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Last fall, two excellent related blog posts ran that caught our eye regarding the challenges of running ad-supported content businesses online. The initial post was from Seth Sternberg – https://sethjs.wordpress.com/about, the former CEO of Meebo and current Product Director for the Google+ Platform. The second post, which was inspired by Seth’s post and followed it by a day, was by Glenn Fleishman – http://glog.glennf.com/about, the owner, editor, and publisher of The Magazine, a digital publication for “curious people with a technical bent”.
Both posts – Seth’s is here http://tinyp.as/1ghA5KZ and Glenn’s is here http://tinyp.as/1lBcQzu – are excellent, nuanced explanations of the challenges of generating online advertising revenues and I encourage you to read them. At the root of the posts is some pretty basic math involving subscription rates, ad rates, and pageviews (PV) that Glenn in particular calls attention to. Substituting Tinypass fees for the provider fees that Glenn uses, below is the key analysis.
OK, let’s say that the site in question charges its readers the following per month to access its content:
|Monthly subscription||Monthly revenue to publisher after Tinypass fees of 10% +$.30 per transaction|
Next let’s ask ourselves, “how many pageviews would I need in any given month across my site to generate $1.49 in revenue”?
|Average CPM (cost per thousand ad impressions)||PV across the site needed to equal the monthly revenue from one subscriber|
It turns out that the answer is 560 pageviews – $2.66/1,000 x 560 pageviews will get you $1.49 in revenue. (Note, the average CPM figure is from Forrester Research’s Digital Media Buying Forecast, 2012 to 2017).
Now, let’s assume that my site creates content that its readers value and that I am able to attract 25,000 monthly subscribers who each pay $1.99 per month to access my site. After fees to Tinypass, my site would generate $37,275 in revenue per month before taxes. This begs the question: how many pageviews would I need to generate each month to equal $37,275 in subscription revenue? Let’s do the math.
|Monthly revenue goal||Avg CPM||Needed monthly pageviews|
So, it turns out that the site would need some decent scale to begin to generate advertising revenues equivalent to a modest subscriber supported site. In the above case, more than 14 M pageviews a month – monthly revenue goal divided by average CPM/1,000 equals needed monthly pageviews.
This analysis leads directly to the initial point that Seth Sternberg, the former CEO of Meebo, makes in his post in answer to the question “why is it so hard to build an advertising business from scratch”? Turns out that the answer is primarily about scale.
From Seth’s post:
Why so hard?
Advertisers need scale. Big, big scale. Imagine you’re Pepsi. You have a team of people whose job is to find places to buy ads where they believe they’ll influence you to buy Pepsi next time you’re at the supermarket. It’s more efficient for that team of people to buy from just a few places with tons of users, rather than from lots of places with few users. Before you’re at 1M daily users, you’re just not interesting. By the time you’re at 5M daily users, they start testing you. Only once you hit 10M dailies are you big enough to truly become part of a media plan. 10M daily users is a lot of users.
Seth goes on to present a litany of other challenges, from demonstrating the effectiveness of the ad sale itself, to building out a sales team and managing cash flow.
The intention of this post is not to bash online advertising. Rather we simply want to highlight the reality and challenges that are inherent in building an online content business supported solely on a single revenue stream. At Tinypass we believe that it is time for online publishers to treat their audiences with something other than a one-size-fits-all approach, i.e. advertising. Your audience isn’t a monolith as user engagement ranges from drive by to passionate. Tinypass has the publisher tools to help you maximize revenues from your various audience segments.
Give us a call!
Last week, The Online Publishers Association (OPA) – www.online-publishers.org – released a study on the impact of digital content subscriptions on a variety of newspaper and magazine publishers. The overall findings – that digital subscriptions are positively impacting revenue, attracting younger audiences, garnering valuable consumer data and enhancing ad sales – comes as no surprise to Tinypass.
The research was based on interviews that took place between August and October 2013 with senior executives from Condé Nast, Consumer Reports, The Financial Times, Gannett Community Newspapers, Harvard Business Review, Meredith Corporation, The New York Times, Time, Inc., and The Wall Street Journal. You can download the full report here: http://tinyp.as/18UpX9s.
The report’s conclusion that the overall effect on business of paid access models is “overwhelmingly positive” is in line with what we are seeing at Tinypass. Earlier this month we reported that our average client’s revenue increased by 39% over the last quarter – you can see the full post here http://tinyp.as/1jqvXLB.
Perhaps the greatest fear publishers had in limiting access to their content was that it would have a negative impact on their ad sales. According to both the OPA report, as well as data from Tinypass, these fears are largely unfounded. The OPA found that the majority of surveyed publishers selling stand-alone advertising in a subscription environment agree that subscription data has given them an edge in advertising sales and contributed to a lift in CPMs. Saira Stahl, VP, Corporate Strategy at Gannett sums up the impact of paid content on her advertising business thusly:
“We have more data on our consumer demographics that we can share with advertisers. We can show that this is a more valuable audience – more affluent, more digitally oriented. Moreover, we can also offer advertisers more information about what content consumers are interested in.”
While Tinypass is not privy to the advertising revenues of our customers, our customers pageviews, which are a proxy of sorts for their advertising revenue, are up on average nearly 24% since deploying Tinypass.
Ultimately the results of the OPA’s research as well as the results that we are seeing at Tinypass reinforce a trend that we have been tracking for some time now, not only is paid content an emerging revenue model for online publishers, it is also a development that will positively impact the publishing business in ways beyond the immediate dollars that it brings in.
Early this morning, 7:30 AM to be exact, I had the pleasure of attending an event at The Harvard Business School Club of New York featuring Rob Grimshaw, Managing Director of FT.com. Over the course of an hour, and on the record, Grimshaw, who has been with The Financial Times since 1998, discussed his role heading up the FT’s business-to-consumer digital business and product portfolio. Below are some of the best nuggets from the event. (Note: all figures are attributed to Grimshaw and my notes.)
Back in August 2011, the FT pulled its iPad and iPhone apps from Apple’s App Store. The FT didn’t like Apple’s business terms. The 125 year-old publisher made a conscious decision to “operate in the browser with a direct connection to the user”, i.e. they decided to go with an HTML5 app.
Since its launch, the HTML5 app has had more than 4 million users.
50% of the FT’s pageviews are mobile, i.e. phone and tablet.
Google already has an ~53% share of the global, mobile ad market with Facebook at ~16% – services such as Spotify and Pandora are also doing well in the mobile ad space.
Increasing paid subscribers
When the FT got rid of the teaser copy that preceded each headline, i.e. the first few lines of each story, they ended up doubling their sales. It turns out that giving away the first couple of lines of a story, which essentially summarize the story itself, amounted to giving away too much value.
Challenging online ad market for publishers, or really anyone not named Google, Facebook, Twitter…
See Google, et als mobile market share numbers.
50% of all global pageviews are generated by social
15% by portals
8% by search
1.5% by publishers/news
The FT, in part via its paywall, is trying to create scarcity in a market that is massively over supplied.
FT Paywall 2.0
When asked how the FT needed to continue iterating its paywall, Grimshaw spoke about the need to “add steps to the staircase.” By this he means that while the FT has more than 300,000 digital subscribers it has 5 million registered, free users and that the “commitment cliff” currently on the site goes from $0 to upwards of $600 without any offers in-between. Figuring out how to bundle and charge for the “steps”, i.e. getting non-subscribers to enter into a paying relationship with the FT, is part of what the next version of the paywall will have to do.
We previewed Riptide back on July 30th – see http://www.tinypass.com/blog/reuters-original-sin-and-signs-of-redemption – and the full project is now available to the public. Now the challenge is finding time to sift through the “more than 50 hours of video interviews and a narrative essay that traces the evolution of digital news from early experiments to today.” I’ll do my best to find some time to dive into this treasure trove and get back to you with Tinypass’ perspective, particularly the road forward for the “news business.” The full accounting can be found here http://www.niemanlab.org/riptide.
Last week Time Inc.’s Fortune magazine hosted its Brainstorm TECH get together in Aspen. Fortune bills the confab as a “marketplace of ideas that assembles the smartest people we know — the world’s top technology and media thinkers, operators, entrepreneurs, innovators, and influencers.” We here at Tinypass were particularly interested in what the luminaries that made up the roundtable entitled “Riptide: The Epic Collision of Journalism and Digital” had to opine.
The group consisted of John Huey, Shorenstein Fellow at Harvard University and recently retired editor-in-chief of Time Inc., Martin Nisenholtz, Adjunct Associate Professor, Columbia Journalism School and former chief of digital operations at The New York Times, and Paul Sagan, Executive Chairman, Akamai Technologies. The moderator was none other than Steve Jobs biographer Walter Isaacson who serves as President and CEO of The Aspen Institute.
(You can find a full transcript of the panel here http://bit.ly/1bj52zE.)
Much of the panel was devoted to a project that Huey, Sagan, and Nisenholtz recently completed called “Riptide”, a documentary being released on September 9th – see http://www.niemanlab.org/riptidelanding/ – on how the business of journalism changed following the introduction of digital media. Or as Isaacson ominously put it “the beginning of the end of journalism.” Which brings us to the “original sin” that I allude to in the title of this post.
As anyone involved in digital media knows, the “original sin” was giving away content that in the physical world people had previously paid for. The details of how things played out in the Internet’s Garden of Eden are fascinating, with Reuter’s playing in part, the role of Eve.
From Fortune’s reporting on Riptide – see http://cnnmon.ie/13w50l7.
“In the early 1990s, David Graves, an executive at Reuters in New York City, spearheaded an investment by Reuters in Yahoo. Reuters, based in England, was a wire service whose main competitors were financial news companies like Dow Jones and Bloomberg. It had relatively few clients among U.S. newspapers, many of which were members of the Associated Press. Reuters started putting its news on Yahoo, and did so in part for an entirely novel reason — to help protect its investment in the fledgling technology company even as Reuters hoped to build significant new licensing revenue streams.”
Yahoo itself wasn’t in the news business so they had no compunction about giving away news in order to increase pageviews, the only metric that anyone really cared about as the company became the web’s leading destination.
Back To The Future
One of the key drivers of the early consumer web, Tim Berners-Lee, a.k.a. the inventor of the World Wide Web, was a contrarian when it came to the economics of the Internet, a point highlighted in the following exchange between Isaacson and Nisenholtz.
WALTER ISAACSON: Martin, you just mentioned that Tim Berners-Lee was the guy who pushed back on you. He also said that embedded in the web, or whatever digital networking protocols you want to use, could have been small payment systems so that the people using the content, the people who created that content would have gotten rewarded. And, indeed, if you go back to the RFCs, requests for comments, in the ’80s, when they were creating the worldwide web, one of the intrinsic things that was going to be built into the web was a way to, just like an ASCAP system in a way, that the creators of content it would be metered and they would get some of the revenues that came from people who went online. Was that even a possibility, does that make sense now? Is that a future possibility?
MARTIN NISENHOLTZ: I think, in fact, if you go look at the era, I think what he says is that that that’s something that will evolve. And I think it will. There have been a lot of tries at that. I mean over the years many, many entrepreneurs have tried that kind of micro-payment mechanism for informational content. Obviously, in a way, there was the very, very good roundtable on micro-payments at this conference, not micro-payments, electronic wallets, essentially at the conference. And so a lot of that, there’s a lot of that stuff going on now, and obviously over the last several years for entertainment content, stuff like iTunes has been very, very successful.
WALTER ISAACSON: Let’s call it easy payments instead of micro-payments. Would as easy payment, iTune 99 cents system, if somebody creates it, and I’ve been at dozens of these things for 10 years where people say I’ve got the easiest payment e-coin system and I keep trying and I still don’t have it. But, if that were to come along, would that create a new golden age of journalism?
So, what sort of age are we entering? We here at Tinypass believe that we are entering a balanced age. Whereas the pendulum swung wildly towards advertising supported content over the first 20 years of the Internet, we see a movement back toward the “two pedal” business model for journalism as espoused by the legendary former CEO of The New York Times Russell Lewis. Lewis used both advertising and subscriptions to manage business cycles. When advertising was robust, subscription prices were kept low. In difficult economic times, the “second pedal”, i.e. subscriptions, were relied on more to take up the revenue slack. (In the most recent recession, The New York Times’ print subscribers carried a heavier load for the company as prices increased significantly.)
Evidence of a willingness on the part of consumers to pay for online content is getting harder to ignore. Figures from the latest Audit Bureau of Circulations FAS-FAX report show that newspapers that charge for content are actually growing their overall audience – including, in some cases, print readership. Overall weekday circulation ticked up, increasing 0.7%, according to ABC. Sunday circ was up a healthy 5%. Overall, digital circulation now accounts for 14.2% of overall paid circ, up from about 8.7% a year ago. The poster child for paid, online consumer content, The New York Times, now has a larger digital circulation, 807,026, than weekday print circulation, 779,731.
Even Eve, i.e. Reuters, has positive news to report. According to the 2013 Reuters Institute Digital News Report there were significant increases in the number of respondents paying for online news in the United States (12%, up 3% from the previous year), the United Kingdom (9%, up 5%) and France (13%, up 5%). Unsurprisingly, the study also found that mobile news consumers were more likely to pay than other online news users.
The full report, all 112 pages of it, can be found here http://www.digitalnewsreport.org/.