Part 2: Why Should You Care About Direct Reader Revenue?
Written by: Celia Wu, COO of XeePay for News
This is the second of a multi-part series on direct reader revenue and the news media.
In the first part of this series, “Why should you care about direct reader revenue?”, we looked at the current state of digital advertising and digital news. It is not a pretty picture for digital news, with the duopoly of Google and Facebook taking nearly half of all digital ad revenue globally, and the top 10 sites in the United States taking 75% of internet advertising revenue in Q4 2018 (per the IAB). How are digital news sites compensating for their decreasing share of digital advertising revenue? Some have looked at direct reader revenue – where the reader is treated as the customer for first-party revenue, complementing the third-party revenue from advertisers.
Here are some attempts at direct reader revenue from different news publishers:
In the quest for sustainability, local and independent news sites have increasingly put up pay walls to earn direct reader revenue. Presently, fifty percent of American readers hit one or more paywalls each week when reading the news. These attempts for direct reader revenue have been met with significant challenges in the marketplace. A Business Insider survey revealed that The New York Times and The Washington Post together account for more than half of all U.S. news subscribers. The survey also suggests that American readers are largely unwilling to pay for more than one online news subscription. And for all the investment in marketing to potential subscribers with promotions and trial periods, the churn rate for news publishers averaged 30 percent in 2017. By comparison, the churn rate for the music streaming service Spotify was 5.1 percent in the same time period.
Cost is certainly a factor in the reluctance to subscribe, with $10 a month being the median price paid for a U.S. online newspaper. The Reuters Institute for Journalism reported the average price of paywalled news across seven countries (in Europe and the U.S.) is $15.75 a month. The same survey found that 69 percent of newspapers deployed a pay model for their readers, ranging from freemium  models to metered paywalls.
Another important factor in readers’ hesitancy to commit to one, or any, subscription is their desire for access to news content from multiple news destinations. Readers are wary of making the financial commitment to just one brand. The Reuters survey cited that “almost half of those who are interested in news, 49 percent, consume more than four different online sources each week” – a number that rises significantly for under 35s.
Matthew Hindman wrote in his book, The Internet Trap: How the Digital Economy Builds Monopolies and Undermines Democracy (2018) “that “the biggest cost of paywalls lies in lower traffic” due to readers “bouncing” off the site and going elsewhere to seek the content for free. The danger is that these readers may not come back, so the reduced traffic lost continues to spiral downward along with advertising revenue due to reduced advertising impressions. He attributed the digital subscription success story for The New York Times to its metered paywall strategy and high quality content, but also warned that this success is an outlier. He pointed to Gannett, which in 2013 placed paywalls across its eighty local digital newspapers and reported only 46,000 subscribers who signed up. Although digital subscribers did rise to 341,000 with the “Trump bump,” Hindman countered that many of these digital subscriptions were steeply discounted.[MOU1] Gannett saw a nearly nine percent year-over-year decline in revenue per each of its newspapers.
The adverse affect on visitors to a newspaper’s website after it put up a paywall led to the San Francisco Chronicle and Dallas Morning News dismantling their paywalls in 2013, although both publications have renewed paywall efforts. The San Francisco Chronicle introduced a paywall with customized content based on readers’ data collected behind it. The Dallas Morning News put in place a metered paywall in 2016.
The Aggregator Model
Apple News+ is another option some publishers have joined. It launched on March 25, 2019 as an aggregator of content from news publishers who have opted in. Subscribers pay $9.99 a month, and Apple splits 50% of its revenue with publishers on a metered basis, similar to how Spotify or Pandora pay their artists if their songs have been played. Conde Nast, Dow Jones, and Meredith form part of some 200 publications that have joined Apple News+. More than 200,000 people subscribed to the service in its first 48 hours. Apple has not released updated subscription numbers.
Critics of the service argue that Apple News+ should “send publishers running,” as they are ceding the opportunity to develop a direct relationship with their readers while enriching Apple’s platform, diluting their own news brand, and cannibalizing their own subscription efforts. Hindman wrote a similar warning in his book when describing Google News’ “ubiquitous filtering as a part of a worrying concentration of corporate power.”
Some news outlets have experimented with a donation model, asking readers to voluntarily contribute by appealing to readers for their support of independent journalism. The Guardian reported that more than a million people have made donations in the past three years, with half paying on an ongoing basis. Katherine Viner, Guardian News and Media’s editor-in-chief, explained: “Many readers didn’t understand the challenging commercial reality facing all news organizations, but once we told them more, they expressed real interest in wanting to support the Guardian. This was helped by the fact that any money made by the Guardian has to be spent on journalism, because of our ownership structure with no shareholders or owner.” Per the Guardian’s chief revenue officer, Hamish Nicklin, “…now over half of our revenues come from readers, as opposed to advertising. Only a very small proportion of it is now based on print….so we’re definitely more of a digital business, and more of a reader-focused business.”
In November 2018, business news site Quartz announced a membership program  that would provide access to its content for $14.99 per month, or $99.99 for the first year. Membership benefits also include opportunities to engage directly with Quartz’ journalists via conference calls and exclusive member events. A 30-day free trial was offered. After implementing the membership program, which put content behind a metered paywall, web traffic predictably dropped 35 percent from an average of 11.5 million monthly unique visitors from the year before to an average of 7.3 million monthly unique visitors in the first three months of 2019.
Buzzfeed News worked with the Google News Initiative to pilot a membership program, where for $5 a month you can receive member-only emails, and for $100 a year, an exclusive BuzzFeed News tote bag. Membership numbers have not been publicly released. While membership programs have worked for non-profit and publicly funded media like National Public Radio, it is questionable whether a membership model for a venture capital funded organization like BuzzFeed would resonate with its readers. BuzzFeed has raised nearly $500 million in venture funding.
Esther Thorpe, commissioning editor of What’s New in Publishing (WNIP), looked at how Twitch  and WeChat  offered different subscription tiers, including the ability for fans to offer a small “tip” or donation. On Twitch, users can buy “bits” (100 bits costs $1.40) and use them to “cheer on” gamers streaming. These small tips amounted to almost $7 million, split between the top three streamers on Twitch – in the span of one month, August 2018. Twitch takes between 20 – 40 percent, depending on the amount tipped.
WeChat introduced a tipping feature using WeChat’s built in payment technology to send cash donations to content creators. The payments go directly to the individual writers.
Next installment: Why does Scandinavia lead the world in direct reader revenue?
Author’s notes: These are excerpts from a thesis paper. Academic citations were removed for readability; please comment to inquire about references or sources of data.
Celia Wu is COO of XeePay for News, a micropayments platform designed for digital media content. She is also currently writing her thesis on journalism sustainability as a graduate student at the University of Missouri’s School of Journalism.