What comes next for subscriptions

The shift to reader revenue has reinforced publisher business models, but the land grab phase is ending

Thanks to House of Kaizen and Matt Cronin for sponsoring this issue of The Rebooting. We’re trying something new by matching up “House of Kaizen” insights with issues of The Rebooting focused on subscriptions. House of Kaizen collaborates with publishers worldwide to build more sustainable businesses with best practices and experimentation for better acquisition, retention and lifetime value. Here’s Matt’s insight on why subscribers are more important then just another revenue source:

Subscribers are better customers because of the length of their journey, and all the opportunities to make improvements to customer lifetime value along the way.

Sustainable net growth, adding new while retaining and renewing existing customers, is the outcome of a full journey effort to balance the subscriber experience with the lifetime value. Journey performance has a 20-30% greater impact on value and business outcomes than touchpoint performance. (Source: McKinsey Research, HBR).

Connecting subscriber journey stages with specific, optimizable aspects of the marketing and product experience can focus a teams’ effort where it will have the greatest impact on net growth over the long term, where customer value is created.

Sustainable subscription growth comes from experience optimization. House of Kaizen collaborates with publishers worldwide to build more sustainable businesses with best practices and experimentation for better acquisition, retention and lifetime value.

What comes next for subscriptions

I like to describe the publishing industry as operating a lot like an (American) children’s soccer game. When the ball goes to one part of the field, a clump of players follow en masse. It isn’t the most effective or strategic approach because it’s pure instinct to chase the ball.

The same holds true to whatever is the latest Holy Grail/silver bullet/gamechanger/bright shiny object of the moment. Over the years, I’ve seen publishers rush to shore up their businesses by pinning their future hopes on everything from ad networks to complement owned properties to programmatic advertising to “distributed publishing” to the unfortunate and thankfully short lived “platisher” frenzy to the infamous pivot to video to affiliate commerce to any number of incremental efforts that never ended up getting beyond increments.

But the biggest recent shift in digital publishing in recent times has been the move to subscriptions as a key aspect of any sustainable publishing model. From 2016 to 2022, the number of U.S. consumers who say they pay for news has risen from 9% to 19%, according to the Reuters Digital News Report. This has been, mostly, a positive development, as it has forced publishers to be more audience-centric. Many of the horrible aspects of digital media come from bad business models in which the audience is a product to be sold through adversarial business models premised on the idea that people will tolerate quite a bit of nonsense in exchange for free access.

Subscriptions have long occupied a niche of digital publishing, mostly relegated to business publications like The Wall Street Journal and The Financial Times, along with specialized publications in B2B. It’s important to remember that an ad-based business model wasn’t even a question for most internet companies. In fact, most social networks and sharing tools were encouraged by their VCs to simply focus on user growth, with the idea that once they got to scale, they could “turn on the revenue spigot” of ads. One of the few recent breakout hits, photo-sharing app BeReal, is looking to in-app purchases and subscriptions to “avoid advertising.” Times change.

For publishing, The New York Times changed the thinking around subscriptions by putting reader revenue at the core of its model back a decade ago. It’s hard to remember now, but in the wake of the Financial Crisis, the future of The New York Times was doubted by some. I can recall dark jokes about Mexican billionaire Carlos Slim taking it over, and the innovation report issued in 2014 made clear internally the feeling that the Times was, well, behind the times.

The success of the reader revenue model at the Times, long a bellwether of the industry, showed that a path to sustainable publishing businesses lay in replacing fickle ad revenue that was mostly being lost to Google and Facebook with direct reader payments for access. During the social era, publishers had BuzzFeed envy, aping its quizzes and listicles, but the Times’ growing reader revenue model soon became what publishers aspired to.

Now, most publishers have rolled out some kind of subscription or membership offering. The rise of streaming services normalized paying for content access, and broad and deep markets like the U.S. showed that people would pay for several services.

The next phase of this shift to reader revenue will revolve increasingly around consolidating the gains of a subscriber base while using it to build new business opportunities. Here’s how I see this maturing phase playing out.

Less binary thinking. Too much thinking is binary. Subscriptions were frequently viewed as an unfortunate necessity, often framed as a last resort forced on publishers by the vicissitudes of a brutal ad market that had been gobbled up by platforms due to their heft and depth of data. Many subscriptions were marketed as a way to escape ads – The Athletic went this path, and I still see others touting “ad free” as a big benefit. That was always nonsense, even more so today. The Athletic now has ads, and sure, some will grumble in the comments, but it’s hard for to believe that a reasonable ad product will cause a massive deterioration of the ad business. Upstart publishers who began with subscriptions as their main business model, such as Puck and Punchbowl, have found that their subscriber base is actually good leverage in the ad market, since there’s no better proof of a durable, loyal audience than people willing to pay, not to mention the first-party data advantages for large subscription operations. There’s a reason The Wall Street Journal, which has always had a paywall, has a lucrative ad business. Ads + subscriptions will be the default.

Tending to the garden. Growth is the oxygen of business. It’s no wonder that many publishers prioritized subscriber growth in getting their direct revenue operations off the ground. The $1 trial offer became the norm. Eventually land grabs end. Every market is focused now on profits, not growth. Look no further than the streaming market, where the early “wars” are giving way to a consolidation phase in which the biggest players are sorting out long-term sustainable models – and that nearly always involves increasing revenue per user as opposed to simply adding more users at a low price point.

The rebundling. Earlier this week, Stratechery gave in to nature to bundle its subscriptions offerings together as, wait for it, Stratechery Plus. Go figure. The New York Times sees growth opportunities in bundling its five different subscriptions. The old rule of thumb applies: There are two ways to make money in media – bunding and rebundling. Too many subscription products are too complicated. The impulse for many is to slice up the pie ever more in the hopes of eking out more overall revenue by selling more narrow slices. The cost is confusing products. Netflix had it right that product and pricing simplicity is a great advantage, as Jack Marshall at Toolkits has preached. The rebundling will also occur in what is unfortunately called the creator economy. Solo practitioners will band together more often. Many will begin hiring others as they get stretched thin and aspire to luxuries like a week off.

Product quality. The land grab phase giving way to consolidation, happening against the backdrop of rising interest rates and an increasing likelihood of a recession, means that the value of the product will grow even more in importance, as obvious as that sounds. Many times growth tactics take precedence. My hypothesis is the focus on paid acquisition, growth hacking and dark patterns happens because those are levers that can produce at the very least the appearance of progress. Building a sustainable subscriptions and memberships business takes time, and the biggest advantage, unsurprisingly, is a product people value and find essential. That’s simple but hard. Ultimately, that’s going to determine the long-term viability and continued growth of subscriptions programs, not crafty user acquisition strategies.

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Future is losing the CEO who engineered its remarkable comeback. Zillah Byng-Thorne is set to depart the company at the end of next year, after a lauded turnaround at the specialist publisher. (Zillah was a recent guest on The Rebooting Show.) I’ll be interested to see if she stays in publishing – and if she makes the leap to the U.S. market, where here salary won’t nearly be a big deal if she delivers results.

Optioning stories to be developed into TV and movies is the most glamorous of the options magazine publishers have for developing new lines of business. (Sure beats doing gift guides of the vacuum cleaner you need to have this holiday season.) The Atlantic is going down this path, joining others in looking to mine their intellectual property for a new revenue stream. The question is whether these deals end up being real money, particularly as The Atlantic is still facing a $10 million hole five years after Laurene Powell Jobs bought the brand.

The ad industry likes to periodically grumble about the Federal Trade Commission, but U.S. regulators typically take a kid gloves approach to business, certainly in comparison to the market-shaping moves made in Europe. The FTC prefers self-regulation and uses enforcement actions, like the Kochava lawsuit, to signal areas of concern, while leaving the task of tidying those areas up to businesses themselves.

CNN isn’t pulling the plug on Reliable Sources entirely after the departure of Brian Stelter. The Reliable Sources newsletter is being revamped and will debut next week. One important change is there will be simply less of it. The newsletter won’t be as long and will arrive four times a week vs six times. Casey Newton, who is my next guest on The Rebooting Show, is cutting back his frequency from four times a week to three times. More is very often just more.

I’m convinced a secret to a happy life is to be able to separate other people’s urgency from your own. Some take this to extremes. Take Axl Rose. His notorious habit of forcing crowds to wait apparently isn’t contrived, but simply his way of working. Respect.

Thanks so much for reading. Shoot me a note with feedback and thoughts (and sponsorship inquiries) to: bmorrissey@gmail.com.