I'm an independent journalist working to create a new kind of news organization. In Rethinking News, I explore the state of the news business and ways to make it better. Please support the project by subscribing. It's free.
A major turning point in the history of online journalism came on March 28, 2011, when the New York Times erected a paywall for its website. Nerds like me were confident that it wouldn't work, but we were wrong: it was a stunning success.
The consequences are still reverberating through the news industry. By 2020, the Times had more than 6 million digital news subscribers and almost $600 million in digital subscription revenue.
The success of the Times paywall provided new cause for optimism after a grim decade for the news business. Before 2011, efforts to get readers to pay for news had fizzled. Digital ad revenue hadn't grown quickly enough to prevent wave after wave of layoffs. If other news sites could replicate the Times model, it could allow the news business to start growing again.
Unfortunately, paywalls turned out to be a winner-take-all phenomenon. The Washington Post copied the Times playbook and built its own substantial subscription business. But second- and third-tier newspapers—and other smaller publications—have had much less stellar results. That has produced a growing concentration of journalistic talent, as the Times and the Post have poached star reporters from other newsrooms.
While I'm happy to see any news organization thriving, I'm not thrilled about the prospect of my industry becoming dominated by a handful of huge bureaucracies. This is a big reason I've been excited about the recent success of paid newsletters on platforms like Substack.
The Times model and the Substack model are both based on the idea that people are more likely to pay after a free trial period. But whereas Times-style paywalls work best for the largest publications, Substack is optimized for individual writers.
Both models are pushing up wages for the most prominent writers, which has put mid-sized publications—those with 10 or 100 writers—under growing financial pressure. Many are funded by ads, which generate a fraction of the revenue of subscriptions on a per-reader basis.
A big open question is whether it's possible to build mid-sized news publications based on the Substack model. That's the hypothesis I quit Ars Technica to test. I want to see if a subscription newsletter can support not just an individual writer but a team of reporters doing serious journalism.
Paywalls helped the biggest get bigger
In this chart I've compiled data from six newspapers who revealed their digital subscription figures at some point in 2020. The print circulation figures come from here.
The chart shows digital subscription revenue is far more unequal than print subscriptions. Partly this chart reflects the kind of superstar effect we've seen in lots of fields as markets have nationalized and globalized. LeBron James earns far more from endorsements than any other basketball player. Harvard's endowment is far larger than any other university.
By the same token, far more people want to subscribe to America's most famous newspaper, the New York Times, than any other paper. And because many people only want to subscribe to one news site, a lot of people subscribe only to the Times.
But I also think that the specific design of modern paywalls gives a big advantage to the largest newspapers.
In 2011 I thought the Times paywall would fail because a previous Times paywall had fizzled just a few years earlier. But an ingenious tweak made all the difference: metering. Rather than asking readers to pay right away, the 2011 Times paywall offered 20 free articles each month before requiring payment (the limit has gone down over time and the Times now has a flexible paywall that's not based on a fixed number of free articles).
When a publication erects a hard paywall, it forces readers to decide whether to pay for content they haven't seen yet. A soft paywall, on the other hand, offers a "try before you buy" period.
This strategy works best with a large catalog of content. The Times has 1,600 journalists who produce dozens of deeply reported stories every day. If you spend a lot of time online, it's hard to avoid bumping into New York Times articles. So even with a generous allotment of free articles, many users are still going to hit the paywall.
The small publisher's dilemma
Smaller papers face a starker choice. Many potential readers might only encounter their content a handful of times in a month. If a publication offers too many free articles, most readers will never hit the paywall.
But readers who have only visited a site a handful of times may not be ready to open their wallets. And if a paywall cuts them off too early, they might never have a chance to fall in love with the publication. So the smaller a publication is, the harder it is to make a paywall strategy work.
Newsletters provide a potential solution to this dilemma. Rather than artificially limiting the number of articles people can read before they pay, a newsletter strategy focuses on convincing consumers to opt into receiving more free content. That builds brand loyalty that can turn people into paying customers down the line.
A good example of this is Forum Communications, a publisher that owns a chain of small papers in the upper midwest. In 2019, Forum rolled out a new subscription program that used both a paywall and newsletters to attract customers. Forum executive Stephanie Schroeder told Simon Owen the company was surprised when they got analytics on their subscribers.
"We can really see exactly where everybody's coming from, and when we looked at that data for the first time, we were stunned to see that 60% of our conversions come from our newsletters. That was a much higher number than we ever could have imagined," Schroeder said.
Newsletters empower small publishers
In 2014, Ben Thompson quit his job at Microsoft to work full time on his blog called Stratechery. He pursued a "freemium" business model, with one post a week available to the public and three available to subscribers. Subscribers could have posts delivered directly to their email inbox if they wanted to.
In a less than a year, Thompson amassed 2,000 paying subscribers. With a subscription rate of $100 annually, that translated to around $200,000 in 2015 income. He's rumored to make a lot more money today.
Stratechery's success inspired the 2017 launch of Substack, a platform that allowed any writer to create a Stratechery-like newsletter. Over the last four years, Substack has demonstrated that writers can make serious money with the Stratechery model. Substack now says it has 500,000 paying subscribers to its various newsletters, and its top writers earn more than $1 million per year. (Rethinking News is built on Ghost, an open-source publishing platform with features similar to Substack.)
A lot of people are surprised that so many readers are willing to pay for a single writer's work. If you sign up for a single-author newsletter, you might pay $5 per month and get 10 or 20 articles per month. On a cost-per-article basis, that obviously can't compare to the thousands of articles the New York Times publishes every month.
But nobody has time to read thousands of articles anyway. And peoples' interests are often highly personalized. Some newsletters, for example, cater to professionals in particular industries, covering topics in greater depth than you can find in mainstream publications.
More important, many readers don't view subscribing as an arms-length trade of money for content. They're fans who like the idea of supporting a specific writer whose work they admire.
Counterintuitively, many newsletter writers have found that they make the most money if they make the majority of their content—including a lot of their best work—available for free. Free articles attract new readers, and the better a free article is, the more likely readers are to subscribe.
You might think this strategy would cause a lot of people to take the free stuff and not pay for the subscriber-only content. But plenty of people still pay—either because they want to support the writer's work or because they're such fans that they want to read every post. Obviously these two motivations frequently go together.
Mid-sized publishers are getting squeezed from both ends
The successes of the New York Times and Substack both strike me as good news for the journalism profession as a whole. But they are going to put even more strain on publications in between.
Consider Vox.com, where I worked until 2017. Since Vox's founding in 2014, the Times has lured away both big names and rising stars from Vox. They include Max Fisher, Amanda Taub, Brad Plumer, Jenée Desmond-Harris, Sarah Kliff, Jane Coaston, and Vox co-founder Ezra Klein himself. I'm not privy to the financial details of any of those Times hires. But six million subscribers gives the paper the financial resource to offer raises to any journalist they want badly enough.
Meanwhile, two other prominent Vox writers, Dave Roberts and Vox co-founder Matt Yglesias, jumped to Substack last year. Matt now has more than 10,000 subscribers, which means he's on track to make $1 million in 2022.
Vox's fundamental problem is that it is still largely an ad-supported business. And ads just aren't as lucrative as subscriptions on a per-reader basis. Even the most prestigious media companies can't generate more than a few pennies per pageview.
Vox does solicit contributions from readers, but it's a little bit awkward. Contributors don't get premium content—just the satisfaction of supporting Vox's explanatory mission. And Vox Media is a for-profit company, so these contributions are not tax-deductible.
In short, Vox seems to be stuck in an economic no-mans land—too small for a metered paywall, but too big to work as a newsletter. And not just Vox: any mid-sized publication that's supported primarily by ads is going to find itself increasingly squeezed, as its most prominent writers are tempted by better-paying opportunities elsewhere.
That makes me sad because I think mid-sized publications—like my former haunts Vox (around 40 writers) and Ars Technica (around 15 writers)—do some of the most interesting online journalism.
If I ran these publications, I'd be thinking hard about how to transition to a more subscription-oriented business model. But it won't be easy, as many of them are currently organized around ad sales.
That's why the world needs a news organization built from the ground up to publish reader-supported newsletters. I want to build a team of reporters to do in-depth journalism—not hot takes with clickbait headlines. So far, 574 people have signed up to help me. I would be thrilled if you joined us! It's free.
Image by Jan Vašek from Pixabay.