Good morning! This is Readers First, a weekly newsletter for INMA members on reader revenue innovation. I’m Researcher-In-Residence at INMA. E-mail me at grzegorz.piechota@inma.org or DM via Slack (sign up here).

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The virtuous cycles of The Athletic and a big bet on personalisation 

New kid on the field: The Athletic, a subscription-focused sports news start-up, announced last week it raised US$50 million, increasing its total funding to US$140 million and the company’s valuation to US$500 million.

• The Athletic amassed 600,000 online subscribers to date, launched an UK edition last summer, and is planning expansion to further sports verticals as well as internationally.
• Founders expect the company to soon hit a million subscribers and become profitable this year.
• The Athletic has 500 full-time employees around the world, including 400 journalists. It covers 280+ teams and clubs across American football, soccer, hockey, basketball, baseball.

The start-up sent shockwaves through the United States and UK newspapers, hiring some of their best and most famous writers, offering high salaries, signing-on fees, equity — everything the disrupted publishers had failed to reward their top talent with.

Entire lifetime value: Eric Stromberg of Bedrock Capital, a venture capital firm, believes The Athletic’s growth is the result of a virtuous cycle enabled by the subscription pricing model and high engagement. Loyal subscribers fund hiring top writers. In turn, those writers deepen and expand the bundle, attracting more subscribers. In his opinion, The Athletic can grow up to tens of millions of members.

Investors such as Bedrock focus on three metrics that drive customer lifetime value: inexpensive acquisition, high engagement, and high retention.

Per the publicly shared data, The Athletic delivers:

• 70% of new subscribers are acquired organically: by converting Web site, app, and newsletter users; by attracting visitors via search and social; and by podcasts. The rest — 30% — sign up thanks to paid campaigns.
• 90% current subscribers are active on a weekly basis. That’s a very high rate, based on my 2018 study of 500 news sites with Chartbeat.
• 80% of first-year subscribers renew for the year two, and 95% of those stay to the year three.
• Based on the above metrics, as well as annual subscription price of US$59.99 and an average cost of acquisition with performance ads of US$60, I roughly estimate the three-year lifetime value of an The Athletic subscriber at US$136.

Three-years expected tenure is conservative. As Mr. Stromberg puts it: “Every consumer product wants a high lifetime value. With sports fans, the lifetime value is an entire lifetime.” 

When a newsroom is a profit and not a cost center: The prediction of future profitability of subscribers can be used to build a case for launching new verticals for fans of UK leagues or clubs (sources of future revenues) and for new hires in the newsroom (in this case, costs of acquisition of new subscribers).

For example, The Athletic’s Chief Content Officer Paul Fichtenbaum told me the UK edition has a goal of attracting 100,000 subscribers in the first six months.

• If it succeeds, based on my calculations, this cohort alone will bring US$13.6 million over the three years.
• The salaries of 50-people UK staff, this operation’s main cost, would amount to US$9.4 million over the same period (assuming the start-up pays a double of the average journalist salary in the UK.)
• Sound business case, isn’t it?

The app also doesn’t aspire to provide a comprehensive coverage of all sports for all fans. It carefully chooses leagues and clubs. This way The Athletic avoids the common dilemma of news publishers: Is it more profitable to create a library of long-tail content or focus on creating blockbusters.

Vastness of one’s library helps to achieve scale, but it must be weighed against cost. At INMA conferences, executives share results of content audits that usually show their output looks like a long tail, in which a majority of the articles enjoy just a few reads. The decision often is to reduce the library and to focus on the best performing content.

Both strategies have a merit and successful followers, even in the news subscription space. For example, compare the number of original articles, blog posts, and charts published daily by The New York Times and The Washington Post: 230 vs. 500.

Aggregating niches: Amazon, Netflix, and, in my opinion, The Athletic show there’s a third way: creating conglomerates of niches, as Professor Amanda Lotz called it in her insightful book “Portals. A Treatise on Internet-Distributed Television.”

Netflix and The Athletic target service multiple audiences, but this is different than “mass” strategies such as long tail or blockbuster-driven. They develop in-depth content for different tastes with distinct audiences in mind — not for all, like generalists do. Then they customise presentation with personalisation: A fan of “The Crown” show may never see “The Witcher,” despite both being blockbusters on Netflix. A Liverpool FC fan may never see a story on the Boston Red Sox in The Athletic. Why would she?

As other subscription media companies have, Netflix and The Athletic focus on engaging audiences. But perhaps there’s a nuance here. They wish not only to satisfy readers by making them read what they like, but also try to avoid any dissatisfaction with content readers don’t like.

Subscription pricing, aggregation of niches, and personalisation are therefore key ingredients of the business model. How does it work in practice?

Data-informed, cross-department growth effort: When we met last fall, Paul Fichtenbaum described another virtuous cycle in place at The Athletic.

• Editorial team creates content that is then distributed by the engagement team across channels such a Web site, an app, e-mail, push notifications, social, and search.
• The best performing stories are picked up by the growth team that boosts acquisition with paid campaigns.
• The start-up’s data team analyses the performance and provides feedback to the editorial, engagement, and growth teams.

The Athletic’s case study, in my opinion, supports the hypothesis that the reader revenue model may be a better to fit to fund professional journalism than reach-oriented advertising business.

• The revenue is predictable, and planning can be forward-looking.
• That allows to attract better talent and hire for the long term.
• This in turn may result in a higher quality product and, assuming the staff optimises content based on data, a better fit to the paying readers’ needs and a longer relationship. 

Five reads I found worthwhile the past week

Generalists vs. experts in the newsroom: Eric Peckham, “Tactical insights” and The Athletic’s subscription success, Monetizing Media, January 24 .

TechCrunch’s Eric Peckham offers another angle of the analysis of The Athletic’s model of aggregating niche audiences: The newsroom staff needs to be recruited and developed accordingly. Sophisticated readers set higher bar for coverage: They want in-depth reporting, insights from the insiders, statistics, tactical advice. Not all reporters are experienced, equipped, and managed to satisfy those needs. This insight may as well apply to sports coverage, as to business, and other coverage.

The habit-driving value of editions: Damon Kiesow, The future of digital is print-like: completeness as a service, Media Stack, January 19.

Editions such as newspaper e-replicas or e-mail newsletters may ignore many strengths of digital — immediacy and infiniteness — but they address readers’ struggles with information overload, search costs, and pleasures felt when completing things. Editions seem to drive habits of reading, and that is what catches attention of many subscription executives.

Damon Kiesow, a former product head at McClatchy and a chair in digital journalism at Missouri School of Journalism, offers a deep dive into what makes editions part of the future and not only the past.

Mobile apps stand on freemium and subscriptions: Report: State of Mobile 2020, App Annie, January 15.

On iOS in the US, 97% of non-gaming consumer spend in the top 250 apps was driven by apps with subscriptions in 2019. On Google Play, this was slightly lower at 91% -- reported App Annie, a mobile apps analytics company, in its annual report.

Dating and video streaming apps have seen particularly strong success: Tinder, Netflix and Tencent Video topped the 2019 consumer spend chart for non-gaming apps.

Managing for customer value: Rob Markey, The Loyalty Economy, Harvard Business Review, January-February, 2020. 

Peter Drucker wrote in his book The Practice of Management: “The purpose of a business is to create a customer.” Most executives understand this, but few behave as if they do. Under relentless earnings pressure, they often feel cornered, obliged to produce quick profits by compromising product quality, trimming services, imposing onerous fees, and otherwise shortchanging their customers.

This short-termism erodes loyalty, reducing the value customers create for the firm. In HBR’s Spotlight series, Rob Markey of Bain & Co. offers advice how to link customer value with shareholder value and avoid ignoring this source of profitable growth.

Transformation beyond digitisation: Ron Adner, Phanish Puranam, Feng Zhu, What is different about digital strategy? From quantitative to qualitative change, Strategy Science, Vol. 4, No. 4.

My ex-Harvard Business School Professor Feng Zhu co-authored this insightful analysis about the ways digital technology influences markets and competition. It’s an academic paper, so not an entertaining read, but sharp and worth it. Professor Zhu and his colleagues claims the digital transition changed representation of value, e.g., newspapers evolved from physical to digital goods. This shift created an obvious technical challenge for publishers.

Another shift, in connectivity, allowed access to content across the Web, but it also let readers unbundle it and copy, driving down economic value. The latest shift in aggregation — exemplified by the transition from requested to suggested content — is enabled by data collection, analysis, and prediction and impacts the very nature of consumer demand, choice and preference.

About this newsletter

Today’s newsletter is written by Grzegorz (Greg) Piechota, Researcher-In-Residence at INMA, based in Oxford, England. Every week, I share results of my original research, notes from visits to digital subscription leaders, reflections on talks at conferences, and my favourite readings. Previous editions are archived online. 

This newsletter is a public face of a year-long reader revenue and media subscriptions initiative by INMA, outlined here. E-mail me at grzegorz.piechota@inma.org with thoughts, suggestions, and questions. Sign up to our Slack channel.

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