It’s hard not to feel some whiplash when reading news about the media business these days. After weeks of grim layoffs at former powerhouses like BuzzFeed and HuffPost, and a growing sense of doom about the industry among journalists, the New York Times came out yesterday and announced digital revenues of $709 million last year — an extremely impressive figure and a good indication that it will meet its ambitious goal of $800 million in digital revenue by the end of 2020. The strong figures come largely from the Times’ thriving digital subscription business, which grew 18 percent to $400 million; in a statement, Times Company CEO Mark Thompson announced the paper’s goal to grow to 10 million subscriptions by 2025. After hiring 120 newsroom employees last year, the Times now employs 1,600 journalists — a figure only slightly under the number of people laid off in January by BuzzFeed, HuffPost’s parent company Verizon Media Group, Vice, and Gannett.
So what gives? Is the media business tanking or thriving? The answer is, well, both. One business model — focused on digital advertising revenue — is demonstrating serious weakness, as reflected by the advertising-supported digital powerhouses now cutting costs. Another business model — focused on subscription revenue — is emerging as a potentially sustainable alternative. Last month, Condé Nast announced that it would put all of its titles behind paywalls, in part because of the apparent success of The New Yorker’s subscription model: “The New Yorker, which introduced a metered paywall in late 2014, generated about $115 million in paid-subscription revenue in 2018, up 69 percent from 2015.” Condé Nast even claims, contrary to longstanding rumor, that The New Yorker is profitable, with a total revenue of $175 million. (New York introduced a paywall last year.)
Advertising-backed publishing isn’t dead by any means, and even strong subscription businesses like the Times are unlikely to ever stop selling digital advertising. But it’s also clear that digital advertising won’t be the money-printing strategy that it was for much of the 20th century, when most newspapers and magazines made the bulk of their money by selling advertisements. The conventional wisdom upon the arrival of the internet — that nobody would ever pay to read online, and that the attractiveness to advertisers of the much larger audiences that publishers could reach online would no doubt make up for whatever losses the latter might incur — has not panned out. Instead, a number of tech businesses entered the digital advertising market, and two of them swallowed it: Google and Facebook. The two megaplatforms now administer an effective duopoly, raking in more than 60 percent of all digital advertising spending and 85 percent of all new digital advertising spending — and still growing their share last year. This is a reflection of the fact that Google and Facebook, as the world’s largest search engine and the world’s largest social network, respectively, offer enormous audiences, voluminous user data, and (they claim) extremely precise targeting.
The other reason that Google and Facebook have managed to dominate the digital advertising sector so thoroughly is that both businesses are software platforms, and software platforms tend to operate in winner-take-all — or, at least, highly concentrated — markets. There are many definitions of “platform,” and I’m admittedly using it in its broadest sense, cribbed from Boston University professor Andrei Hagiu, author of the 2006 book Invisible Engines: How Software Platforms Drive Innovation and Transform Industries: Businesses, sometimes called multisided marketplaces, that facilitate interactions between various third parties; Uber, for example, connects drivers to riders; Airbnb connects hosts to guests.
Google and Facebook dominate the digital advertising market due to factors endemic to software platforms: They both have relatively high fixed costs (the costs of servers, bandwidth, and technology), and extremely low marginal costs (the cost of creating new “units” for customers — in this case, the cost of delivering an ad to a user). Low marginal costs mean it’s easy to grow — and also rewarding: The bigger your search engine or social network is, the more useful it is to its users, and the easier it is in turn for you to attract new users. High fixed costs means it’s hard for anyone to compete. The result is what’s often called a “natural monopoly,” though in practice it tends to means a small number of highly concentrated, dominant players.
Is the New York Times a platform? In the broadest sense of the word, yes: As Hagiu has suggested, a publisher can be seen “a two-sided platform, if we count the two sides as being the readers on one side and the advertisers on the other.” (Others, including Bill Gates, define “platforms” more narrowly, and under those definitions neither the Times nor Facebook would qualify.) And, as a platform, the Times has been crowded out of the digital-advertising marketplace by the duopoly. It’s turned, therefore, to an older and somewhat more simple model: subscriptions. It’s mostly been a welcome change for journalists. Not only is the subscription model demonstrating extremely encouraging early returns, it is a sane and comprehensible form of business: you make something, and then you sell that thing.
The problem is that the internet of the 21st century has a funny way of making businesses look like platforms whether they want to be or not. It’s a bit unorthodox, but you can see the way even a subscription-based New York Times shares aspects with a platform, one for connecting not just readers with advertisers, but with the people Hagiu calls the “third side” of publishers’ multisided marketplace: the writers. After all, subscribers pay for the Times to access writers (even sometimes for access to specific columnists or journalists), and writers in turn join the Times in part to access its large audience of influential readers.
You don’t have to buy a platform interpretation of the digital subscription business. But if you do, you can begin to pick out possible futures for the digital news media industry. One outcome might be that the general-interest news subscription market will become, like other software-platform markets, winner-take-all, or, at least, highly concentrated. (I specify “general-interest news subscription” because it seems obvious that publications serving specific markets, like trade magazines, aren’t directly competing with papers like the Times.) The same kind of network-effect-driven virtuous growth cycle we’re used to with most software platforms could take hold: More readers will attract more writers; more writers will attract more readers. In a sense, that’s the way the paper has always worked. But in a digital world, there is no physical, geographical, or bureaucratic ceiling to growth. Like a software platform, the Times can grow unimpeded, its attractiveness to both readers and writers only increasing while its rivals are left out in the cold. It’s true that for now, people seem to be willing to pay for more than one subscription, even for largely overlapping coverage. But if the Times (or one of its rivals) can sufficiently chip away at its competitors, poaching journalists, generating big stories, and attracting larger audiences in that same virtuous cycle, it could potentially crowd other papers out. Why pay for two or more subscriptions if everything you want comes in one paper?
If that’s the case, the success of the subscription-based model at the Times may only be cause for celebration for the Times — and cause for alarm for its competitors. But there’s no guarantee that the digital news subscription business will resemble the cab-hailing or apartment-renting businesses that closely. The established tech company that the Times most closely resembles is probably Netflix, which similarly operates like a platform connecting show creators to viewers. Netflix is enormous, and dominates the streaming-service market, but not as a monopoly. Not yet. For the sake of journalism, let’s hope the same is true for news subscriptions.