People Will Pay for Quality Content. Period.

An Analysis of Subscription Models in Media

Alex Mather, left, and Adam Hansmann, co-founders of The Athletic, at the company’s headquarters in San Francisco.

There has been a debate, as we find ourselves amid a paywall revolution in media, that podcasting won't become a subscription business, that it's different from the music industry, and to some extent, journalism. That opinion has always been widespread and speaks to the biggest problem in the media industry at-large.

Media is thought to be a bad business because of circumstance. When newspapers held some form of oligopoly, and without platforms like Craiglist and Facebook there to steal ad revenue, there was an entrenched revenue stream for those publications. They were competing at most with a couple of publications, sometimes one or even none. A hefty majority of revenue, above 80% in most cases, came from advertising revenue versus 20% or less for subscriptions.

This lack of competition allowed them to focus solely on building out an advertising business that was more lucrative than the small number of competitors. There was no incentive to focus on subscriptions considering the small part they played. Decades continued with advertising being the primary driver of growth, with little reason to deviate from that path. It was entrenched to an incredible degree, and consumers now had a preconceived notion that news was free. There was no alternative. That wasn't a problem for the publications themselves and meant widespread readership.

That was until technological disruption shook the core of the industry.

The effect was more pronounced in media not because of the product at its core, but because of the industry standards and consumer behavior of the specific vertical. Sure, many brick-and-mortar retailers went out of business because of the rise of e-commerce, but their products weren't free, the medium where it was sold was just changed. If they had been able to pivot to online retail, they would've been just fine, and the consumer wouldn't have minded one bit. Businesses failed here because of a lack of innovation, not social impediments.

As many mediums have realized this trend, the tide has slowly started to shift to subscription-based media, and people realize that they have to pay for media now. That shift began in the music industry, with "music on demand" proving to be a worthwhile venture, from iTunes' focus on the transactional-based platform to Apple Music and Spotify's shift to a subscription-based model.

That model had already existed differently with linear television, although the programs offered in traditional bundles were not on-demand. Netflix once again changed this model, aggregating popular content into an SVoD platform that has spawned a massive industry that includes the likes of Disney, HBO, Amazon, NBC, and Apple, to name a few. All have shown promise, with Disney's streaming service hitting north of 28 million subscribers as of this article, less than three months after its launch and with the service not yet being available internationally.

Those industries have shifted and succeeded. They've overcome market expectations to thrive. That leaves journalism, which, as previously mentioned, is the most difficult to transition, and the relatively new medium, podcasting.

Podcasting is the hot debate right now, with some, like Fast Company's Melissa Locker arguing the people won't accept a similar subscription-based model in a piece called "Why Podcast Fans Will Always Reject a 'Netflix for Podcasts.'" Locker's main point is that platforms like Luminary will hurt lower-level producers, but she misses a critical point. Luminary isn't attempting to be Netflix, no matter what anyone says. If you Google Luminary, you'll see "Netflix for Podcasts" as the tagline for all pieces on it, but Netflix is a closed platform for producers of content. Netflix decides what's on their platform and what isn't. Luminary isn't closed. I can distribute a podcast on Luminary right now. They're offering a slate of exclusive shows in addition to shows that exist across all platforms. While more shows will live on a single platform, your favorite indie shows will exist on all of them, until they become big enough to be acquired.

Journalism, at both a national and local level, has begun the shift. Publications like The Wall Street Journal and The New York Times have become a digital subscription service, and new ones like The Athletic have risen. Quality has buoyed these brands, both old and new. The Athletic has proven that quality content is worthy of people's money, meaning they can continue to provide that quality content. That subscription model also provides some consistency in cash flow, allowing for the unique investments and expansion that the company has undertaken.

The reality is the quality of both content and platform matters. If both are above par, then people will pay. Luminary is off to a shaky start because there is no moat. Disney has their IP as a moat, and it's built upon a robust tech platform, which is a bonus. Luminary has a slate of original content that doesn't differentiate itself from content available for free, and the app itself is rated a 2.5 out of 5 stars on the App Store. Specific podcasts can be exclusive without slamming the door on smaller creators.

The reality of the broader media industry isn't that it's a bad business, it's just a business at an inflection point. The way to succeed is simple. Make good shit. Then people will pay. Paying for your content is going to have to become the norm, and only the publications that make quality content will survive.

Legacy be damned.

NOTE: The local news business might be an outlier here, and I'll explore that in the next few weeks. Do mid-sized markets have enough capital in them to sustain local news publications? Will it have to be a top-down approach to coverage? Or is there potential for a pop-up, topic-based publication? I'll explore that specific vertical soon enough.

Photo Credit: Andrew Burton of the New York Times