Is the market ripe for fully paid, ad-free digital news products?

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Originally posted on LinkedIn, April 3, 2017

UPDATE: USA TODAY has joined the Wall Street Journal in releasing a subscription-based ad-free product.

The time may finally be right for digital news businesses to become more strident in charging for quality news content in exchange for ad-free or ad-light premium user experiences.

But how much would news outlets need to earn per article or video to make up for all ad revenue, or at least offset losses from removing ads with the biggest drag on user experience?

While publishers are unlikely to forego any single revenue stream, sometimes it's clearest to evaluate a strategy by making an all-or-nothing assumption. So, the person in charge of subscription revenue might ask, "what if we created an ad-free product available only for paying customers?"

A business metric we can use to estimate an answer is revenue per thousand views, or RPMs -- the same acronym for how fast you're revving your car's engine. Whereas pushing RPMs too high on your engine can cause it to blow, high RPMs in publishing are a very good thing. The higher, the better.

RPMs are calculated using several other factors, including cost-per-thousand (CPM) for sold ad impressions, sell-through rates (STR), and the quantity of ad positions served on each page.

Modeling out digital advertising revenues becomes complex because each of those contributing metrics varies based on content, layout, audience target, ad type, sales channel, time of day and seasonality, among others. That said, benchmarking average RPMs is useful in evaluating strategies for growing a digital media business.

RPMs can also assist in determining the trade-offs likely from turning on a paywall or other forms of charging for content. If R's go up, but at the expense of M's, where does that leave your top and bottom lines?

For many years, I was responsible for budgeting digital ad revenues for news companies. Based on that experience, I suspect that many publishers and general managers resist paid-content strategies based on overstated projections of advertising RPMs. Hint: they'll continue to fall as Facebook, Google and exchanges grow larger and more efficient.

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Many news-economics pundits poo-poo micro-payments and suggest that consumers would, at most, pay only a couple cents to make clicking a headline an instant, no-thought decision. But, wait a second ... what if a cent or two is enough? (New technologies are available to make accounting for small transactions cost effective -- future post!).

I estimate that many digital news outlets have average advertising RPMs in the range of $13 on article pages -- possibly as high as $20 on video views. I'm curious -- am I way off here? Please comment if you think I'm underestimating or overestimating.

In that case, to answer the subscription manager's earlier question, you would need to average $0.013 -- just over 1 cent -- on article pages and $0.02 for videos to match ad revenue.

Blendle, a Dutch start-up, has 20 U.S. news outlets testing its micro-payment service, with per-article pricing in the 19- to 39-cent range. Founders claim one in five customers end up connecting their credit cards to fuel their account. Assuming a price of 20 cents per, if you could get to 1 in 5 viewers to pay, that's a $40 RPM. Interestingly, those paying tend to be young people. It's a model worth watching.

Regardless of whether consumers ultimately take to pay-per-view, micro-payments, and at what price, or a premium, ad-free subscription product can deliver $13 per thousand views or better, the time seems right to test such models. And a realistic ad RPM benchmark and projection is a good place to start to model out your strategy.

Peter Lundquist