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Article

Will Video Kill Newspapers and Magazines - or Save Them?

New model of video delivery promises to reduce costs while combating fake news

The news business is under attack, and print publishers in general are struggling to make money from online content. They are finding it increasingly difficult to compete with free material. The fastest growing segment is video, which is clearly a threat, but may also represent a major opportunity.

In this discussion, we examine why publishers have been unsuccessful at monetizing news and instructional videos.  Then, we look at what consumers have shown they want and are willing to pay for. Finally, we describe our vision for the newspapers and magazines of the future. We present a new subscription model that can make streaming instructional, special interest, and news videos more profitable to publishers and beneficial to society.

What's wrong with current models for monetizing informative articles?

Most online publications depend heavily on advertising, which has not been particularly profitable. Furthermore, the problem is only getting worse because of the increasing prevalence of small screens and ad blocking technologies.

What money is made from advertising comes at the expense of degrading the user experience and the publisher's credibility. Moreover, quality and reputation suffer from a greater dependence on "sponsored content". Almost inevitably, the need to boost traffic for advertisers leads to sensationalism, exaggeration and obnoxious interface gimmicks.

Recognizing the inadequacy of giving away free, ad-sponsored content, some sites use a subscription paywall. Aside from cannibalizing print subscriptions, paywalls tend to reduce organic search traffic. In any case, the wealth of readily available free material makes it difficult to sell subscriptions.

The bottom line is that none of the current methods of monetizing news and informational / instructional content has proven to be terribly successful. It isn't even clear that they can support the overhead of building and maintaining the required web sites.

How can newspapers and magazines benefit by incorporating video?

There's a natural fit between topical articles and related videos. Well-chosen videos enhance the reader's experience, and all indications are that people are becoming increasingly interested in video content. A video can bolster a story's believability, demonstrate a difficult concept, or provide much needed comic relief.

For example, a golf magazine might create an associated video channel that combines instructional and competition videos from golf experts. Then, audience members could buy a subscription that revolves around the sport, as opposed to a particular golf pro or tournament. Such a channel would benefit from and reinforce the publication and, at the same time, could stand on its own as a source of revenue.

Publishers are perfectly positioned to perform the essential tasks of aggregation and curation. They can leverage their editorial expertise and strong connections to content experts and their audiences. Thus, publishers can not only enhance their own publications, but also add credibility to the videos they select.

Another benefit of video content is that it can be more easily protected from piracy. By incorporating video, a publication reduces the risk of losing revenue to independent aggregators and social media sites.

What are the obstacles to monetizing video effectively?

The presence of so much free video content has created a psychological barrier to the notion of paying to watch videos. However, video streaming tends to be an expensive proposition. There's a significant cost in skilled labor as well as software, hardware, and bandwidth, further complicated by the need to support many different kinds of devices.

Even the most valuable video content is difficult to market and sell on an a la carte basis. What has been shown to be more effective is an all-you-can-eat subscription model, as demonstrated by Netflix. Apple had once been the leader in the delivery of online movies, with a 61% share in 2010.  By 2011, only a year later, the research firm IHS reported that Apple's share had dropped in half, to 32%.

Apple iTunes's item-by-item purchasing model for entertainment videos continues to decline in the face of subscription services like Netflix and Hulu. Nevertheless, it remains to be demonstrated that a subscription video channel can be truly profitable for newspapers or magazines.

What have consumers proven they will pay for?

Quite simply, consumers want a fantastic deal. They don't want to pay for something they could easily get for free. But they will pay for streaming channels when they contain lots of good videos from many sources that are reasonably organized and offered at a great price.

The examples in this table show that consumers will buy all-you-can-eat streaming channels when they are relatively inexpensive and offer a large, organized collection of premium content. For general entertainment, Netflix, Hulu, and Amazon Prime are all successfully selling video streaming subscriptions. On the educational side, some of the better instructional channels point the way for print publishers.

The paid subscription model is growing. For example, in early 2016, Netflix had reached 81 million subscribers. Netflix's 2015 sales were $6.8 billion. Lynda.com, an instructional video web site, had $150 million in sales in 2014 and was acquired by LinkedIn in 2015 for $1.5 billion.

 

Category / Web Site

Cost

Computer instruction

 

learnnowonline.com

$23 per month

lynda.com

$25 per month

pluralsight.com

$29 per month

totaltraining.com

$23 per month

General entertainment

 

amazon.com

$99/y; free shipping

hulu.com

$8 or $12 per month

netflix.com

$8 or $10 per month

Martial arts

 

mginaction.com

$25 per month

ufc.tv

$8 per month

Music instruction

 

jamplay.com

$20 per month

Poker education

 

cardrunners.com

$30 per month + $100

leggopoker.com

$30 per month + $50

Yoga, at-home workouts

 

gaiamtv.com

$10 per month

grokker.com

$15 per month

yogaglo.com

$18 per month

Web sites selling video streaming subscriptions

 

Why aren't paid video subscription channels more profitable?

While the subscription video channels listed above generate plenty of sales, they all have trouble generating profits. Even the most successful, Netflix, has a relatively paltry profit margin. Its 2015 operating profit was only 4.5%, down from 7.3% in 2014, and its net profit was a mere 1.8%, down from 4.8% in 2014.

It's expensive to build a video streaming web site, not only because of the software and hardware infrastructure, but especially because of the high cost of acquiring content. Whether a publisher creates his own content or negotiates for existing content, there's typically considerable up-front risk and expense. Furthermore, in order to retain subscribers, it's necessary to continuously add new material and renegotiate terms.

Aside from the cost of acquiring content, another critical expense is the cost of acquiring customers. A compelling offer requires a low subscription price. But it's extremely challenging to keep marketing expense per subscriber low enough to assure profitability.

How can the cost of acquiring high quality content be reduced?

Typically, the acquisition of video content requires risky, up-front payments or guarantees and expensive contract negotiations. The cost of high quality content can be greatly reduced if an arrangement can be constructed that avoids the need for up-front payments and individualized contracts.

Such an arrangement must provide assurances to content owners that they are being paid fairly. For example, payments could be proportional to actual viewing times across all subscribers. This would be a reasonable basis for compensation, achievable through a rigorous, metered system of usage monitoring. Thus, print publishers could attract videos with no up-front expense from experts, other news and media organizations, and individuals with smart phones and cameras who capture important events.

What kind of financial service is needed to facilitate content acquisition?

To get many independent content providers to willingly provide videos to a single subscription channel, one needs a revenue sharing system that is transparent and is perceived to be fair. Ideally, this should be based on a clear set of formulas that use objective, verifiable measures, such as metered subscriber usage and sales of subscriptions. These considerations complicate the design, but nevertheless, the system must be practical and efficient.

Of course, such a system also must be reliable, secure, and trustworthy. Content providers should get paid promptly both for video viewing and any subscription sales they help make. The revenue sharing system should be resistant to gaming. That is, the payments to content providers due to a single subscription should not exceed the value of that subscription. For example, it should not be possible for a small number of subscriptions to skew compensation to content providers disproportionately.

A credible auditing system is a good way of ensuring trustworthiness. By creating secret auditing subscriptions, content owners can test logging of subscriber viewing times and verify that payment calculations are being done correctly. At the same time, such tracking and reporting facilities can provide very useful insights about audience preferences and guidance on improving the channel.

How can the cost and risk of intellectual property contract negotiation be minimized?

Negotiating for the rights to use intellectual property typically entails substantial risk and expense for publishers, as well as content providers. For publishers, there is the risk of agreeing to terms, which may include large up-front payments, before they know what the return on their investment will be. For content owners, there is the risk of not getting enough for their videos or losing other avenues of revenue for that content. For both parties, such negotiations usually involve substantial senior management time and expensive legal work.

A general-purpose contract can be devised that avoids the necessity for up-front payments, or guarantees, or demands for exclusivity. This greatly reduces the complexity of negotiations and the need for renegotiation. To be acceptable to content providers, such an agreement would have to provide strong assurances that they will be paid promptly on a basis that is fair and verifiable.

Content owners are more likely to be cooperative when the publisher does not require exclusivity. A publisher needs to protect his invested effort, but something less than exclusivity would suffice. For example, the content provider would retain all rights and agree not to terminate the publisher's license without a couple of years notice (so that one-year subscriptions can be sold). If the video owner subsequently grants an exclusive license to someone else, then an exception would be carved out for the publisher, until the license has terminated.

Thus, very little commitment is required of content providers. They haven't given up ownership rights, and they can make other deals without contractual interference. At the same time, a publisher is sufficiently protected to justify the editorial work of adding new videos.

How can the cost of acquiring and keeping subscribers be reduced?

The burden of effective marketing is difficult for publishers to bear by themselves, because the cost of marketing imposes a need to raise the subscription price. As a result, it becomes difficult to attract enough subscribers without becoming unprofitable.

Often, publishers establish an affiliate program aimed at encouraging outside parties to participate in selling their subscriptions. For a variety of reasons, however, such programs frequently disappoint both the publisher and their affiliates. For starters, they generally fail to adequately motivate a wide range of potential affiliates, such as bloggers, content providers, fans, and other outside parties.

What's needed is a practical affiliate mechanism that is credible and produces significant revenues for affiliates. Just as content owners require the assurance that they will be paid promptly, fairly, and verifiably, the same is true for affiliates. Likewise, with the proper infrastructure, affiliates can easily be paid not only for subscription sales but also for viewing that they cause. This greatly enhances the benefits of participating as an affiliate.

For example, the publisher might pay a 20% commission whenever an affiliate makes a sale. Similarly, content owners might give up 20% of their usage payment to an affiliate whose web page led to viewing their video. These sorts of terms could be seen as reasonable to all parties concerned and very profitable to affiliates.

What sort of affiliate mechanism is required?

To be practical, an affiliate mechanism must be very simple and versatile enough to be used in ordinary web sites, Facebook posts, email newsletters, blogs, etc. Affiliates should not be required to have any special programming skills or sophisticated tools. In this way, a publisher can leverage the largest possible sales force to market his channel and keep subscribers coming back.

One of the simplest conceivable ways to build an affiliate mechanism is to require nothing more than regular HTML links. That is, an affiliate would embed links in his own web pages, using his unique affiliate ID as a qualifier, to point to items in the subscription channel. Such links might be to public web pages on the publisher's web site or to protected videos within the channel. The service uses the unique ID to credit the affiliate for the sale of a subscription or viewing activity.

When a link points to an item of protected content, the visitor is given an opportunity either to sign in or subscribe, if not already signed in. Once the user is signed in, the channel immediately plays the video in the current browser window. To avoid a loss of site "stickiness", there are no links provided on the page that plays the video, other than to return to the affiliate's page.

This is analogous to the way payment processing by a third party can be embedded in a web site, so that it appears to be an integral part of the site. To the end user, both video viewing and making a subscription purchase behave as if they are happening on the site that contains the affiliate's link.

An affiliate mechanism of this sort has what it takes to encourage independent organizations, experts, and enthusiasts to promote channels by embedding affiliate links. In addition to directly boosting the use of the channel, these links can contribute significantly to search engine rankings.

How can the expense of assembling and editing a video channel be reduced?

Editors contribute a vital and potentially very costly part of what makes a publication successful. To begin with, editors are involved in searching for, soliciting, vetting, and selecting content. Once items have been selected, editors are responsible for organization, descriptions, and technical preparation of the material. This can range from enhancing sound, to fixing brightness, repairing color defects, removing dead air time, and making adjustments to support various devices.

That's a lot of expensive editorial work, especially if the publisher wants to attract editors who are well regarded by content providers and consumers. Publishers need an effective way to reduce the up-front salary expenses for editorial work. A good way to reduce costs is to use a revenue sharing model for editors, similar to the one for content providers and affiliates (described above). Furthermore, such a model could be extended to handle a large number of editors in a hierarchical relationship.

For example, a channel might be configured to credit editors with 3% of the compensation associated with viewing a video for which they are responsible. Senior editors might be credited with 20% of the credits awarded to their direct subordinates. Thus, when an item is viewed, 20% of the credits might go to the affiliate that caused the viewing, 3% would go to the primary editor, 0.6% would go to his or her senior editor, and the remaining 76.4% would go to the content provider. (Irrespective of viewing, the publisher automatically gets a portion of every subscription sale.)

The publisher runs the business of a channel, including hiring editors, setting subscription prices, and specifying compensation parameters. By employing revenue sharing to pay editors, publishers have an option to reduce or even eliminate base salaries, while assuring fairness and transparency. This gives publishers a practical tool for reducing up-front risks and attracting highly respected editors.

Conclusion: Video can help make newspapers and magazines profitable

Migrating to the Internet has been very difficult for traditional print publications. Neither the advertising model nor simple pay walls have proven to generate sufficient revenues. A more sophisticated subscription model that incorporates video streaming offers the promise of increased profitability.

Extending online publications with paid subscription video channels is an obvious improvement. It takes advantage of publishers' knowledge of the subject areas, their contacts with experts, and their ability to describe and organize the subject in a way that speaks to their audience. With the growing problem of fake news, consumers will appreciate that trusted editors have chosen the videos and authenticated them. Editors also add value by improving viewing quality, assigning titles and descriptions, choosing placeholder images for the videos, and making them easy to find.

It's well established that people will pay for an all-you-can eat subscription if they're getting a great value. However, creating such a high value subscription for a low price is challenging when the publisher is faced with large up-front payments and expensive negotiations with content owners. A system for sharing revenues that is transparent and verifiable can substantially reduce the cost of obtaining video content. Such a revenue sharing system can better capitalize on affiliate programs to reduce the cost of acquiring subscribers. Likewise, giving editors a share of subscription revenues reduces fixed editorial expenses.

Integrating videos into well-edited channels and paying everyone based on actual subscriber usage is a good formula for improving publication growth. As video becomes more ubiquitous, its incorporation into news and magazine web sites seems inevitable. With the right model, it could also be highly profitable.

Learn about Content Galaxy's publishing platform, a video streaming service based on the ideas presented in this article.

More Stories By Steven Asherman

Steven Asherman is President and CTO of Content Galaxy, where he designed and led the development of their publishing platform for creating paid subscription video channels. He is an expert in video content monetization and also holds patents related to distributed processing, secure database operations across the Internet, and high precision arithmetic. His experience with streaming comes from building and editing Content Galaxy’s proof-of-concept video channel, for Tai Chi and martial arts.

Steven’s background is as a senior consultant specializing in the design and programming of large-scale, web applications, with an emphasis on complex financial systems. He has sold and led a half dozen, multi-year, multi-million dollar consulting projects for creating and improving software-as-a-service web sites and database applications for clients that have included Dealer Track, Fidelity Information Systems, Send Word Now, TNS Competitive Media Reporting, Deutsche Bank, and Marsh. His earlier enterprise consulting clients included Aetna, Citibank, Columbia Pictures, IBM, and The New York Times.