Why do people pay for streaming but not for newspaper subscriptions?

Why do people pay for streaming but not for newspaper subscriptions?

The conversion rates of the world’s largest streaming services are impressive. 46% of Spotify users are paying customers under the freemium model. Netflix runs a premium model and they don’t publish conversion data, but 91% of their users are paying customers while only 9% are on a free trial.

How do digital publishers stack up in comparison? Reuters’ Digital News Report indicates only 14% of people paid for online news during 2018. This means individual publishers have even lower conversion rates. According to FIPP’s global digital subscription snapshot, newspapers in Europe’s largest countries have the following subscriber numbers:

  • Germany, population 83M: BildPlus, 0.4M subscribers

  • France, population 67M: Le Monde, 0.2M subscribers

  • UK, population 66M: Financial Times, 0.7M subscribers

For digital publishers, converting readers into paying customers has proven to be a significant challenge.

Streaming services and publishers started out their battle to win over paying customers on an equal footing. In the early days of the Internet, people read online news for free and pirated music and video content.

Today, people have the choice of googling a free source for a news story that’s behind a paywall. They also still have the choice to download pirated content or stream it through services like Popcorn Time. Piracy is still significant: BitTorrent today produces one third of total upstream internet traffic in the EMEA region.

However, streaming services keep on growing and have significantly better conversion rates compared to digital publishers, despite the fact that majority of their content can also be found elsewhere for free.

What could publishers to differently to reach the same performance level?

Pricing

Most digital publishers use the same business model as for selling print newspapers, a monthly subscription. Streaming services use the exact same model successfully. So why is conversion lower for publishers?

Looking at the price of streaming and newspapers for consumers, the pricing isn’t that different:

  • BildPlus (Germany), €7.99/month, while Spotify costs €9.99 and Netflix €7.99

  • Le Monde (France), €9.99/month, while Spotify costs €9.99 and Netflix €7.99

  • Financial Times (UK), ~$16/month, while Spotify costs ~$17, Netflix ~$11

What are the potential reasons of lower conversion, leaving aside all other aspects but the price? There are only two options:

  1. Less people are willing to pay for news than streaming

  2. The perception is that the price is too high

If the first point is what impacts conversion most, then publishers can’t do anything about it: at least not in the short-term and with immediate results. But what they can impact is the price of their service.

Lowering the service price creates challenges of its own, as the business may become unprofitable and price hikes are difficult to pull off later without creating churn. However, validating whether it’s price that is keeping consumers from converting needs to be done.

Otherwise, it doesn't matter how good the business intelligence systems are or whether users get personalized recommendations that increase their engagement. If the price is too high, they still won't sign up.

The half-way solution to validate the idea is to offer subscriptions in a smaller chunk. For example, people may be more willing to pay $2/week rather than $8/month, even if the total price is the same. Notably, Financial Times does use a weekly subscription payment, and their subscriber base is larger than that of the two other newspapers brought out who only use a monthly model.

Business model

From the consumer’s perspective, every piece of streaming content has the same value. It doesn’t matter if you like documentaries or horror movies, pop music, jazz or classical, the amount of money you’re willing to pay to get access to it is more or less the same.

Things are different for publishing. Global everyday news items are freely available across the web. Investigative journalism pieces, long-form opinion articles, local gossip and sports content are more valuable, as there’s no alternative sources to get the information from.

This means applying a blanket one-subscription-for-everything model may not be the right approach.

In streaming, the business models are also more fragmented than appears at first sight. YouTube runs on advertising revenue. Netflix has premium. Spotify has freemium. Streaming services in emerging markets use sachet pricing. Time-sensitive content such as sporting events use the pay-per-view model.

Publishers have very different content mixed together on one platform. That doesn’t mean there needs to be a single monetization strategy for the entire platform. For example, here’s what the strategy could look like instead:

  • Advertising: global news stories

  • Premium: political analysis column

  • Freemium: video content and interviews with intermittent ads and paid service to remove the ads

  • Sachet packs: football content on the week of the national football league final

  • Pay-per-view: live blog or stream of a local sporting event

Every publication’s content and audience is different, which means mixing and matching these models would be different for each publication. For example, one interesting mechanism we’ve seen used by a publisher was to put up a paywall to content where there’s a steep spike in traffic to local news stories.

The reason why people read different journalistic pieces is different. If I’m interested in only one specific story on a local scandal, I’m not going to pay for a monthly subscription. On the other end, if I’m a football fanatic, paying to get real-time updates on preparations from teams ahead of the season’s final match may be worth it.

Simplicity

Can you think of a payment method that Apple, Google, Spotify and Netflix use, but newspapers don’t? It’s direct carrier billing.

The reason why streaming services (but also app stores, game developers and many other digital content segments) use carrier billing is its reach and simplicity. Anyone with a mobile device can make payments, and no personal data is collected during the checkout process.

Testing pricing, business models and different monetization strategies only leads to higher conversion if people don’t close the payment window after making the initial decision to purchase. Would you be willing to enter your credit card details online to make a $1 payment?

Below, we’ve provided a side-by-side comparison of how a payment looks like for Germany’s newspaper Die Welt with credit cards and how it would look like with carrier billing. They don’t use carrier billing today, but if they did, here’s how it would work:

Credit card and direct carrier billing comparison for digital publishers - Die Welt

Filling out 4 fields to complete the payment for credit cards may not seem much. But as anyone who’s done online marketing knows: the more fields in the form, the lower the conversion. With carrier billing, users don’t need to enter any information at all, other than their phone number.

Another important aspect to consider for European publishers is strong authentication, resulting from the PSD2 directive. Starting at the end of this year, bank-based payment processors will need to start adding additional authentication steps to payment flows. Carrier billing is exempt from this requirement. Credit card conversion is already much lower than that of carrier billing and this change will impact publishers who only used card-based payments significantly.

Even in extremely well-banked regions such as Sweden, we have seen 20% of subscribers opting to pay through carrier billing for our digital publishing customers. Whether it’s due to the simpler checkout flow, fears over personal identity theft. For more information on how direct carrier billing and telco partnerships help publishers grow, check out our recent white paper.

In summary…

Looking at the performance of streaming services, there’s no question today as to whether people are willing to pay for digital content.

For publishers, the main challenge is to figure out what other digital content segments are doing differently that results in conversion rates multiple times higher than that of newspapers. Among other things, pricing, business models and alternative payment methods are crucial components to look at.

If you’re a digital publisher looking to grow your paywall revenue through carrier billing or your user base through telco bundling, check out what PayRead has to offer. Or simply get in touch.