthy newsrooms that could support many local middle class salaries were the norm all across the country and the craft of journalism, with its fact-checkers, approach to sources, and overall journalistic integrity could thrive; newsrooms notoriously shunned understanding the commercial side of things because they never needed to. At the same time the advertising revenue was reliably flowing in, in large part due to classified ads which made up a significant portion of overall revenue (commonly around 40% for an average US paper). Before the internet, if you wanted to look for a job or a house or a car your local paper’s classifieds pages were the place to go. Papers could set their own price because there was no alternative - and they did, charging by the line or often by word. While newspapers were tinkering with classifieds and other ad pricing because they were the only game in town, the internet joined the chat. It wasn’t a hard sell to switch from per word or per line pricing for classifieds that newspapers offered to an easy per-post (or better yet entirely free) ad. 

To once again prove that a picture is worth a thousand words, I offer this frequently quoted graph dating back to 2015, courtesy of Mark J. Perry, a professor of economics and finance at the University of Michigan, a scholar at public policy think tank American Enterprise Institute (AEI), and author of the Carpe Diem blog.  


As we now know, things did not get better for news institutions in the subsequent 5 years. 

Unlike in the print world where most readers understood that they had to pay to read a quality paper/journalism product, the internet offered the promise of free content: free for the reader, that is. While it may be obvious to industry insiders that free really means ad supported, we as an industry didn’t really communicate this well to folks outside of media. With the platform age, we’ve created a peculiar monster: high-quality content meticulously reported by well-run newsrooms appears in news feeds right next to the ramblings of someone’s aunt Karen, with the same brand ads running in between.

When high quality content that requires resources and a process to produce looks like and stands next to someone’s hastily written opinion, how do you tell them apart? 

Why should you care: 

Monetizing reader attention through advertising may have been a plausible idea when content was more scarce and when media companies producing the content also controlled its distribution; but we’re in the age of content abundance, and more specifically in a limbo state that I like to call ‘the in-between’. In the in-between, old business models still have enough scale to sustain (some) life, while new ones are slowly emerging. For legacy organizations that are structured and capitalized to take advantage of old business models the shift to a new model may be arduous if not impossible. I liken it to playing a basketball game: imagine if at half-time your opponents could play with 7 instead of 5 players on court, and every shot they make counts as a three-pointer. What chance do you have to win if your team is still playing by original basketball rules? If you’re a publisher, why do you play by platform rules? Emphasizing scale (when platforms have billions of users) and content quality (when platforms value quality content and random posts the same) doesn’t seem to move the needle -- and those two are the usual selling points  that our publisher clients like to highlight as their key advantages.   

Consumption patterns are different in content abundance. News content isn’t just competing with news content now: it’s competing with everything else that can be accessed over our default device, the mobile phone. Does this feel like a premium experience that’s worth paying for? 

This is where the original ‘everything on the internet is free’ assumption comes back with a vengeance. The transition from free to paid is rarely smooth -- and on the internet we’ve spent 20 years consuming free content that we’re now seemingly all of a sudden being asked to pay for? Consumers of news today seem to have a binary choice: you can either subscribe (and still see ads) or expect a sub-par ad experience like Newsweek’s above. Realistically, how many paid subscriptions could an average media diet support? I ran a very unscientific poll on Twitter, where my followers skew towards media industry insiders, technology leaders, and generally folks who can both afford to and are used to paying for good digital experiences. The results were predictably underwhelming -- most folks seem to have an appetite for 1-5 subscriptions (the 28% who said 0 are worth a follow-up post, but I digress): 

If you already subscribe to, say, The New York Times and The Atlantic, who else makes the cut to round out those 1-5 subscriptions? How can a local paper sustain its newsroom if it’s competing for subscription dollars with the modern day news equivalent of the NBA All-stars?

So what can we do? We all know that things are generally dire; let’s be prescriptive. If you’re a media company that produces news and is stuck in the advertising-is-no-longer-enough loop, I’d like to suggest these three immediate band-aids that can help bridge the in-between: 

  1. Everyone won’t be a subscriber, and that’s ok: the binary nature of pushing an audience to either subscribe or endure an ad supported, inferior experience is outdated. After all, we don’t expect newspapers at a newsstand to be free; why is this different for their online versions? This is in line with how people discover new content today: through their social media feed, or via links shared in group chats rather than going to a media company's website.  Article or daily passes can be used as an acquisition strategy: make the payments easy and mobile-friendly; if a user exceeds a certain number of visits per month, pitch them a subscription as a more economical choice, or perhaps point the reader to sign up for an ad-supported weekly newsletter in lieu of full daily access paid subscription. When you present users with a binary choice in a world of content abundance, it’s often easier to choose not to engage with your content at all. 

  2. Cultivate a super-supporter audience: Patreon has a really interesting model here that lets creators outline different sponsorship tiers and is worth emulating. This same approach is well-implemented across B2B/trade press. Make it easy to fund subscriptions for others and outline higher support tiers like art institutions do. To do this well you need to understand customer life-time value and, like with any funnel, make sure you’re optimizing for the full relationship and not for each individual interaction. 

  1. Expand the definition of sponsorship to include access: takeovers and exclusive sponsorships used to be a popular facet of an earlier internet. Maybe those are worth a second look, especially in the local news context. Maybe instead of counting and paying for each individual ad impression, Boston’s hometown brands like Gillette and Bose divert a portion of their above-the-line advertising budgets towards sponsoring access to The Boston Globe for most readers. 

What happens if journalism as we know it today doesn’t survive the in-between? It is well understood in Western societies that strong and independent journalism is a necessary ingredient for democracy. At the risk of sounding overly dramatic I have to ask: if the predominant business model we’ve adopted for journalism fails (and we have every indication that it’s failing), are we at risk of losing democracy, too? 

One question:

For most of this One we took the perspective of media owners & news organizations. Let’s now switch our focus to brands. The ISBA programmatic advertising supply chain report we talked about in One’s first episode a few weeks ago surfaced the argument that concerns around transparency of the ad-buying supply chain make it easier to justify spending more of your budget on walled gardens. My question this week to brands is:

Knowing that on platforms like Facebook your ad can appear next to the crazy rantings of aunt Karen, does that register as a brand safety issue and perhaps more importantly how does that factor into your buying strategy?

Dig deeper:

There is so much nuance in this topic that I’ve resisted the urge to turn this post into a book. We could have jumped into different scenarios for audience development, what a few advanced newsrooms have built, how web analytics played a role in equalizing readers and similar topics. I invite you to jump in in public comments, tweets or over email. 

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