Apple News+ Dilemma Stalking Big Media

Apple News+ Dilemma Stalking Big Media: Matt Lindsay
May 28, 20109
Michael Moran, Contributing Editor

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It’s been nearly two months since Apple launched its $9.99 a month Apple News+, but the debate over its offering to media companies and the public at large is far from over.

In exchange for allowing Apple News+ to host their content, Apple will reportedly keep 50% of the revenue generated by Apple News+ subscriptions and share the rest proportionately with its content partners, as first reported by the New York Times. At least 300 names signed on.

But a lot of big names said, ‘no thank you,’ including the Washington Post and The New York Times, arguing that Apple News+ would cannibalize their existing subscriber base even as it added yet another monster advertising buyer to the existing competitors. Another big downside: data generated by clicks on third party content on Apple News+ will not be shared with publishers because Apple, as a matter of policy, does not track such data.

Of course, the business of journalism has struggled to cope with the effects of digital technology for decades. Mather (Matt) Lindsay is founder and president of Mather Economics, an Atlanta-based management consulting firm that advises big media companies on just such dilemmas.

Founded in 2002, Mather Economics counts USA Today, Gannett Co., Inc. and BH Media Group among its clients. Ithelps augment in-house strategy and analytics in many industries. Mather, an economist and author of The Relationship Economy, specializes in the tumultuous media sector, where the restless digital natives and legacy giants contend with everything from falling revenues to the threat of new data privacy legislation. He says publishers are already asking for advice about how to manage a future in which the US federal government – or just a handful of large, influential US states – create a patchwork of new data privacy legislation that once again changes the rules of the media game.

In an interview with Karma’s Contributing Editor Michael Moran, Lindsay discusses the Apple News+ debate, California’s movement to replicate GDPR, and media companies’ challenges to build sustainable business models in the age of increasing regulation and public distrust of media sources.

Michael Moran: Since the new year, Apple News+ has pivoted into a more serious part of the company’s digital offering, and they’re offering these bundle deals to media companies that leave them with a relatively small slice of the revenue that would be generated by content appearing on the Apple platform. It’s a cannibalism versus distribution dilemma for content creators. Where do you see that going?

Matt Lindsay: I think the overwhelming response right out of the gates has been not to do it. The Wall Street Journal and the Los Angeles Times are participating in Apple News+. I think their bet is to view this is an opportunity to reach people that they would not monetize through their own products and subscriptions. These two papers believe there’s not going to be a lot of cannibalization of their existing subscriptions by the Apple News Plus platform and I tend to agree with them. A lot of people that really like those new products are not going to be satisfied with reading them in the Apple News+ environment. Apple News+ is really looking for people that are kind of skimming content, news content, and they’re reading stuff that they wouldn’t subscribe to otherwise. News Corporation (owner of The Wall Street Journal) is betting that by exposing their brand and content to a huge audience, they will convert at least some of those people to subscribers.

Michael Moran: When you started Mather Economics in 2002, there was still this concept in media that “news wants to be free” and that traffic was the ultimate metric. Even back then, though, there was a lot of conversation from people who earned their living in the industry (including me) that maybe it would be good to charge for content. What is the state of play today?

Lindsay: The idea today is that media companies really need to shape revenue models based on what we call the potential addressable market. In the United States, in particular, at the start of the digital age the thinking was that we have this enormous domestic market that means there is a huge potential market for advertisers and advertising revenue. It meant media companies had huge incentives for getting as much reach as they could, so a lot of times their content products tended, even on the print side, to get given away free or at very, very low pricing. The idea was to get as many people on the site as possible, pump up traffic and unique users and charge advertisers accordingly.

But what the advertisers really wanted was paid circulation. So there was this third-party regulator, the Audit Bureau of Circulations, that would actually come and audit you to make sure that you were charging customers. This concept of giving away the content wasn’t just a digital thing. It was actually a print idea for a long time — the free city papers and things like that.

Now, the currency of the realm in digital is targeting. It’s not necessarily reach. It’s a question of reaching the right people, not just everybody. And that’s where the native digital platforms, which had more data and manage it more efficiently, could really compete against big media companies. That’s been a very difficult transition for big media. It just requires a fundamental change across an organization to go from a mass audience to audience revenue based on targeting.

Michael Moran: So who out there in the legacy media space is doing it properly now?

Lindsay: The companies that get held up as examples all the time are national brands like The New York Times and The Wall Street Journal. In fact, you can probably make arguments they are global brands. But the vast majority of their revenue comes from the U.S. The New York Times has 3 million digital subscribers, plus they still have about 900,000 print subscribers. The Wall Street Journal is pretty similar. They have about as many subscribers but they also charge a lot more for their digital access. Around the world you’ve got the Financial Times, which has been an innovator for the past 15 years, and they were really the first firm that had a metered model which they subsequently have moved away from.

But there’s a lot of innovation as well in Scandinavia.There’s lots and lots of really innovative stuff that’s happening in those countries with regard to digital audience revenue.

Michael Moran: With the reliance that digital natives have on targeting audience with data, a practice the big newspapers and magazines have also now adopted, does sweeping data privacy legislation pose a huge new risk to these data-dependent models?

Lindsay: That’s a huge topic of concern in the industry here. We also do a lot of work in Europe and are very familiar with the EU’s GDPR (General Data Protection Regulation) that placed big constraints on what publishers could do. There’s already a movement afoot in California to replicate the GDPR, so publishers are asking these questions. But it it sounds worse than it is. It really only forces publishers to let people know that their data is being tracked and give them the opportunity to opt out. I was just over in Europe and to be frank it’s really just an irritant at this point in that every website you go requires you to click two or three things. But constantly asking whether you will allow a publication to you to target ads, or use my data for ads? People end up just getting permission fatigue. Ultimately, what happens is people will just relent and give blanket permission. One way to do that is to give something away, get people to sign up for a newsletter they don’t have to pay for, for instance. That’s what you want anyway, to have this relationship that builds loyalty and allows you at the same time, transparently, to capture the data. You may not be able to use that data for advertising, but if you’re monetizing it on the audience side with content it’s not quite as important to get that same level of ad targeting.

Michael Moran: Let’s talk about the digital native companies. They’ve build their brands and businesses without the heavy overhead of press runs, distribution systems and the rest. But many of them have run into trouble lately — layoffs at BuzzFeed and Vice Media — and many others over the years have come and gone. Is it really any easier?

Lindsay: I think you’re right, there have been a lot of these founders that started digital publications and they’re really a hot thing for a while and then they fade away or they go bankrupt. They still hung a lot of their business plans on advertising and they keep thinking there’s going to be some magical digital-ad revenue play, but the fact of the matter is it’s very difficult to compete with Google and Facebook and Amazon and Apple in that digital advertising realm. So I really do feel like the secret for digital platforms, too, is to have subscriptions and to get a subscription relationship with your target audience, and having brand identity that you can use to grow. If you look at titles like The New Yorker and The Atlantic magazine and The Economist, they’re not daily newspapers but they’re publications that have been around for 160 years. They’re having success in fighting off these new startups by getting more sophisticated digitally and bringing their legacy print relationships to bear. I think it’s still pretty hard to stake out territory in this space if you’re a brand new start-up. You’re up against Google and Facebook in the ad game, and on the content side with a well-known universe of big existing players.

Michael Moran: Back to the print world, this time magazines. In January, Condé Nast announced it would put all its titles behind a paywall. Is this an irresistible trend at this point?

Lindsay: These companies have realized that the propensity of people to pay for news is growing, so there’s a growing kind of societal acceptance. You know there’s a core audience that’s very engaged and very loyal — they’ll subscribe right away. There are people that are on the margin of that audience and then there’s people that will never subscribe. You really need to establish your relationships with people that are going to ultimately may subscribe, but there’s a lot of relationship building to do and we call that nurturing. The state of the art at the moment is to maximize the sales attempts to their target audience and then build relationships with people that are on the margins.

Michael Moran: What about newspapers moving down the food chain — down from the global giants to regional and local news — The Cleveland Plain-Dealer or the Denver Post, for instance. Is there any hope for them?

Lindsay: I think there’s there’s absolutely a business model there. It’s very dynamic market. In print, it is not necessarily declining because customers don’t want it. It’s more about the demand for print advertising going down. Print advertising is really what drives the economics of a print product.

We work with probably over 500 or 600 titles on subscriber pricing and the vast majority of that is still related to print. We help them acquire, retain and renew subscribers and to manage this portfolio of subscribers. It’s about stressing the relationship between media companies and their subscribers and not viewing them as either a print or digital subscriber, which is a distinction that has a waning significance. The questions they should be asking are: ‘How do I engage somebody? How are they paying me and how do I maximize that lifetime value of this customer?’ The regional papers definitely have a model, but it depends on making tough decisions. Will there be a print version of the product in the long run? What’s the model that will allow a pure digital product to survive? It’s not ideal, but it can be done.

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