Commentary

Paid Subscriptions May Lead Digital Publishers To Profits

Digital publishers are showing a greater willingness to make readers pay for subscriptions as they cope with growing competition from well-funded tech companies, such as Facebook, Google and increasingly, Amazon.

The pay-walling of the internet -- which defies the “information wants to be free” mantra that inspired countless hackers -– will have several profound effects on the digital publishing industry.

A slew of digital publishers last week announced they would put up paywalls on their websites, as CNBC’s Alex Sherman reported on Saturday. The list includes New York Media, publisher of New York, Verizon’s Yahoo Finance and Uzabase’s Quartz. Their moves followed stricter paywalls at Conde Nast’s Vanity Fair and Wired, Bloomberg News, The New York Times, The Wall Street Journal, The Financial Times and The Washington Post.

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Remarkably, The New York Times has reported online growth every quarter this year to more than 3.1 million digital-only subscribers, or about 75% of its total distribution. Digital ad sales have been more sporadic, making steady subscription revenue a welcome sign.

In many ways, digital pay walls mark a return to pre-internet years, when publications could depend on subscription revenue. But the explosive growth of online audiences compelled many publishers to adopt a strategy of reaching as many people as possible to boost their marketability to big-name advertisers.

Internet directories like Yahoo or search engines like Google weren’t necessarily considered a threat if they helped to drive traffic to publisher websites. Facebook also was a source of traffic, although the social network has had rocky relationships with some publishers over revenue sharing.

Facebook doesn’t need professionally produced content from publishers, especially if its users keep coming back to share vacation pictures, cute animal videos and life hacks. Viewers still tune into the user-generated content of “America’s Funniest Home Videos” nearly 30 years after the series started.

Consumers show a willingness to open their wallets for digital content, as evidenced by the more than 200 streaming video and music services like Netflix or Spotify now available. U.S. consumers subscribe to an average of three on-demand streaming services each, translating into spending of about $2.1 billion a year, according to a Deloitte estimate.

The willingness of younger consumers, especially millennials and Generation Z, to pay for online content likely bodes well for the digital publishing industry. A new generation of consumers is being trained to accept that digital content has a price. But publishers will have to focus their efforts on creating high-quality, original content that can’t be found elsewhere.

Unfortunately, the difference between digital haves and have-nots could widen as high-value news content becomes less available to lower-income groups. These groups may be more susceptible to the misinformation, propaganda and fake news that proliferate on free social media platforms, like Facebook, which benefits from sensationalist content that engages audiences.

While every digital publisher wants a solid mix of advertising and subscription revenue, market forces likely will disrupt their business models for years to come.

1 comment about "Paid Subscriptions May Lead Digital Publishers To Profits".
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  1. James Smith from J. R. Smith Group, November 20, 2018 at 11:41 p.m.

    Rob, I agree with your conclusion about what publishers want and what the market will tolerate. Many pubs will be very late to the paywall dance; many will over-value their subscriptions (likely to handle revenue requirements).  In some regards, don't you think this comes at a bad time?  Consumers are starting to feel "subscription fatigue." Subs for the WSJ and NYT are pricey for most consumers.  Makes the recent $8 yearly for the print version of Smithsonian look like a bargain.

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