The trouble with news bundles

This post was originally written for The Information, to which I heartily suggest you subscribe

Last week, The Information Editor-in-Chief Jessica Lessin suggested in a column that an aggregated news bundle on the cable model could be a solution to the news industry’s business model woes. An all-access pass could indeed be better for consumers and make for a more elegant web experience. And it isn’t going to happen.

Given the minimal marginal costs of serving content, a bundle makes a lot of sense. It offers the consumer better value and the publisher makes more money. But there is a big wrinkle in the formula: Until the volume of subscribers in the bundle is great enough to offset the reduction in average revenue per user, the bundle is a bad deal for publishers.

Consider the following example: The Erewhon Times has 1 million subscribers paying $10/month, generating annual revenue of $120 million. Our hypothetical Newsbundle has 11 million subscribers paying for unrestricted access across a network and guarantees a payment to the Erewhon Times of $1/month a subscriber, for annual revenue of $132 million.

For the Erewhon Times, that means trading its high average-revenue-per-user/low-volume subscription model ($10 times 1 million), a category known as “super fans,” for a low-ARPU/high-volume bundle ($1 times 11 million) for a far larger potential group of users, or “casual fans.” In this example, the bundle has attracted enough casual fans to consistently deliver greater revenue to the publisher despite the lower revenue per user.

But the problem is getting there. Newsbundle needs to attract more than 10 times the subscriber base of the Erewhon Times before it makes sense for the publisher to join the bundle. Yet without the Erewhon Times in the bundle, Newsbundle is less attractive and thus struggles to attract the subscriber base it needs to match publisher revenues. The same logic would be true for all the other publishers Newsbundle hopes to work with. Facing this catch-22, most stand-alone news bundle attempts get strangled at birth.

Why Hasn’t Amazon Prime Added a News Bundle?

If sufficient pre-existing scale were the only bundle problem, then existing large networks could solve this handily. Amazon Prime has 80 million users. Prime could beat The New York Times economics by guaranteeing $0.32/month per Prime subscriber. In fact, adding $5 to the price of Prime would more than cover the economics of the entire digital news subscription business. So why hasn’t Amazon Prime done so?

The reason is buried in the fundamental differences in user behavior and subscription structure that differentiates the digital news business from cable. In cable, just as with a site like The Information, access to content is binary. Whether you are a casual fan or a super fan, you have to pay for any access whatsoever. Most news media operations don’t operate like this.

In news media, subscription access usually is metered. Restrictions on content only occur after five to 10 articles have been read that month, often on a per-browser basis. This matters because mobile-social distribution has fractured the old norms of user behavior. The majority of users on a typical news site visit once a week and read one story. In other words, casual fans are hella casual.

In fact, on typical metered-subscription news sites, fewer than 3% of monthly visitors see a paywall. Actual subscribers represent an even smaller percentage. The New York Times is rightly held up for their unusual subscription success, and digital-only subscribers represent 1.8% of their audience. Yes, you may run into paywalls all the time. But if you pay $40/month for The Information, you aren’t typical, and there aren’t enough people like you. In news, access is an edgecase.

There is zero value for the casual fan in an all-access news bundle because casual fans can already access the content they want without having to pay anything. Likewise, individual site super fans who are casual fans of other sites gain no additional value from getting access to a news bundle vs. a single site subscription. The only people who gain value from an all-access bundle are super fans of site X who also are super fans of sites Y and Z, and there just aren’t enough of them. An Amazon Prime news bundle would mean the bulk of Prime users subsidizing the minuscule percentage who are super fans of multiple sites.

Is Experience the Answer?

Without a wrenching wholesale move to a binary access model, the volume-to-ARPU equation is unlikely to tilt in favor of an all-access news bundle. Access models likely will remain an individual site offer. But if we start our thinking with the necessity of casual fan value, there are indications that other bundle models, namely ones that focus on experience over access, might work.

The move to mobile, the rise of viewability and high video CPMs have put advertising on an accelerating trajectory of user interruption. Every ad format innovation of the last few years has either made ads bigger or more intrusive. Despite this, aggregate digital publisher ad revenue captured a majestic 1% of industry growth last year, with an aggregate monthly ad ARPU of only $2.60 among the top 80 or so publishers.

It doesn’t matter whether you are a super fan or a casual fan, your consumption of content encounters slow-loading data-hungry pages with ad formats literally designed to prevent you from doing the thing you want to do. Ad blockers are ubiquitous but face increasing countermeasures from publishers and don’t work within social in-app browsers where much of content consumption occurs. AMP and Instant Articles are bending to the reality of ad monetization and are progressively going to be forced to deliver a bad experience faster. Experience is an unsolved casual fan problem.

What would happen if publishers came together and reframed their bundle thinking around experience rather than access? A publishers’ bundle guaranteeing a fast, ad-free experience across a wide range of premium sites would be cheap (you only have to beat ad ARPUs, not subscription ARPUs) and valuable to casual fans. The bundle wouldn’t provide an all-access pass because the vast majority of users wouldn’t consume enough content to hit the paywall. As a result, the bundle would avoid cannibalizing single-site subscriptions.

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Chart by Mike Sullivan of the Information


The diagram illustrates how the standard high-friction/low-information advertising model makes it easy to acquire new users through existing distribution channels. Frustration with poor user experience encourages movement to the middle, a high-engagement/ad-free subscription bundle that no longer makes publishers compete for ad revenue with their platforms. Improved experience leads to greater content engagement, which encourages consumers down the funnel to super fan territory, where individual sites can offer an access pass and maximize individual value.

This funnel pragmatically aligns value at the casual fan and super fan level, while pushing publishers to serve consumers by creating great experiences and driving loyalty. It shows a future of news worth fighting for.