This article was first published by INMA on 01 August 2022
Digital publishers are striving to find the perfect balance between subscriptions and ad-supported business models. The struggle comes because ad yields have been falling for years, and there is a finite percent of any digital publisher’s users that will end up paying for a subscription.
Even Netflix is searching for the answer. After being the poster child for subscriptions, it saw a drop of 1 million users in the second quarter of 2022. It is now exploring an ad-supported model. This is all too common in the digital content space, whether players are small or large publishers, streaming companies, or individual creators in the exploding creator economy.
The question is: Is the pot of gold at the end of the rainbow simply the right mix of ads and subscriptions? Or, can we expand the revenue mix and go beyond the advertising-subscription ping-pong battle?
I looked at Piano’s 2022 Subscription Performance Benchmark Report, Reuters Institute Digital News Report 2022, and a few other recent sources to try to piece together some clues related to subscriptions trends since the challenge of peak subscriptions has reignited this issue.
Top six trends in the digital content subscription market
1. First, there is a high degree of market concentration when it comes to publications that users subscribe to — a “winner takes most” phenomenon, according to Reuters. In the United States, 50% of all paid news subscriptions go to just three players: The New York Times, The Washington Post, and The Wall Street Journal.
The extreme is in Finland, where 50% of subscribers pay for only one publication: Helsigin Sanomat. By contrast, just 5% of subscribers pay for local titles in the United Kingdom. This leaves the thousands of other publishers fighting with each other for the remainder of subscribers.
2. The same report shows the median number of paid news subscriptions is one across most developed countries (I assume it’s even lower elsewhere). Since the 2021 report was published, this number has crawled to two in the United States and Australia.
If you combine this data with the point about market concentration, it means a potential subscriber is likely to sign up with one of the top few market leaders and nowhere else, leaving the rest of the pack vulnerable.
3. The vast majority of paying subscribers have an average age of 47. Younger audiences don’t like to subscribe. In the United Kingdom, only 8% of subscribers are younger than 30, while that number is only 17% in the United States.
This younger demographic is also less loyal, preferring to access news via channels such as social media, search, and mobile aggregators. While Facebook remains the most-used social network for news, according to Piano, Facebook as a first-touch attribution accounts for only 2% of subscription conversions.
If you combine these data points, it is apparent that the growing majority of users (i.e., the younger demographic) will convert less in the future.
4. Given the poor global economic outlook, Reuters finds respondents are rethinking the number of media subscriptions they can afford this year. This includes news, television, music, and books. Most expect to retain the same number of media subscriptions, many expect to take out fewer, as they look to save money on non-essential spending.
In fact, a recent CNBC-Momentive poll found that 35% of U.S. respondents had cancelled a monthly subscription in the last six months due to inflation. Furthermore, “sleepers” (paid subscribers who don’t even visit the publisher once in a given month) are waking up and exacerbating the churn problem. Piano’s report says that 43% of subscribers are “sleepers.”
5. When it comes to access, we all know the smartphone is the dominant way in which most users access news. According to Piano, though mobile visitors make up 65% of digital audiences today, they convert at a much lower rate of 19.7%, compared to 42.4% for desktop users. The main reason is that consumption on mobile tends to be much more casual, where it is unlikely that a user will commit to a high friction option such as a subscription.
6. Lastly, according to Piano, once users register with a publisher, their conversion rates skyrocket 45-fold compared to anonymous users. However, getting a user to register is becoming tougher; Reuters notes consumers are reluctant to register their e-mail address with news sites. In fact, they say only 32% of users trust news sites to use their personal data responsibly (similar to e-commerce sites, which are at 33%).
Given these challenges, is it time to simply move the pendulum back toward ads? The answer, in my opinion, is that subscriptions will continue to work well for a certain audience bucket (the 1% niche, loyal audience) and ads for another (casual users not willing to pay anything).
But there is a third, additional model that can work extremely well for an audience bucket that has long been ignored: those willing to pay small amounts for quality content, but don’t want to commit to recurring subscriptions or memberships. This segment can be served by a third, incremental “pay-per-unit” option (e.g., pay US$1 to read one article or view one video stream).
The case for pay-per-unit
The most important reason is that users want this! There is data to back this up.
According to Piano, one-third of all subscription churn happens within 24 hours. This means users want to consume one piece of content and are willing to pay. So much so that they are willing to go through the hassle of subscribing, paying, and unsubscribing.
Don’t believe this? Simply do a search for “pay per article” on Twitter, and you’ll see users ranting everyday about how they would pay per article if only publishers offered this option.
Looking at these key trends, pay-per-unit can be a good extension to any publishers’ business model.
Let’s review some of the trends with this lens:
1. For those publishers that aren’t one of the most popular publications, subscription conversion rates are super low. Therefore, the upper funnel becomes even more critical. Pay-per-unit not only lowers the entry barrier into the upper funnel, but, compared to a registration wall, it also identifies a high-quality, paying user base from the get go.
2. Younger users are less loyal, so a pay-as-you-go model would be a good first step to get them into any publisher’s funnel, after which they can start directly engaging them.
3. Casual usage is on the rise across all age groups, especially on mobile, where the tendency to drop off due to friction is high. Pay-per-unit has much lower friction.
4. We know registered users convert 45-fold better than anonymous users. Allowing users to pay per unit adds to the reasons to register, and gives users more avenues to engage with the publisher.
Given the challenges that lie ahead for subscription and ad-supported models, it’s time for digital publishers to add the third option of pay-per-unit. This will not only provide incremental revenue, but act as an important feed into the subscription funnel.