The 4 hurdles micropayment platforms can’t overcome

Most publishers remain wedded to their subscription models and show no appetite for offering a micropayments alternative.

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The 4 hurdles micropayment platforms can’t overcome

The first question comes from Corey Hutchins

What are the biggest hurdles to paying to read a single story at news orgs with paywalls?

Ah, the evergreen micropayments question. I’ve been writing about the media industry for over a decade now, and about every six months or so I’m pitched by a brand new startup that claims it’s perfected the micropayments model. I used to get on Zoom calls with these founders, and they’d walk me through their product and all its hypothetical uses. But whenever I asked about how the product was performing in the marketplace, they always admitted that they were still in early stage talks to bring publishing partners on board. At no point did I ever encounter a micropayments startup that could show me a successful case study.

That’s not to say I don’t see why the micropayments model is so appealing. After all, one of the biggest complaints about subscription models is that they quickly become prohibitively expensive. You can only buy so many $200 - $400 annual subscriptions before you’re maxed out and can’t afford anymore. Then you live with constant guilt that you’re not reading enough of The Wall Street Journal to justify its $400 subscription while simultaneously getting frustrated that you keep hitting paywalls on other news sites.

Wouldn’t it be better if we had a pay-as-you-go model, one where you land on an article, decide if you want to read it, and then cough up 50 cents or a dollar for the privilege? That would allow you to diversify your reading diet while eliminating the winner-take-all subscription model that makes it so difficult for small publishers to compete with The New York Times. Viewed through that lens, micropayments would bring on an information utopia.

And yet no such utopia has ever emerged. The vast majority of publishers have remained wedded to their subscription models and show no appetite for offering a micropayments alternative. Here are the four reasons why:

Limited marketing real estate

The subscription sales funnel is pretty grueling. When a user hits a paywall, the publisher only has a few moments to sell them on the value of a subscription before they bounce off the page. They’re not going to want to waste that valuable real estate by also pitching the user on a less lucrative micropayments option. Doing so would lower the publisher’s subscription conversion rate without generating enough revenue through micropayments to justify such a move.

The economics of selling an article for $1 aren’t worth it

Which brings me to my next point: the economics of micropayments just aren’t all that great. Let’s say you’re a newspaper publisher in a mid-sized city like Richmond, VA. There’s probably no scenario where The Richmond Times Dispatch could reasonably sell more than 1,000 individual articles per month. Assuming that those articles cost $1 a piece, that’s a measly $12,000 per year in revenue. It’s simply not worth it to the newspaper to even bother with such a system if it doesn’t even cover the cost of one full-time employee.

Too much friction for too little value

Part of the reason the subscription bundle is such a successful model is because it creates the feeling of value. The largest and most successful subscription news outlets publish thousands of articles per month, and readers ascribe value to that bundle even if they don’t actually end up reading most of those articles. In fact, studies show that at least 50% of a publication’s subscribers don’t even visit that publication more than once a month. The same psychology applies to the cable bundle, where you pay $150 for hundreds of channels you never watch.

A single article isn’t perceived to have much value, and it’s simply not worth it to the average user to go through the effort of signing up for an account and entering their credit card number just so they can access that one article. Not when there’s an unlimited amount of free content just a click away. 

No publisher wants to be the first to go all in

Some startups have proposed a solution to the friction problem: a single sign-on platform through which everyone has already created an account and entered their credit card information. That way, whenever you land on a paywalled article, you can simply push a button to purchase it without creating a new account. 

The challenge with this scenario is that the platform only becomes valuable once hundreds – or even thousands – of publishers have installed it. That means there would need to be a substantial number of publishers first out of the gate to install the tech even though it wouldn’t contribute any meaningful revenue in the short term. How many publishers are going to be eager to sign over their tech stack to a startup that might not even exist in six months? I certainly wouldn’t. 

***

Does this mean I think micropayments could never work? Well, I certainly don’t see there ever being a market for buying individual articles. But I do think there are ways for publishers to offer one-off payments as an alternative to a 12-month subscription.

One of my favorite proposals is the “monthly access payment” (MAP) that was proposed by Mark Sternberg. Under that framework, a reader is given the option to pay slightly more than they would for a monthly subscription, and then in exchange they’d get an entire month’s free access to that publication. It’s similar in concept to someone buying a single issue of a magazine at an airport or newsstand kiosk.

This model is great for the publisher, since it’ll get more users into its marketing funnel. Not only do readers get to sample an entire month’s worth of content, but they’ll also be automatically signed up to the publisher’s daily newsletters, which will hopefully aid in forming a regular habit. For those readers who don’t convert into an annual subscription, they’ve still contributed a meaningful amount of revenue to the publisher’s bottom line.

So let’s go back to that hypothetical scenario with The Richmond Times Dispatch. If it manages to sell 1,000 MAPs per month at $12 per MAP, then it would generate $144,000 in annual revenue, and then some portion of those MAP buyers would convert into annual subscribers. It’s a win for the publisher because it produces meaningful revenue, and it’s a win for the consumer because they don’t have to commit to an expensive annual subscription just so they can access a single article. What’s not to like?

Will writers in the Creator Economy even exist in 10 years?

From Michael Spencer:

Will writers in the Creator Economy even exist in 10 years. The momentum is all for video, audio, and new formats such as game streaming.

I don’t agree with the premise of the question. There’s a ton of momentum for the written word. That’s why so many famous writers keep joining Substack, and it’s why every major platform from Facebook to Twitter has either launched or acquired a Substack competitor.

Are there ways for local news outlets to better diversify their revenue?

From Tom Gierasimczuk

How are local journalism start-ups growing revenue *beyond* newsletter/site ads and reader donations/subscriptions?

That’s a good question. Revenue diversification can be difficult at the local level simply because outlets lack both the scale and the funds necessary to invest in the sort of business models that are common with national news publishers. They can’t afford, for instance, to hire podcasting or video talent. Local businesses also aren’t sophisticated enough from a technological or distribution perspective to allow for affiliate advertising. 

There are at least two models I see publishers experimenting with:

Job boards

While the pandemic drove up the prevalence of remote work, the vast majority of jobs are still hired at the local level. I’m noticing more and more local outlets launching verticals that allow employers to upload and pay for job listings.

Check out this one from Axios’s local DC newsletter.

Check this one out from Technically Media, which covers the tech sectors of several major cities.

Events

At the national level, publishers will often rent out a venue and then charge for tickets and sponsorships with the hopes of recouping their expenses and turning a profit.

At the local level, events are usually structured as more of a partnership. After all, local restaurants and other leisure businesses often advertise in local news outlets, so they make for natural partners. They benefit because the event drives customers to the venue, and then the publisher benefits by taking some pre-negotiated cut of both the ticket and food/drinks sales. 

For an example of this, check out how WhereByUs’s Miami vertical teamed up with a local Ethiopian restaurant to host a ticketed dinner.  

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Quick hits

"They might have five people working on something that we have someone working on part-time." The Athletic founders explain their motivations for selling to The New York Times. [CNBC]

Kind of saddened to read that Slate is still struggling to reach profitability. The site made a huge early bet in podcasting and also invested in digital subscriptions back in 2014. Its strategy should be working. [NYT]

This is an interesting business model where investors will provide an upfront, lump payment to a YouTuber in exchange for monetization rights to the YouTuber's back catalogue. The YouTuber could then take that advance and use it to scale up their business. [Business Insider]

Publishers are still mostly using Instagram as a dumping ground for videos they produced for other platforms. So far, they're not seeing enough revenue from the platform to justify an Instagram-first strategy. [Digiday]

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Simon Owens is a tech and media journalist living in Washington, DC. Follow him on Twitter, Facebook, or LinkedIn. Email him at simonowens@gmail.com. For a full bio, go here.