Ad blocking forces digital publishers to rethink their business model

For the publishing industry, smartphones present a challenge and an opportunity at the same time. On one hand, people are consuming more publications online and less offline than ever before due to internet being everywhere. News sites are among the most visited internet pages in India (India Times) and the US (CNN, ESPN) alike.

But the free nature of the internet means publishers are struggling to generate revenue online. While online ad revenue is increasing, it is not big enough to compensate for the decline in print revenue. 40% of publishers report their digital ad revenue is declining or not growing.

In the mobile ecosystem, there are two channels of revenue, often used in parallel: advertising and paid content (e.g. paid apps, subscriptions, paywalls or in-app purchases). Advertising is an increasingly unreliable source of revenue due to banner blindness and ad blocking. Clarity Ray reports that 10% of all ads already are invisible due to ad blockers. At the same time, mobile operators don’t want publishers to use their mobile data traffic for displaying ads and have started blocking advertising.

So what can publishers do to fight the decline in revenue? If the effectiveness and revenue of advertising continues to decline, then the only alternative will be to put more content behind a paywall. Many publishers have also tried and the results have not been too effective.

But the publishers’ approach to paid content has been fundamentally wrong. While people subscribe to an offline newspaper or magazine and read it usually through in one sitting, online content consumption is completely different. Online news is consumed in bite-size chunks, impulsively and at most a few minutes at a time. Subscribing to a monthly service to read one article is counterintuitive.

Yet the subscription model works for music and video streaming. So why is it ineffective for publishing? Because there is a big difference in the consumption behavior of audiovisual content.Netflix users spend 133 hours per month watching movies, Spotifyusers stream 28 hours of music per month. Consumption is frequent and people want access to the service all the time, with publishing this is not the case. Browsing news takes just 3% of users’ time on smartphones so a subscription does not make sense for consumers.

Rather than asking for long-term commitments from their audience, publishers should take advantage of the impulsiveness of news consumption. This means selling articles one by one for microtransactions (e.g. $0.1) or reducing the duration and pricing of subscription access. We recently also put out a white paper where there’s more information on localizing subscription offerings.

The New York Times for example sells weekly subscription access for ~$1.5. This is already a more logical approach, but they could do one better and also modify the pricing based on each market and the audience’s income. But even with localized pricing, they would run into the issue of lacking access to the only payment method (credit cards) that they provide.

5 million people visit their website from India each month. With credit card ownership at 4% in the country, that means only 200,000 of these visitors would even be able to pay for a subscription, even if they wanted to. This means that beside scaling down the pricing, it would make sense to integrate payment methods more suitable to the target audience. Carrier billing works everywhere, for India it might additionally mean PayTM, for Russia Yandex Money etc.

Credit cards are unsuitable for publishing monetization not only because of their lack of global coverage, they also introduce friction into the checkout process. By asking the user to add their credit card data, the payment conversion is reduced significantly due to consumption of news being impulse-based. Entering their phone number (carrier billing) or logging into their wallet (PayTM) removes that friction and increases the likelihood of purchases.

Asking users to pay small amounts with their credit card is counterintuitive. Microtransactions with credit cards are also often unprofitable for merchants: credit cards payments involve a fixed transaction fee as high as $0.5. In this context, carrier billing becomes significantly more attractive.

We can compare the credit card checkout flow of New York Times to a carrier billing flow. Which of these checkout experiences do you think would convert better for an impulse purchase?

New York Times credit card checkout flow comparison with carrier billing

With physical publishing in decline, magazines and newspapers need to figure out a way how to grow their revenue online. One way to do it is to review their paid content strategy, modify it based on how users engage with content online and introduce additional payment methods into the mix.