Serving readers over advertisers

“For the first time in decades, several large news publishers now generate more revenues from readers than from advertisers. It’s hard to overstate this business-model pivot.”

If you’re not paying for the product, then you’re not the customer — you’re the product being sold. The year 2018 will bring this wisdom fully into focus, elevating the news industry as innovators while reducing the giant Silicon Valley technology companies to the status of change-resistant dinosaurs.

As the news industry moves away from primary reliance on advertising as its core revenue model, publishers will focus on serving their readers better instead of how best to sell them to advertisers. For the first time in decades, several large news publishers now generate more revenues from readers than from advertisers. It’s hard to overstate this business-model pivot. Advertising used to deliver 80 percent of revenues for newspapers, with subscriptions accounting for 20 percent. In terms of profit, advertising was an even higher percentage of the total in the pre-digital era because print subscriptions require the expenses of ink, newsprint, printing, and distribution. As news publishers focus on digital subscriptions, the dynamics flip, with a high profit margin on each new digital subscription sold.

The first news publishers to succeed with digital subscriptions were the largest brands such as The Wall Street Journal, The New York Times, and The Washington Post. They now have teams of data scientists mapping which investments in journalism correlate to more digital subscriptions and higher renewal rates. New York Times CEO Mark Thompson says he think the Times can eventually get to 10 million digital subscribers, several times larger than the current level.

Regional and local newspapers are focused on growing digital subscriptions. The editor of the San Jose Mercury News, Neil Chase, in 2017 bought plastic funnels for his journalists marked with reminders of the digital subscription sales funnel: “Awareness, Engagement, Registration, Subscription.” (Neil says the 69-cent funnels can also be used to hold beer). Many digital news publishers have also abandoned the original sin that all information has to be free by launching subscription or membership programs.

News publishers were the original innovators in what’s now called the subscription economy. Newspapers and magazines have sold subscriptions for hundreds of years, making them among the pioneering subscription-based businesses. We can now subscribe to Netflix for video, Spotify for music, and Dollar Shave Club for razors. But news has long been supported by readers, giving some reassurance that the pivot to high-margin digital subscriptions will make a big difference to the sustainability of news publishers.

In contrast, the platform companies continue to focus on how they can monetize their users — with their users understood as their “products to be sold.” eMarketer estimates Google and Facebook alone will account for 63 percent of the digital advertising market in 2017. The tipping point will occur in 2018, as Google and Facebook take over 100 percent of the revenue growth in digital advertising, leaving a small and shrinking pie for everyone else.

Silicon Valley now has a reputation problem with its users, who are wondering if even getting free access to services such as Google search and the Facebook News Feed is such a great bargain. People increasingly understood they “pay” as the products being sold to advertisers. “News” from fake news brands has highlighted worry that the sometimes dubious quality of the information on these platforms means they are not the safe, well-lit environments people expect. In 2018, Silicon Valley will have to do more than fund academic studies to regain the trust of their users if they want to push back against governments around the world now considering regulating them or even breaking them up.

And so a prediction for 2018: The reputation of the news industry will rise (admittedly from a lowly base) as publishers focus more on serving readers, while the reputation of Silicon Valley will continue to erode (from its still high base), at least until the technology companies find ways to improve the experience for their users and no longer focus just on the profitable experience for their advertisers.

Gordon Crovitz is former publisher of The Wall Street Journal and cofounder of the startup NewsGuard.

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