Bait and switch

Too many publishers are relying on "sleeper" subscribers

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This week, I explore the underbelly of the pivot to subscriptions: publishers using dark patterns to avoid losing “sleepers” who don’t use their subscriptions, as well as a few thoughts on why the AT&T-Discovery deal is another sign of media rebundling. Shoot me a note with any thoughts -- and please forward to a friend or colleague. Thanks.

Bait and switch

I used to lament that the media business wasn’t more like the restaurant business. (This was before the pandemic, of course.) Restaurants are a tough business, most are doomed to fail and nobody should invest in a restaurant unless they want to lose money. Very similar, in many respects, to media. But at least restaurants had a straightforward business model: You make food, people pay you. With media, indirect business models were most common, leading you to constantly balance opposing needs of your audience and your customers (advertisers or sponsors). Often the product ends up losing, as I wrote last week.You lure in readers with news, you end up exposing them to all manner of data trackers and bombard them with ads, “partner emails,” and come-ons for ancillary products like events or wine clubs. In these models, the content is not the product, it’s the marketing.

In theory, subscriptions should solve this issue by making a media business more like a restaurant. It’s the classic “simple but hard” business model in The Information’s Jessica Lessin’s formulation. But as it stands, the emerging subscription model is often just as much of a hustle as ad models, as dependent on marketing and growth hacks as the quality of the product. That’s because the market has been trained to expect cut rate introductory offers, which are simply ploys to get someone’s credit card details and defer profitable revenue per user for the introductory term expires and the price rises exponentially.

This model, on the surface, is a neat solution to a problem anyone with a paywall faces: You generally want to develop a habit with your product before charging. What’s more, if the product is pure subscription, few people can sample the product before determining whether to pay. Sounds good. But the realities of many publisher subscription strategies is they want to pile up big absolute subscription numbers -- there’s a reason publishers brag about their overall subscriber numbers but demur on revenue per subscriber numbers -- and bank on a sizable number of people not churning after the sweetheart introductory rates expire.

The New York Times is a good example of this phenomenon. Even as a subscriber paying $17 a month, I am regularly bombarded by subscribe-now-at-a-special-price ads. And that price is very compelling -- $1 every four weeks for an entire year. That’s 6 percent of what I pay. Now many who take up this offer will find value and happily pay the 15x price hike after the intro period. Bloomberg runs a variety of offers, but a typical one is $1.99 for three months before ballooning to $34.99. The data says these offers areBut the reality is publishers bank on many people simply forgetting to cancel. 

The assumption is that the people who churn are the ones who use your product the least. But that’s not necessarily the case. A bigger tell is often people whose habits change. The “sleepers” can make up 40 percent of any publication’s subscriber base, according to Piano, a provider of publisher subscription software. The best way to make sure they don’t wake up is to not disturb them. But some will figure out they’re paying for something they don’t use.

To help matters along, publishers tend to roll out their own “dark patterns” that, of course, Silicon Valley has perfected. The classic dark pattern of subscriptions is making canceling a subscription very difficult. Turns out taking someone’s credit card info can be done very easily, but canceling a subscription requires a phone call during set business hours on the East Coast.  That’s hardly a coincidence -- and it doesn’t speak very highly of confidence in the product that you need to rely on your “saves team” to offer discounts to keep people on board. Ultimately, when fighting churn, the incentive is to be deceptive with your customers. This isn’t unique or new -- magazines have been doing this for years and most people who went college in the 1990s ended up part of some CD-of-the-month club scam. But it’s also hardly the foundation for sustainability.

Streaming services are hitting the wall with simply too many on offer. Publishing is heading to the same fate. People will increasingly turn to subscription management services to sort through what they’re paying for and stop those services they’re not using. Publishers will find that acquiring customers is a lot harder than keeping them.


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Enter the rebundling

When AT&T closed its $85 billion acquisition of Time Warner in 2018, AT&T’s then-CEO Randall Stephenson promised to “bring a fresh approach to how the media and entertainment industry works for consumers, content creators, distributors and advertisers.” An early analysis of the deal was foretelling of its result: “AT&T CEO Randall Stephenson, who will run the combined company, said on a conference call that the deal will allow AT&T to offer unique services, particularly on mobile, though he didn't provide details.” 

Turned out the details mattered, culminating in AT&T’s retreat this week from that strategy by combining the Time Warner content assets with Discovery in a new entity better able to compete with the streaming giants. Beyond the obvious takeaway to always doubt the promises in giant mergers of “synergy,” the deal shows the streaming wars are entering a new phase of rebundling to achieve the scale needed to compete with the $17 billion Netflix is pouring into content this year and the $14-16 billion DIsney expects to spend on streaming content by 2024. The collapse of the cable bundle and the scramble to build direct-to-consumer businesses led to intense fragmentation, as everyone and their brother added “Plus” to their brands in a bid for the recurring revenue of subscriptions. Ultimately, people will only pay for so many streaming services. Amazon is now apparently considering a purchase of MGM, with more deals expected to follow. The streaming world is winnowing into a Big Five: Netflix, Disney, Warnermedia/Discovery and Amazon, Apple.

As Bob Lefsetz puts it: “Content is never king, never ever forget it, it’s all about distribution.” Niche serves will survive, but as always, those in the middle will get squeezed -- and be put under pressure to bundle with one of the Big Five. 

My suspicion is we will see the same dynamics play out in publishing, as the industry clearly is in the throes of an unbundling phase, also in part driven by direct-to-consumer models. (This is the entire premise of Substack.) That means we’ll see the emergence of Netflix-like winners like The New York TImes bulk up. It’s one reason why a deal for The Athletic, and even one for a specialist like The Information, makes a lot of sense.

Other things to know

TheSkimm is again for sale, this time apparently angling for a non-media company to scoop it up. (If this sounds familiar, TheSkimm also publicly peddled itself in 2017.) More non-media companies will get into media, but they will look for a lot cheaper deals than a VC-funded newsletter that boasted a $100 million valuation during its last round that brought its total funding to $28 million. One of the reasons Hubspot’s deal for The Hustle made sense is that it was relatively cheap, reported by Axios to be $27 million. The non-media acquisition is to niche players what a SPAC lifeline is to the big guys. 

Back in 2004, I went to a glitzy launch at Tavern on the Green of a new Chinese search engine, Acoona. Bill Clinton was hired to give the welcome, telling his hosts, “I’m not completely sure what you do, but I hope you’ll be very successful.” And of course, Acoona was doomed, as were all search rivals to Google, perhaps save Bing. But then, maybe now is the time for a true rival beyond DuckduckGo. That’s why Neeva is interesting, trying to counter Google’s ad engine with a subscription search engine that doesn’t show ads or collect data. The intriguing twist: Neeva is run by the former Google ad boss Sridhar Ramaswamy. 

We used to run a story format we’d call “the new most important person in the newsroom.” The idea was there were new roles popping up, often focused on platforms or distribution, that were rising in importance. The product role was one of those jobs, and an area ripe for turf wars, as it sits between editorial, sales and tech. A good thread by Damon Kiesaw lays out the messy realities.

Coinbase is building its own media operation to “create content catering to both retail and institutional investors as a funnel to draw more people to its platform.” Crypto media is in a strange spot right now, as the crypto story is currently very tied up in hype-fueled retail investing. That’s given rise to a fragmented information landscape where random YouTubers and podcasters have outsized influence. It’s unsurprising as a prominent Andreesen Horowitz investment that Coinbase has the “news products” bug, particularly since the cost of customer acquisition in crypto is very high.