Subscriptions vs. Advertisements: Is There an Ideal Balance for the Chaotic Industry?
The clickbaitish title goes into a non-informative first passage and turns out to be [Subscribe to read full article]. Your 4-hour Elden Ring video essay gets interrupted every 15 minutes by 3 anti-balding ads. Does all of that sound familiar? The lame new world is here for each of us.
Surely, content has to be monetized, and authors have to eat something. It’s just that advertisements and subscriptions, the dominant monetization methods, have their flaws, to say the least. Even the combination of both provides only a rickety balance.
Today, we dissect this publisher’s trilemma. Which method is more profitable? Which is the most valued in the industry? Which method is the least painful for the user? Let’s speculate!
Where Do the Roots of Subscriptions vs Advertisements Come From?
You’d be surprised (or not) to know that the monetization debate is older than most of us reading this article. The first thematic disputes go back to TV ads during baseball games in the early 1940s.
The premium subscriptions also aren’t anything new. For instance, HBO has existed since the 1970s, and before the age of “Game of Thrones,” it used to be a premium paid TV channel with no ads. Now, 50 years later, we’ve been used to the subscription model since (arguably) birth.
Despite its age, the subscriptions vs. advertising debate has risen once more over recent years. Why so? It seems that we’ve had a bunch of companies who’d placed themselves in one definitive camp over the other. For instance, the New York Times and Netflix were the benchmarks of paywalling, but…
What’s Up with Ads vs Subs Now?
Yeah, if you happen to use Netflix, you know that “Basic with ads” is now an option. The same goes for the New York Times. What’s even more peculiar is that according to a recent study, if you watch ads on Netflix, you’re worth an extra $8.5 per month.
That’s right, from a publisher’s perspective, the user who pays $15.5 per month is a less valuable customer than the one who pays $7 per month. Quoting the CFO of Netflix:
“Overall, we’re pleased with our per-member ad-plan economics. We really like the path we’re on.”
You see, in the past, Netflix’s top metric was the number of subscribers, now it’s revenue. For a long time, we’ve been thinking that the point of a subscription model is to make us pay higher and higher fees, but that’s not how it goes right now.
Does Sticking to One Camp Still Make Sense in 2024?
Okay, let’s slow down for a minute. Dealing with absolutes is what caused the downfall of both siths and promises of major publishers. We don’t want to point fingers (though we did already), but eventually, any claims of “we will never do ads” or “we will never do subscriptions” are doomed to fail.
But should all of the publishers switch to a mix of the two?
Not at all. Firstly, we’ll never know the whole picture behind the aforementioned Netflix. We don’t know how it splits the money with Microsoft or if the practice of password-sharing is taken into the picture. Moreover, big companies like that are very complex to analyze if you don’t have access to its inner data.
Secondly, the advertisements and subscriptions have been a thing for such a long time, because both instruments have their specific uses.
With subscriptions, you have predictable revenue, and good customer retention rates. If the users pay for your service, they are probably deeply engaged with it. This allows publishers to create more targeted content and create a sort of connection with the audience.
Imagine your FL Studio popping ads while you write the banger of your life or Xbox Game Pass spitting a video ad while you’re taking the last corner in the Forza multiplayer race. The above examples are absurd and out of place, and we hope that they will stay that way in the future.
On the other hand, the advertisements are much more accessible. The lower barrier to entry will most likely attract more casual and wide audiences. The publisher’s ad tech has developed by a milestone in the last decade. Both ad servers and SSPs give pubs the features that go far beyond selling ad inventory.
Plus, the ads are easy to scale. Just look at how ads fuel the global conglomerate of Google. Just imagine a subscription-based Chrome. God, I really hope this won’t age like milk.
So Why Do Publishers Balance Subscriptions with Advertising?
The answer is simple. The combination of advertising with subscriptions unties the publisher’s hands and opens up the potential for more profit.
As described in the previous section, this formula isn’t universal for everyone. But in most cases, there is a way (sometimes far from ethical) to implement an additional monetization method.
For example, the publisher who used to stick to the advertising camp, can now build products/services that cover the other end of the spectrum. We mean creating additional content like research reports, data analysis, or any sort of advanced features that can be set up behind the paywall.
Or better yet, a publisher doesn’t even need to add additional features. The subscription could simply give the user an ad-free access.
On the other hand, publishers who used to operate with a sub-only can implement ads into a cheaper subscription and reach wider audiences who would otherwise ignore the high price tag.
Besides profit, the other benefits are hard to resist:
What Do the Users Think?
That’s cool and all, but what about the final user?
Before going insane, Mr. X had a valid argument in his beef with the Washington Post:
Seriously, is it okay to pay for important news? Does this strict paywalling have the right to exist in 2024? It seems that most users think “No”.
In 2022, the number of subscribers to The New York Times reached only 9.1 million subscribers. Considering Netflix’s 221 million user base, it becomes clear why TNYT decided to implement advertising.
There is no clear victor from the publisher’s point of view, and it seems that there’s no certain agreement between users either. According to this survey, 59% of TV viewers stated they would rather watch ads if it meant saving $4-5 per month. Naturally, the other 41% disagreed.
This research indicates that 57% of viewers are ready to tolerate ads if there aren’t too many of them. Only 17% would completely ghost the ad-supported service.
On the other hand, 65% of consumers report using at least one free ad-supported streaming service. Still, the respondents are twice as likely to use a streaming service that offers both ad-free and ad-supported tiers.
What Do We Make Out of This Mess?
The lines between “right & wrong” in advertising are as blurry as the quest options in the Witcher series. So, unfortunately, this underground newsletter won’t solve the 80-year-old debate with a definitive answer.
One advice we can give you is that mixing subscriptions and advertisements is no longer a controversy. Everybody does that, and so should you. Research the market for competition and see which mix is right for you, but just don’t be afraid to experiment.
Stay fresh, stay tuned, more content is on the way!