Long read: A new revenue model for publishers

Mariam Cheik-Hussein
By Mariam Cheik-Hussein | 16 March 2020

This first appeared in the AdNews March edition. Subscribe here for your copy. 

Following news of redundancies, staff at Fairfax Media’s Sydney and Melbourne newsrooms walked out for a full week of protests in 2017. The cuts, impacting more than 100 roles, were considered too deep for a company that had already lost close to 2000 staff five years earlier. While the walkout made international headlines, it made little difference, with Australian news publishers continuing to trim roles around the nation as advertising revenue continued to fall.

The decline of advertising revenue that once propped up journalism has been sharply felt in recent years through layoffs and sometimes title closures. However, the trend stretches back two decades when classified advertising was unbundled from newspapers with the arrival of the internet. New technology meant advertisers could reach a wider, more targeted audience for less.

From 2001 to 2016, classified advertising revenue in Australia dropped from $2 billion to $200 million, according to estimates from the Australian Competition and Consumer Commission (ACCC). When adjusted for inflation, that’s $3.7 billion down to $225 million.

At the time, publishing executives didn’t appear to respond with the same force that their advertising revenues were leaving their businesses. Instead, they spent the early years of the new millennium trying to shore up growth in ad dollars.

In 2002, then Fairfax Media CEO Fred Hilmer outlined the company’s revenue focus in its financial report: “We completed a restructuring within the publishing operations to sharpen our focus on generating growth in advertising revenues across the metropolitan mastheads in the key advertising categories of real estate, employment and automotive, and in retail and national display advertising.

“This will enable the company to capitalise on the significant investments in expanded printing and colour capacity at Tullamarine and Chullora. Our customers are also being afforded further joint print and online advertising opportunities.”

But by 2015, Fairfax had sold both printing presses for a reported $61 million. The company, which went on to be acquired by Nine Entertainment Co in 2018, had spent a reported $385 million building and upgrading the Chullora facility alone from 1996 to 2001. It would also go on to downsize mastheads The Sydney Morning Herald and The Age to tabloid-size papers and share printing facilities with rival News Corp Australia in a bid from both to save on costs.

Publishers also struggled with their first steps into digital by often misunderstanding the nature of online advertising and simply trying to transition their print model to the online world.

“It's quite clear a lot of mistakes were made,” says Merja Myllylahti, co-director of the journalism, media and democracy research centre at Auckland University of Technology. “They didn't think about what online advertising is early enough. They experimented with different models and were reliant on things such as banner advertising, but they didn't see the transformation for classified advertising.”

Despite “partly missing the boat”, Myllylahti says publishers have had success with their own classified advertising platforms.
In 2000, News Corp invested more than $10 million in realestate.com.au. By 2019, the real estate site’s parent company REA Group, majority-owned by News Corp, reported revenue of $875 million.

The publisher’s chief executive, Robert Thomson, tipped the real estate business to become its biggest driver of earnings, moving the company away from its traditional reliance on advertising in news publications.

Amanda Lotz, a professor of media studies at Queensland University of Technology, says there were multiple factors that contributed to this disruption.

“It’s complicated because so many different things have happened,” she says. “In the US, advertising rates just kept going up. There was really nothing that advertisers, particularly local city-based advertisers, could do because there weren't other outlets for them. That created an underlying discontent, which is okay as long as conditions don't change. But conditions changed.”

The arrival of digital meant new platforms began to emerge, such as search and social media, that were more effective for advertisers.

“Digital has brought many different things and that's why it all gets very confusing,” says Lotz. “It’s a bit unreasonable to think that newspaper publishers would have seen that these new and better mechanisms of advertising would be developed. If we want to point fingers to where it could have been different, it took a really long time to understand how and why the industry was changing and that is somewhat hindsight, too.

“It took everyone a while to figure it out. It transpired during a period of 20 years in terms of what people thought new media was going to be and where the threats were. There is still an awful lot of misunderstanding about why newspapers are challenged.”

The real challenge, says Lotz, is that newspapers were not a journalism product, but an advertising product that survived by building the largest audience possible to sell to advertisers. That model worked while newspapers had a monopoly over delivering classified advertising to people. However, this was shattered by the internet, which took with it journalism’s main source of revenue.

newspaper

Google and Facebook, at just 20 and 14 years old respectively, together consumed more than half of all online advertising spend (excluding classified) in Australia in 2018, according to the ACCC. So, for every $100 spent online, $47 is given to Google and $24 to Facebook, leaving publishers to fight for the remaining $29. There are no signs their share will increase dramatically. PwC predicts print advertising will decline by 20% to $450 million by 2023, and digital to grow by 5.9% to $700 million from 2019-2023.

This shift in where brands are advertising has translated into mass redundancies in newsrooms across the globe, and often complete closures. A senate committee was told 3000 journalism jobs had been lost from 2012-2017, representing one quarter of all Australian journalism jobs. During 10 years from 2008, 15%, or 106, local and regional newspapers shut in Australia, leaving 21 local governments without coverage from a single local paper. And there’s little incentive, or resources, from national titles, such as The Australian or The Guardian, to cover community news when they’re vying for mass reach to survive.

News media companies have responded to the surge from big tech, in part, by publicly calling for them to be reined it. The ACCC’s inquiry that looked into this impact digital platforms are having on Australian journalism had 23 recommendations, from better bargaining powers for publishers, to tax relief for readers who subscribe. However, experts say the watchdog is limited in its power to help news media companies.

“The actual report was pretty on point in that Google and Facebook, or social media generally, aren't creating news that somehow diminishes the ability of these other companies to create news,” says Lotz.

“The problem is they created a better mechanism of advertising, they innovated and that's not something the ACCC can do a lot about. In many cases, what this reveals in Australia, and everywhere around the world, is that advertising was never a very good way to support the kind of journalism people want. When we wring our hands and say we need better news, advertising isn't the way to get that.

“So in many ways these new forms of advertising have really put the pressure on news organisations to revitalise their businesses and try to figure out how to do that.”

The solution from publishers has been to turn to subscribers to help replace lost advertising revenue and fund their journalism.

A study from the University of Canberra found that getting people to pay for news is still an uphill battle. Its Digital News Report found that 14% of Australians are willing to pay for news, compared to the global average of 13%.

News publishers also have the added competition of entertainment platforms such as Netflix, with 34% of Australians preferring to subscribe to video-streaming services rather than online news.

But there are positive signs, with legacy media companies such as The New York Times pulling off successful transformations. In February, the company hit 5.25 million subscribers, with 4.4 million being digital-only.

“Most publishers are putting emphasis on reader revenue, not so much advertising, and building more direct relations with their readers,” says Myllylahti.

“The New York Times, for example, has a record number of digital subscriptions and they made the transformation ahead of schedule.

If people are paying for something, they expect some sort of quality, and that’s exactly what is encouraging publishers to do a better job.”

In Fairfax Media’s final financial report before its takeover by Nine, its then-chairman Nick Falloon noted that while this new revenue model would be sustainable, it wouldn’t provide the so-called “rivers of gold” the company once saw.

“Our three publishing businesses — Australian Metro Media, ACM and Stuff in New Zealand — are underpinned by a new revenue model which is multifaceted and moves well beyond the traditional reliance on advertising, print subscriptions and circulation,” noted Falloon.

“It leverages premium brands, quality journalism and audiences of great scale. While this model has lower revenue than in the past, it is more sustainable and valuable, featuring multiple business models and revenue streams.”

By the early 2010s, erecting successful paywalls became the focus for news publishers, with the main hurdle being readers’ attitudes, says Nine’s director of subscriptions and growth David Eisman.

“It was partly publishers taking their time, partly consumer attitudes needing to catch up, and partly developments in the ad market that necessitated publishers take it more and more seriously,” he says.

“But I guess consumer attitudes is probably the most important one. When I joined, it was still very much in this era where the general expectation was that content is free on the internet.

“Whereas I think during the last few years there's been increasing recognition that you get what you pay for, and there's a difference between a blogger, a free news site, and a subscription news site where the investment in highly trained, highly qualified, experienced journalists is just on a different level.”

As a sign of this new strategy, the metrics publishers focus on have also shifted. Previously, publishers looked at figures such as page views and unique visitors to prove a large audience to potential advertisers. Now, there’s a greater focus on time spent on their sites — a better measure of how likely someone is to subscribe. Speaking to the industry last year, News Corp Australia’s chief operating officer for publishing Damian Eales highlighted the importance of capturing people’s attention for longer.

“In our business, we see a strong correlation between engagement and churn,” said Eales. “It is so strong that bringing members back to our content just one extra day each month reduces churn by one percentage point.”

news

Australian publishers have been increasing digital subscribers under this new model. Nine’s papers The Sydney Morning Herald, The Age and The Australian Financial Review, grew their digital subscriptions revenue from $64.1 million in 2018 to $70.6 million in 2019. During the same period, digital ad revenue also increased to $65.1 million from $55.9 million.

At the same time, Nine’s print subscription revenue declined by $2.1 million to $153.9 million in 2019, while print advertising stagnated at around $133 million.

News Corp Australia has followed this trend of increasing digital subscriptions while print declines, with The Australian and The Weekend Australian reaching 164,968 paid subscribers across print and digital last year. The company also passed 500,000 paid digital subscribers in 2019.

To help boost revenue from readers, businesses have also been prioritising it in their negotiations with tech companies. Recently, Nine was one publisher which refused to sign up to Apple’s news subscription service, Apple News Plus.

“We looked at their terms which were non-negotiable, and the answer to that was a resounding no, so we chose to pass,” says Eisman. “The other thing, which is a broader strategic point, is that our most loyal readers are those who are visiting our site and have a direct relationship with us.

“Our starting position is we always favour efforts we can make to increase the number of subscribers we have on our websites and apps. Couple that with the terms on offer from Apple, and it just wasn't an attractive proposition.”

In another effort to maximise reader revenue, last year both Nine and News Corp Australia ended their distribution contracts with newsagents across Sydney metro areas outside of the CBD. Instead they opted for a distribution company that would give them a more direct relationship with customers.

This decision put pressure on News Corp’s Sydney papers The Daily Telegraph and The Sunday Telegraph, with the combined papers losing more than 34,000 paid subscribers over three years.

“News Corp Australia’s strategy is to grow profitable subscriptions across print and digital,” a spokesperson for the company tells AdNews.

“A year ago, in NSW, we reduced our reliance on low-priced subscriptions resulting in a short-term reduction in subscriber volume.

chart1.png

chart2.png

Since then, we have seen growth in digital subscriptions at News Corp Australia, including with The Daily Telegraph."
The traditional newspaper may not be able to compete with digital giants, but it’s still important for marketers who are interested in long-term brand building.

While brands will continue to turn to platforms such as Google Search for its ability to target consumers, Lotz says traditional media, such as newsprint, remains valuable for brand building.

“Publishers should be recognising that there are different kinds of ad dollars and strategically do the kind of advertising that they can, and remake their business accordingly,” says Lotz.

“You have advertisers who are willing to pay much less for display ads online than they would have paid in print, and this is a condition publishers can't change. The advertising attention you get for an online article is just different to what was happening with a paper. The paper is a good, it’s an aggregation of a lot of different things, whereas when people click onto an article, they're probably reading one article. They're not reading a lot of advertising.”

Recognising what little engagement online ads often attract, advertisers have adapted by increasing their use of branded content. A study last year by WARC and the Mobile Marketing Association found that branded content had the most potential for growth, with 53% of marketers planning to use it in the next five years, compared to 46% who will be focusing on mobile web display and 42% who say they will use mobile-based branded content.

The decline of traditional advertising and rise of branded content for publishers means advertising is now shaping what stories look like. It has become an important revenue stream for publishers, with many now having in-house studios to meet the demand, including the Guardian Labs, Verizon Media’s RYOT Studio and BBC’s StoryWorks.

However, Schwartz Media, publisher of The Saturday Paper and The Monthly, has bucked this trend and rejects all requests for branded content.

“Schwartz Media’s core pillar is editorial integrity,” says Fabien Beillard, Schwartz Media’s national sales manager. “We believe trust is key to growth and accepting branded content would be renouncing our core values.”

Despite knocking back regular requests from brands, Schwartz Media increased its advertising revenue by 17% last year.

Beillard says it’s been able to achieve this growth during a difficult time for the wider ad market by understanding its audience and targeting clients accordingly.

“Once we explain Schwartz Media’s model, most brands will go with just traditional ads as they understand the quality of the audience and the highly trusted environment,” he says.

“Schwartz Media ranked as the third most trusted media outlet in Australia behind the ABC and SBS in the 2019 Roy Morgan Media Trust Survey which makes us the most trusted non-broadcast media in the country and one in only four outlets with a positive media trust rating.”

The publisher’s revenue is split almost evenly between advertising and consumers; with 55% coming from advertising and 45% from readers. This trend has become the new norm for publishers around the world, who would traditionally have 80% of their revenue coming from advertisers, with some now even relying more on reader revenue than advertising dollars.

“There's this beautiful thing with subscriptions which is the more subscriptions you can sell, the more capacity you've got to invest in journalism,” says Eisman.

“This means you can do better journalism, generate more subscriptions, and it’s this beautiful and virtuous cycle. The more we sell, the better that works. The past 12 months were certainly the best we've seen in the last few years.”

Have something to say on this? Share your views in the comments section below. Or if you have a news story or tip-off, drop us a line at adnews@yaffa.com.au

Sign up to the AdNews newsletter, like us on Facebook or follow us on Twitter for breaking stories and campaigns throughout the day.

comments powered by Disqus