In this newsletter, I am calling for the online distribution strategy rethink at news media and analysing alternative channels for online news.

If you have questions or suggestions, e-mail me today at greg.piechota@inma.org, meet online at the incoming Town Hall on Subscriptions in November 2023, or meet in person at the INMA Media Subscriptions Summit in New York in February 2024.

News media underinvest in online distribution — time for the strategy overhaul

Social referrals to news sites collapsed. Search referrals are holding but may soon follow. If publishers wish to control their destiny, they should invest more in online distribution.

Today, publishers spend two to eight times less on online distribution than on print delivery, depending on estimates. This difference partly reflects the higher cost for physical distribution over online distribution. 

But it doesn’t account for dependence on tech platforms to reach audiences and deliver content, weakened bargaining power, lost customers, and missed opportunities in product-led growth.

“In media business, value is principally materialised when content is consumed, not when it is made,” observed Oxford professor Alex Connock in his 2022 book.

Traffic panic: Silicon Valley Ditches News, concluded The New York Times in October 2023, describing the long and complex publishers’ dance with tech platforms.

What’s new:

• Facebook-referred traffic has declined 55% since January 2022. In the first half of 2023 alone, pageviews fell 40%, according to analytics company Chartbeat.

• In comparison, Google-referred traffic held with relatively small, 1% to 5%, ups and downs across the world regions since the beginning of the year. 

As Google, Bing, and other search companies are rolling out AI-generated answers to queries, instead of lists of Web site links, the traffic from those links is at risk too, per INMA analysis.

This matters because globally only one-fifth of consumers (22%) get their online news mainly through direct access to Web sites or apps, based on a Reuters Institute’s 2023 survey in 46 countries. 

The rest is accessing news “sideways.” Social is the top gateway for nearly one-third of consumers (30%). Search is second, with one-fourth of consumers choosing it (25%). 

Declines in referred traffic directly impact publishers’ business — reduce reach, advertising inventory, and conversions to subscriptions.

(The risk is not evenly distributed: e.g., North European brands see more than 50% direct traffic, East Asian brands see most traffic from search and aggregators, and Latin American brands see most traffic from social media.)

A hidden cost of platforms’ power: Traditionally, media sectors had unique distribution mechanisms — newspapers had their home delivery or kiosks, TV had broadcasting or cable networks, and radio had its frequencies.

On the Internet, where all media compete with each other, distribution is shifting away towards the tech platforms where mass audiences aggregate like social or search engines. 

Google, Meta, and other intermediaries enhanced publishers’ reach and profit pool, allowed cost-effective brand building and content delivery, inspired innovative storytelling formats, and offered some new revenue streams.

However, these benefits came at significant costs, as Harvard Professor Thales Teixeira and I explained in a 2019 book. The traditional link between content discovery, consumption, and monetisation was disrupted, challenging the conventional publishing business models.

Publishers’ relationship with platforms soured when they demanded fair payments, algorithm transparency and guarantees, and governments around the world got serious about regulating Big Tech.

The myth of zero marginal costs on the Internet: Columbia Professor Eli Noam estimated in 2019 that across all offline and online media, the distribution chain had about 41% share in the industry’s revenue.

It was highest for physical content media at about 48% and lowest for online media at about 25%. Anecdotally, three INMA members estimated their 2023 costs allocated to distribution at 30% to 40% for printed newspapers and at 5%-10% for online sites.

Should we expect digital distribution spend to be that low?

In digital markets, “information is costly to produce but cheap to reproduce,” famously observed in a 1998 book by Berkeley professors Carl Shapiro and Hal Varian.

This idea inspired many. The enthusiasts believed the Internet eliminated not only reproduction but distribution costs, promising free prices for everyone, viral growth, and endless scalability for businesses. 

This is what entrepreneur Reid Hoffman called in his 2018 book “blitzscaling”, a Holy Grail of the startups. This is why British journalist Chris Anderson declared in 2009: “The Web has become the land of the free, not because of ideology but because of economics.” 

But in reality, “cheap” is far from “free” — and without distribution, media products are unseen, unheard, and “arguably worthless,” as argued by Oxford Professor Connock.

Platforms’ distribution secrets: With social traffic declining, news media executives are learning that relying on “free” distribution puts at risk the very sustainability of publishing. 

At the same time, platform executives have been investing billions in distribution for decades: from developing features attracting new and returning users, to piggybacking on existing networks, and to slotting fees known from retail. 

Similarly to breweries or dairy plants paying supermarkets to feature their drinks prominently on shelfs, Google paid as much as US$10 billion per year to ensure users of Apple Safari and other browsers see Google search as a default. 

Google’s deals were revealed by the U.S. Justice Department’s antitrust case. They lock up between one-third and one-half of all search traffic in the U.S.

How much is US$10 billion for Google? Per the 2022 annual report, it’s 8% of annual cost of revenues or 6% of revenues from Google Search. And this accounts only for slotting fees. 

In the report, the cost of Google’s distribution agreements are reported combined with advertising revenues shared with publishers using Google Network. Together with the costs of data centres, product research and development, and sales and marketing, they account for 64% of annual revenues.

The Web, it seems, is not the land of the free even for its giants. And it’s not free for news publishers, for sure.

To learn about how The New York Times reorganised to embark on product-led growth, check this Webinar with its chief product officer. 

New distribution model for online news: to go direct or diversify marketing channels?

In the face of declining social referrals and risks posed by generative AI-driven search, one solution that’s gaining traction is a destination strategy. What are the trade-offs? What are the alternatives?

“Our job, my job, is to obsessively focus on getting people to come to our destination and build a direct relationship with us,” declared The New York Times CEO Meredith Kopit Levien.

To become “the world’s best news destination,” in the past five years The Times prioritised investment in journalism, software, product and marketing, and built a robust organic audience funnel. 

For example, a casual visitor from Google is nudged to register to read more for free, then sign up for newsletters, download an app, and try games. The Times then monitors the engagement and may pitch a subscription through all direct channels it has connected.

Author Wes Bush called this approach a “product-led growth” in his 2019 book. 

In 2022, per the company’s annual report, The Times spent US$204 million on product development in addition to US$267 million spent on sales and marketing, US$23 million on customer service, and UA$30 million on offline and online content delivery (e.g., servers).

Altogether, it’s US$524 million or 25% of the total operating expenses. 

The distributor’s jobs: Publishers who consider skipping Google and Meta — and focusing on a destination strategy — face a challenge. 

“When you remove a member from the [distribution] channel, someone else must absorb the work they were doing,” reminded Northwestern University professors Julie Hennessy and Jim Lecinski said in their 2023 book.

What work is that? Let us consider the value that tech platforms create for media consumers and what publishers may need to absorb:

• Aggregation: The intermediaries aggregated and repackaged vast amounts of information so consumers could find all content in one place instead of visiting multiple Web sites. Might publishers bundle and curate news, lifestyle, and entertainment content? 

• User experience: Platforms simplified logistics — standardised content formats, integrated multimedia, and polished user-friendly interfaces, making consumption faster and more pleasant. What would it take for publishers to build destination mobile apps on par with popular aggregators?

• Personalisation: Tech companies used behavioural data to tailor content to an individual’s interests, making it easy to discover relevant content. Can publishers double down on investments in analytics and automated curation?

• Interactivity: They allowed consumers to comment, share, and engage with content, deepening engagement and satisfaction. Could publishers open up for user-generated content and build communities around stories?

This transition, as the example of The New York Times showed, requires a shift in strategic thinking and investments in tech infrastructure, product, analytics, community management.

Data-informed bets: When mobilising traffic to fill the gaps in the short to medium term, news publishers may wish to prioritise the biggest channels they and their consumers already use.

The channel’s size assures impact, and familiarity hopefully shortens time to value.

In Reuters Institute’s 2023 survey across 45 markets and all demographics, we see the following channels that might help maximise reach and feed the top of the funnel:

• Rally for mobile app investment: Across the world, 55% of consumers declared smartphones as the main devices for accessing news, versus 23% who declared using laptops. Per other studies, people spend four times more time in apps than in mobile browsers. Can publishers invest in their apps, brand, and discoverability in app stores, as other mobile-first companies?

• Drive search and aggregators: 25% of consumers declared search as their main getaway to online news, after social media (30%) and before direct visits (22%), mobile alerts (9%), aggregators (8%) and e-mail (5%). Have you screened aggregators and their potential? Have you doubled down on search engine optimisation and your e-mail portfolio?

• Master YouTube and WhatsApp: While still 41% of consumers declare using Facebook for news, consider other social media and messengers. 30% of consumers declare they use YouTube for news, 21% use WhatsApp, 18% use Instagram. What is your video and podcast strategy? (By the way, in the U.K., YouTube is already bigger in news podcasts than Spotify, per Ofcom survey.) Are you using WhatsApp Channels?

• Nudge acting on news: While 41% consume news passively, 40% talk about news they read, 35% share an article, and 22% comment on it. How is your ladder of participation? You haven’t eliminated comments from your site, have you?

• Show and tell: While 50% say they prefer to read the online news, already 26% prefer to watch; 11% prefer to listen. How good are you in vertical video? Are you betting big on audio? 

(The Oxford survey shows preferences differ across countries and demographics. In general, younger consumers and those in non-Western markets are more mobile, social, and video-oriented.)

The ecosystem experiments: While direct distribution offers a way to regain control, diversification is essential to hedge risks and explore new opportunities.

Practitioners advise having a pipeline of channels for testing, and here’s how this might look: devices, apps and sites, and companies.

• Device expansion: In today's connected world, news consumption isn’t limited to desktops and smartphones. Publishers may consider other devices like smart TVs (28% consumers use for news), smartwatches and other wearables (5%), smart speakers and voice assistants (4%). For example, Slovakian Dennik N launched an audio app for Apple CarPlay and Android Auto for daily commuters to enjoy its podcasts.

• Channel development: An emerging channel doesn’t need to be a new trendy app. Addressing user needs other than news might unlock new opportunities in the existing channels. For example, Argentina’s La Nacion found a bigger success with promoting its club benefits on Google, such as discounts for retail, than promoting news itself. U.S. Newsday engaged local influencers to amplify news stories.

• Channel exploration: Beyond traditional news destinations, there’s a myriad of Web sites and apps where readers are spending time. Per Kepios, a research company, this includes online shopping (76% internet users visited monthly in 2023), maps (55%), streaming apps (46%), weather apps (41%), online gaming (34%), banking (28%), sports (26%), health (24%), learning (24%), as well as company intranets and work spaces, community platforms, and utility apps. For example, Japan’s Nikkei released an app for Slack.

• Partnerships and syndication: Businesses can use news as benefits for employees and customers, and for attracting new segments or improving retention. For example, German Bild signed deals with mobile carriers to bundle their apps and licence content, fundamental for getting traction with BILDplus subscription. The Globe and Mail is marketing The New York Times to Canadian readers. 

As tech landscapes shift, news publishers might be sitting on an untapped gold mine by underestimating and underinvesting in distribution.

“For some types of media, content is king. But if so, then distribution is the emperor,” observed Columbia professor Eli Noam. 

About this newsletter

Today’s newsletter is written by Grzegorz “Greg” Piechota, INMA’s researcher-in-residence and lead for the Readers First Initiative. In his letters, Greg shares original research, analysis, and best practices in growing reader revenue.

E-mail Greg at greg.piechota@inma.org, message him on Slack, meet him online at the incoming Town Hall on Subscriptions in November 2023 or in person at the INMA Media Subscriptions Summit in New York in February 2024.

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