WORKWEEK

In the last few years, it’s been impossible NOT to hear talk in our industry about how great it is for media businesses to lean into subscription revenue. 

Why?

Look at The New York Times — it’s a hell of a model to replicate. 

They’re the leading media company in the world with a market cap of nearly $7B. They also have the leading news subscription in the world with more than 7.5M paid subscribers — that’s 2X the amount of their closest competitor, The Washington Post. 

Or maybe look at Netflix, Spotify, Amazon, and other consumer apps that have proven consumers will pay a nearly-forgotten-amount-per-month for a subscription they value.

But is it true? 

Is subscription the savior of media as it was promised to be in this headline 3 years ago? Is it a model that media companies should build their entire ecosystem around? Does it actually produce better outcomes for investors and shareholders?

Today, I’m diving into subscription as a business model — and how media operators’ craving the security of recurring revenue lose sight of the value they can create.  

Building a glass house 

The Information has been a shining star of subscription media. The company has focused on bringing in high quality journalists with deep sources to provide some of the most in-depth tech reporting in the world. 

And, financially, they seem to be doing pretty well.

The Information doesn’t share numbers, but the 9-year-old startup has shown steady growth. I’d estimate in year 5 they did $5M in annual revenue and are pushing close to $20M this year, with the average subscription being about $400 annually. 

Jessica Lessin, Founder of The Information, doesn’t pull punches when talking about her subscription-based business model. 

She told TechCrunch, “I still believe it’s much safer to build a business that doesn’t need any advertising to survive. Doing so forces you to focus 100% on your value to your readers.” The author of that TechCrunch piece went on to give their own opinion that pop-up ads are one of the most undesirable features of the internet. 

The point is clear from Lessin: Advertising drives publishers to create low-quality content, while subscription aligns incentives which allows publishers to create high-quality content that users will pay for.

I agree with one thing: I also hate pop-up ads. But, hey, at least I can block most of them.

You know which pop-ups I can’t block? This one asking me to buy a subscription to The Information. 

Excel-sheet driven companies 

As I pointed out last week, The Financial Times has a marketing staff of more than 70 people. Someone at FT confirmed with me that they have an absolute machine of a marketing funnel — they test landing pages and pop-ups, optimize user flows and email campaigns, and do everything they can to convert subscriptions and reduce churn. 

They are as much a marketing company as they are a content company.  

Growth marketers are the latest craze at subscription-based publications, despite their average annual salary of $135k+. Instead of guardrails to follow, they’re given seven-figure annual budgets and aggressive customer acquisition goals. Most of them are Excel wizards who speak in acronyms like CVR, CAC, LTV, and get off on “deep cohort analysis”. 

The big problem? The only customer experience growth marketers are incentivized to care about is doing what they can to lower the churn rate. This has created user experiences like:

• A phone line to cancel that is an absolute pain in the ass
• 90-day subscription trials that cost $1 that when you forget to cancel it charges $300
• Pop up promotional ads 3 seconds after you land on the page
• Email marketing campaigns that are endless with not-so-special discounts

At best, these experiences are really annoying. At worst, they’re predatory. But it’s what successful subscription companies are doing to achieve the revenue targets they need in order to sustain and hit their desired outcomes.  

I can’t say I know what particular type of “value to your readers” Lessin meant, but I do know I absolutely DON’T value feeling like being tricked into buying something through a bad promotion while getting blasted with pop-ups along the way.

Is the model worth the compromises?

Today, there are 38 news companies globally that have more than 100,000 paid subscribers. More than half of these 38 companies are more than 100 years old. 

However, The Athletic is #6 on this list — and Substack is expected to cross 100,000 subscriptions this quarter. To attach revenue to these subscriptions, it’s been reported that:

• The Athletic does just north of $50M in annual revenue, while losing $50M in annual profit
• Substack will cross $20M gross merchandise value (GMV) while taking a 10% cut of that total amount — after raising more than $82M from investors. 

If we look at these two companies as the “Best in Show” subscription companies of the last decade or two, then it sets the bar… pretty low. 

It’s estimated only 20% of US adults pay for a news subscription, and out of the top 15 subscription news companies in the world, only 6 are in the US. The NYT is leading the pack with 7.5M subscribers and $1.8B in annual revenue (not all subscriptions)

Let’s compare that to Netflix, who now has nearly 75M subscribers in the US and Canada, and is doing nearly $28B in annual revenue. 

Do people really want to pay a subscription for their news? The numbers would say no. The subscription-based business model created by news organizations nearly 400 years ago is no longer desired by customers. 

Plus, the outcomes and comparables simply aren’t there to make a case that a subscription-focused business that meters its website and gates content for subscribers has the possibility of reaching profitability and scale while also maintaining a more premium experience than advertising would offer.

Where subscription does fit in? 

Advertising-based media businesses that are dependent on site traffic are really volatile and it’s difficult to build models that are sustainable. My favorite examples of this volatility involve a certain X-rated site that I won’t name for the sake of spam filters:

• During a Biden/Trump debate, P*rnhub’s site traffic plummeted 18.5% in swing states
• When Hawaii’s State Emergency Management Agency erroneously sent a text alert warning people they were about to be nuked, P*rnhub’s site traffic plummeted 77% — only to grow 48% once the text was deemed a mistake.
• During the World Cup, P*rnhub’s traffic in Croatia and France plummeted nearly 80% during the game.

This volatility means that modern media companies need subscription in their revenue stack. Recurring revenue allows media operators to worry less about advertising volatility and/or government employees hitting the wrong button. 

But we can do subscription better.

Here are 2 good examples of companies utilizing subscription as part of their playbook: 

1. The Generalist recently changed their subscription. Previously, it was $300/year for access to their content and community. Today, their content is ungated, and the subscription is $500/year for access to their community only — and from all appearances, there has been little churn due to the change. Better yet? Mario can now monetize his free newsletters via advertising AND use those free newsletters to drive community subscriptions. (Note: Utilizing subscription to create niche communities is an opportunity almost any content company can move on to build a deeper relationship with their top 1% of readers.) 
2. Every, a company that has created a “modern bundle of newsletters”, has traditionally monetized only with subscription, while using a free newsletter to promote their high-quality content and drive users down the funnel for subscription trials. Recently, Every started monetizing their free newsletter with advertising, while still using it as a funnel to grow subscriptions.

In most cases, free newsletters grow much faster than paid subscriptions, which creates a prime opportunity to drive advertising revenue. And, in most cases, the advertising experience doesn’t hurt your marketing funnel — you’re still able to convert free subscribers to paid subscriptions, plus you can use that advertising revenue to supplement the cash flow needed to build the subscription business. 

Conclusion

Subscription-focused media businesses are an old way to make money. Few subscription-based companies are able to really scale profitably, and those that are have proven they’re as much marketers as they are content creators. 

While recurring revenue should be a staple of every modern media company, a paywall is the laziest of choices — and one that most readers don’t want to purchase. 

To avoid the “crap trap”, we need to create high quality free content that enables us to capture high quality subscribers who can help us drive recurring revenue.

Subscription isn’t the savior it’s been made out to be. Very few of the subscription-focused media companies out there are able to really scale profitably. Those that are able to scale profitably have proven they’re as much marketers as they are content creators. 

While recurring revenue should be a staple of every modern media company, a paywall is the laziest of choices — and one that most readers don’t want to purchase. 

To avoid the “crap trap”, we need to create high quality free content that enables us to capture high quality subscribers who can help us drive recurring revenue.

Extra: A little bit of humanity

I didn’t originally include this section in my essay, but wanted to add it in light of the events in Ukraine this week. There’s a good amount of misinformation and misunderstanding of what’s happening in the world right now and, in many ways, subscription is part of the problem. 

Do we really think it’s a good model when someone has to decide if making an article free for the greater good is worth the potential loss in revenue? Should we really hold back access to the world’s greatest journalist because the plush of recurring revenue is worth it?  

I was disappointed in doing my research for this article. So many media companies have gated content on the Ukraine invasion, even though it’s the job of the media to tell the world the stories they need to know. 

My ask to you: Be responsible with the privilege you’ve gained by controlling access to high-quality information. The world needs better communication in order to create more peace.