The rise of Andreessen-Horowitz-backed Substack has captured the imagination of the news media industry. The subscription newsletter platform is now worth $650m on the back of a $65m Series B round.
To put that valuation into perspective, The New York Times, with its seven million subscribers and other revenue streams, has a market cap’ of more than $8bn. News Corp is valued at around $15bn and UK-based The Daily Mail General Trust is at just under $2.5m. All of these businesses are well diversified, while Substack is (for now) a one-trick-pony.
It’s a good trick though, since subscriptions offer highly visible recurring revenues on a monthly basis. This is the sort of business model the folks on Wall Street and in the City of London love and one which software as a service companies pioneered, with Netflix popularising it (on a cancel anytime basis) among consumers.
It’s no wonder that Substack now has some serious competition with the likes of Twitter’s newly acquired Revue and Facebook’s own nascent newsletter project. The most interesting thing, to FN’s mind at least, is the timing of all of this.
The subscription model is by no means new and Substack and its rivals aren’t making great technological advances by offering writers an easy-to-use CMS alongside an in-built payments system and an email collection and sending service. Why, then, beyond News Corps’ subscription efforts (The Wall Street Journal and The Times were first movers in their markets), has this taken so long?
The obvious answer is that the pandemic has shown the vulnerability of digital advertising, which many of the original ‘new media’ businesses, including the likes of BuzzFeed, Huffington Post and Vox, were arguably overexposed to. But it still doesn’t get away from the fact that the news media industry at-large has been slow to adopt and embrace payments innovation.
There is, for example, still a debate in the industry about micropayments. The main argument against such a move is that publications want to bundle their content together and allowing consumers to purchase one article would undermine the whole system. This problem is easily resolved by disincentivising multiple-single purchases.
How do you do this? Simple – make a single purchase a substantial percentage (25-35%) of a monthly subscription and make sure consumers are presented with this cost-benefit analysis. This practice is already well used in digital academic publishing, where you can purchase one-off journal articles for around $40 or more in some instances.
Another innovation the news media has failed to successfully adopt so far is tipping, which has taken off in other parts of the media, most notably on Amazon-owned Twitch and then on Alphabet’s YouTube. Giving one-off payments to creators on both platforms is now commonplace during live streaming events.
This seems easily replicable on digital news media outlets, with a ‘tip’ or ‘donate’ button being featured alongside the copy of an article. The Guardian has had some success with a similar model, attracting more than 900,000 digital subscribers and supporters. There is also no reason why the tipping model couldn’t work behind a paywall.
And if you consider that we are effectively thinking about how people get paid for the intellectual property, blockchain technology, with its decentralised ledgers, could usher in the removal of some platforms all together, with content producers/journalists having a direct relationship with consumers.
We are already seeing an iteration of this with the non-fungible token craze. Detractors would rightfully point out that digital artists still have to use platforms (online auction houses) to connect to consumers and transactions can sometimes have their own prohibitive costs (so called ‘gas fees’, for example).
Then there is also the fact that original art is often valuable because it is scarce, not a trait that can be applied to the common news article. For original reporting, investigations and features, however, there are more similarities. The news media industry would do well to keep their eyes on this technology since it has been lagging behind on so many other innovations.
In the meantime, you can debate all of this on Clubhouse, which has now switched on payments, allowing users to send money to creators. “The person sending the money will also be charged a small card processing fee, which will go directly to our payment processing partner, Stripe. Clubhouse will take nothing,” the company said.
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