By Shira Ovide, Bloomberg Gadfly
WHEN SURFING the Web or your favorite apps, it’s hard not to notice the nudges to pony up for a subscription to Spotify, the local newspaper or Hulu. The nagging demonstrates how companies in the business of TV, journalism and music are breaking up with advertising, which has been much of the media industry’s best friend for decades.
And no wonder the friendship is ending. Worldwide newspaper industry revenue has fallen 30% since 2009, according to Magna Global. Revenue from TV commercials is growing barely in line with economic growth, and the television is losing its longtime position as advertising’s top dog. The music industry makes more from sales of vinyl records than it does from music video ads on YouTube, the most popular place to listen to digital music.
The Web was once thought to be a cure-all for media industries’ growth problems. Media’s shift to the Internet has meant bigger audiences, yes, but the piles of advertising money have shrunk or are barely growing.
The whole media industry has fallen out of love with free — which is to say, media paid for with advertising. With ads looking less appealing as a foundation for their businesses, media bosses are deciding the second-best option is making consumers finance their industries directly through subscriptions. Expect the digital nagging about subscriptions to get worse.
Like many changes in the Web world, the infatuation with subscriptions stems from the Internet dominance of Google and Facebook. Almost no one but those Web superpowers is making real money from digital ads, forcing everyone else to find new business models or die trying.
Hulu officially turned off the section of its Web site that let people freely access some TV shows after they are broadcast. Continuing a slow industry change since the days of three TV networks financed with pricey commercials, Disney, Fox and other TV giants are locking up more and more of their shows for access only by people who buy traditional cable or satellite TV packages or opt for a digital version of cable from Dish’s Sling TV, Hulu or others.
In the music industry, record labels no longer believe — if they ever did — that YouTube or other digital music options sponsored by ads can ever replace the money people used to spend on CDs. The music industry’s bitter war with YouTube is motivated by labels’ strategy to instead push more music behind digital walls accessible only to people who have paid for a key. Industry revenue generated by digital music subscriptions reached $1.2 billion in 2015, according to the Recording Industry Association of America, closing in on the fading $1.5 billion in CD sales and triple the $385 million the music labels made from free digital music options like YouTube.
Journalism is moving in this direction, too. News Corp., owner of the Wall Street Journal and the UK’s Sun newspaper, had a miserable quarterly earnings report but boasted about a 26% jump in the number of subscribers to its Web sites, apps and other digital-only subscription options. At the New York Times, revenue from ads in print and online fell 16% from 2011 to 2015, but revenue from digital-only subscriptions more than quadrupled. However, ad revenue is still three times larger and it’s difficult to see subscription revenue ever filling the gap, especially as lucrative print advertising continues to vanish.
Most media companies won’t ditch advertising altogether. The key now is finding the right combination of revenue from advertising, subscriptions, licensing programming to anyone who will pay and much more. Even some successful companies that were born online and supported by digital ads from the beginning are rethinking the balance between subscription sales and ad dollars. Some supporters of Twitter are encouraging the company to start charging a fee for die-hard users rather than rely solely on advertising sales that are going in the wrong direction.
We won’t know for a while whether the shift toward subscriptions will save the media industry or doom it. Advertising makes it possible to have free news and entertainment, and that makes for a bigger number of users. It was a great deal for a while: Media company makes fun or informative stuff. The stuff attracts people. Advertisers pay to pitch products to the people drawn by media content. It was a good deal on all sides. Until it wasn’t, and everyone shifted to the subscription plan B route.
Add another chapter to the incredible success stories of Google and Facebook. They ate advertising and changed the direction of the entire media world.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.