Overall consumption of news on digital platforms is growing, reflecting the rising penetration of smartphones and tablets and the access they provide customers to digital news throughout the day. Growth in the number of paying digital news consumers, however, has slowed and it appears that the number of paying users in many countries is stalling at a lower level than many news organisations hoped.

The majority of news consumers obtain news without payment from free news sites, aggregators, and social media, but some heavy news users seek out specific news sources they trust – and are willing to pay for them.

Digital advertising expenditures are growing globally, but the primary beneficiaries are large internet firms such as Google, Facebook, and Yahoo. News providers are developing strategies to try to gain more of the available advertising expenditures, but those must contend with the larger firms’ dominance of digital ad provision infrastructures and the fact that news represents only a portion of overall digital media use.

The overall picture is one of low growth in paid content consumption and a digital advertising market that is not highly favourable for news providers. However, some firms are finding ways to overcome these challenges, benefit from market opportunities, and make digital news provision a viable and sustainable business through sophisticated service strategies with multiple revenue streams.

Developments in paid content

Consumers who are now paying for digital news, combined with those who indicate they are willing to pay in the future, now make up a significant proportion of national populations, but average about half the level of those who pay for print newspapers (for the nations in the DNR study, the average is 24% compared to 46% who report they pay for print news). Growth has slowed or plateau-ed in many countries, and it appears that digital news providers are struggling to grow the total market for paid news.

Nevertheless, news organizations worldwide are reporting some growth of revenue from digital subscriptions on various platforms and consumers are being allowed to purchase weekly, monthly, and annual subscriptions, and, in some cases, daily access. The New York Times, for example, now offers subscription packages that bundle free digital access with a print home delivery subscription and separate digital-only bundles that provide differing access via the web, smartphones, and tablets.

Subscription has become news providers’ preferred method for revenue because it leads consumers to purchase more content overall and produces greater stability in the revenue stream. Those offering multiple subscription packages, with access to different amounts and types of content, appear to be more successful at widening the group of consumers that is willing to pay. Some are offering different levels of paid access, with higher prices for access to premium or specialist content offerings and services, and these are helping increase overall use and revenue.

Many news providers who instituted paywalls in the past with generous metering policies are now reducing the number of free articles in an effort to turn regular free readers into paying customers and increase revenue. Gazeta Wyborcza in Poland, for example, quadrupled its digital subscribers in two years to more than 55,000 using a combination of a tighter metering system and a premium content tier system that provides some free content, some basic paid content, and different types of paid premium content. About one-quarter of all its total customers (print and digital) are now digital subscribers.

The Financial Times is continuing to sharpen its digital payment strategy. Last year the number of digital subscribers rose 21% to 504,000, about 70% of its total readership. This spring it abandoned its longstanding metered model in favour of a hard(er) paywall combined with low-cost trial subscriptions in an effort to attract regular but lighter users. They are also testing different approaches to acquiring new readers including allowing one click free models from search and social media.

The central factor in willingness to pay is the perception that the value of paid content is higher than that of free content. News providers must produce more original digital content while at the same time making it more relevant and valuable to each paying user.

This requires extensive knowledge of individual consumers and is why news providers such as The Globe and Mail in Canada are investing heavily in data systems that provide regularly updated information to circulation, advertising, marketing, and editorial managers.

O Globo in Brazil is employing a sophisticated strategy data acquired across its free content on its own platforms, search, aggregators, and social media. The company is targeting heavy news consumers most likely to subscribe and offering them various subscription options to turn them into regular customers.

Although data strategies are being improved in many organisations the tools for doing so still remain rough and do not yet follow consumer usage well across platforms. Business and financial news providers and providers with specialist coverage and analysis tend to have the highest growth in paid digital users and some are closer to making a transition away from print.

One of the more successful apps has been Economist Espresso, a daily digest of short stories, which induced 175,000 existing Economist subscribers and 25,000 new users to subscribe. This indicates that the majority of mobile subscribers are resulting from providing added value to existing subscribers rather than new ones.

Some news organisations, such as the Guardian and the New York Times, that have desirable and well-known special features such as crossword puzzles, are disaggregating that content and offering separate subscriptions for those unwilling to subscribe to all their content, thus increasing their overall revenue.

Despite a great deal of digital product development and innovative marketing strategies, the primary customers of paid digital news remain the heavy news users who already paid for news delivered in other ways. Efforts to widen the paid audience among those who do not otherwise pay for news have not been widely successful. Highly trusted brands, however, have been able to use the digital advantages to gain new subscribers from geographic areas their print editions did not serve.

A challenging advertising market

Advertisers continue to move increasingly larger portions of their expenditures to digital media, especially mobile media, but the primary beneficiaries remain the large US-based search engine, aggregators, and social media firms at the global level, as well as the national level in much of the world.

Digital advertising revenue remains a challenge for news providers and it is not going to contribute as large a portion of income as it has for offline operations. This is because the inventory of advertising opportunities far exceeds that of print and broadcasting, reducing demand, and depressing prices paid for digital advertising. Consequently, digital firms require very large numbers of users to gain sufficient advertising to produce a large revenue stream. In addition, most digital advertising does not provide the display advertising benefits that continue to attract large advertising purchases by major department and grocery stores.

The digital environment is also less friendly to advertising than the offline environment because software allows consumers to block advertising messages, particularly on personal computers, and many consumers are now employing them.

News providers are working to increase the prices by improving the connection of users to relevant advertising messages through better user data management, by improving the presentation of advertising messages, and by creating advertising alliances with other news providers that collectively generate greater exposure for advertisers.

The Guardian, Financial Times, CNN International, and Reuters established Pangea this year to jointly sell and deliver digital advertising to their high-quality audiences on various platforms, bypassing Google, Facebook, and other major online players who are less willing to share customer data needed to better service the audiences.

Mobile advertising – targeting smartphones and tablet users – is growing, but the number of news providers effectively capturing advertising revenue remains low because much of the advertising is delivered by intermediaries who do not share, or share little, revenue and because necessary consumer data – especially across platforms – is not yet available to make its value to advertisers less ambiguous.

News providers would like to derive a revenue stream from consumption of news shared on social media, but few are gaining much revenue today. Significant issues are how advertising revenue should be split and the sharing of users’ data. Companies such as Facebook and other social media operators are powerful intermediaries and that will make it even tougher for news providers to make money as more content moves off their sites and apps to social media.

Despite the general growth of digital advertising expenditures, advertisers are not fully satisfied with the performance of digital advertising. It was reported that that more than half of digital ads served are not actually seen by users.¹ Many are now allocating more of their expenditures to other activities such as search placement fee, content marketing, and sponsored content.

A growing emphasis on multimedia

News providers are increasingly providing news video to consumers, with larger organisations producing some original video and smaller organisations relying on video from video agencies or links to video at other providers.

Some companies are using video to improve advertising sales and delivery through the use of preroll, midroll, and postroll videos. The advertising rates for digital advertising included with video are generally higher than that for other forms of content, but it is uncertain whether that pricing advantage will continue as the amount of video content increases. Some news providers are obtaining additional revenue from sponsored video content, such as documentaries and other short- and long-form video.

Sponsored content creates concerns for highly reputable news organisations noted for their independence and original content, however, so it is not expected to play a significant role in their revenue.

Where is digital news provision going?

Contemporary developments and trends suggested a number of conclusions about the nature of the digital news market. Only a few large well-established news brands are likely to achieve the scale and volume of consumer and advertising necessary for success at the global level and we will see competition to be in that group increase in the coming years.

Even as companies pursue such global ambitions, they will need to localise content, a factor that has led the Guardian to establish newsrooms and separate editions for its US and Australian editions. Another approach is to offer services in multiple languages, as the Huffington Post has done in French, German, Spanish, Italian, Portuguese, and Japanese.

National brands enjoy some level of protection in their domestic markets and a few in each country are likely to garner the bulk of domestic digital consumer and adverting revenues. News providers in smaller markets—Finland and Australia, for example—may find that getting the majority of news providers to simultaneously implement paywalls will lead to more rapid acceptance of paying for content, as occurred in Canada.

The outlook for local digital news remains uncertain. It is proving difficult for local news providers in many countries to gain large numbers of paid digital users – one exception being Canada where more than three-quarters of all newspapers now charge for digital content – and the ability to attract and survive on digital advertising varies widely.

Venture capitalists are watching developments carefully. Few have invested directly in digital operations of legacy news providers, but a number have invested in related services such as content payment systems, digital advertising services, and data management systems, and some have invested in commercially oriented start-up news providers such as Vox, Buzzfeed, and Vice.

Many in the industry continue to hope that paid content use will rise and that those increases, combined with better data and knowledge about the users, will create the ability to better match content and advertising with specified users in ways that increase its value and permit higher prices for content and advertising.

The constraints on and requirements of the digital news provision business are becoming clear. This is a highly competitive space that requires clear strategies and the flexibility to create multiple revenue streams necessary to produce levels of income required for sustainability.