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By Thomas Baekdal - February 2022

We are very far away from the subscription limit

This is an archived version of a Baekdal/Basic newsletter (it's free). It is sent out about once per week and features the latest articles as well as news and trends about the media industry. If you want to get the next one, don't hesitate to add your email to the list.

Welcome back to the Baekdal Plus newsletter. Today we have three things to talk about:

What is the publishing algorithm?

Recently, Google Search announced some changes to their algorithms that they say will impact publishers, but I got annoyed by it because it seems like they are focusing on internal metrics used by Google Search, rather than what publishers should focus on.

In fact, it felt like a distraction from the core issues we have with search and things like Facebook Newsfeed.

So, in my latest Plus article, I talk about what I believe we should focus on instead. It's not that Google recommendations are bad, but as publishers, if we want to get better at search, we need to think about the people rather than the tech.

But take a look at: "What is the publishing algorithm?"

We are very far away from the subscription limit

I had a discussion the other day about subscription limits. The person I was talking with said:

All subscription models hit limits. The more mature they are, the more likely they are to have hit them. The boring truth is that most users don't want to subscribe. So most of them don't.

And then he pointed to example from the LA Times giving away 98% discounts as proof that this limit had already been reached.

98% discounts suggest that even successful subscriptions reach a point where growth is hard to sustain. Many have reached it...

Now, as you can probably guess, I very much disagree with this notion. I do not think publishers today are anywhere close to the actual subscription limit. In fact, I have plenty of evidence that proves that the actual size of the market is much bigger than publishers think.

In fact, let me give you a very simple example.

If we look at the latest Digital News Report from Reuters Institute, and we look at a country like the UK, we find that the share of the public willing to pay for news is only 8%.

And what many have then said is that this illustrates the limit of the subscription market in the UK, and they often point to this as proof of why we need other models to unlock the rest of the market.


But, then let's look at another country. Like Norway. Here, when we look at exactly the same data, we suddenly see that 45% of the public is willing to pay for news (and it's increasing every year).

This is very interesting because it clearly illustrates that the subscription limit is not anywhere close to 8%. It's not even 45% because it is still going up in Norway.

Obviously, at some point we will hit a limit and in Norway, they might be getting close to it considering that we actually have to look at households instead of individual people.

But the point is, think about the gap between 8% and 45% ... that's a huge market that the UK has not yet unlocked. And it's the same in many other countries. Germany is at 9%, France is at 11%, Canada is at 13%, the United States is at 21%, and Australia is at 13%.

So, the problem that publishers face today has nothing to do with a subscription limit. There is something else going on. Of course, whenever I make this point, people try to come up with all kinds of reasons for why this is.

For instance, some say it's because of the BBC and that its dominance in the UK is why newspapers in Norway are doing so much better. But that's not true because, in Norway, they have the NRK which is exactly the same and just as dominating.

Then people argue that it's because of the difference in disposable income, and that people in Norway have more money to spend. Well, let's check the data. We see that Norway is indeed a rich country, but so is Australia, and Austria, and Germany.

But, people say, what about the difference in wealth inequality? In the US there is huge wealth inequality, whereas in Norway there isn't. Okay, well, we can check that with the Gini index, where zero is perfect wealth equality and 100 is total inequality.

And yes, here we do see that Norway is doing remarkably well and the US isn't ... but when you compare it to some of the other countries, like Germany, the variance is not big enough to account for a 9% share in Germany compared to Norway's 45%.

Another thing that people say is that Norway is a very big country with very few people, so the distance creates tighter local communities that helps the news.

And yes, we do see this in Norway where local newspapers, mainly focused on the Amedia group, are doing really well. So yes, this may actually be a factor, but we also have to remember that Norway is extremely connected online.

In fact, if we look at internet penetration per country across the world, we see Norway has been leading the way in terms of digital adoption, and about 99% of the public is now online.

So why is it that a country where digital growth was earlier and stronger than in other countries managed to keep the focus on local newspapers, whereas in most other countries we see the exact opposite?

I find this really interesting.

Also, another thing that is very different in Norway is that even the national news sources are very locally focused. In many other countries, there is a disconnect between national newspapers and the public. It's like the news is not really for you, but is merely covering what is happening in other places. But in Norway, even with the national newspapers, the overall focus is extremely local, personal, and has a much greater feeling of community.

Let me give you an example. I'm going to compare three newspapers. NRK in Norway, TV2 in Denmark, and the Telegraph in the UK, and then I'm going to segment the articles into locally focused, and whether they are positive or negative.

I'm doing this experiment on the day that Russia started moving into Ukraine, so there is obviously a big focus on that, but let's compare:

Here are the results of all the news articles on each of these three news sites' front pages:

Interestingly, the Telegraph was also very locally focused (as in, focusing on things related to people in the UK), but look at the difference in sentiment.

In fact, let me simplify it for you. This is the same data just segmented on whether the news was positively or negatively focused. The difference is astonishing.

(Note: I define positive news as both news that is positive, but also negative news presented with a solution. In other words, does the news have a positive outcome?)

What surprised me the most, perhaps, was TV2 in Denmark (which is one of the largest news sites in Denmark). On the day I tested this, it scored the lowest in local coverage (again, defined by things that impact people in Denmark), and not a single one of them was positively focused. It was all just negative news.

I wrote a much more in depth article about this back in 2020 called: "Why do Norwegian newspapers perform so much better than the industry average?" So if you want to know what makes Norway so special, I invite you to read that.

But to bring this back to the question of whether we have a subscription limit, as you can see above, there is no subscription limit, at least not anywhere close to where publishers today think it is.

The reason why is obviously not just because of focus or sentiment, but a combination of many other factors that, as a whole, unlock your market (or prevent you from accessing it).

It's also about your connection to the news. For instance, in Norway, I was absolutely delighted to see this article about a person who will become a reporter. It's just a wonderful article introducing this person to the public, and setting the stage for a positive focus.

In other words, it's about culture, it's about usefulness, it's about relevance, the feeling that news is there for you. But it's also about solution-journalism, bringing the entire country together.

In fact, I will go as far to say that in many other countries, the news feels like being slapped in the face every day. It's uncomfortable to read, and you feel bad and stressed because of it. In Norway, I don't feel this at all because the news just feels more informative so that I can just focus on reading it.

So forget about the subscription limit. That's not a real thing. And start to focus on why so few people are willing to pay for news in other countries.

This is a problem that we can solve, and we don't need fancy technology or weird payment models to do it. It's not the paying part that is the problem here.

The trends don't care about a pandemic

Another thing I want to focus on is that we are starting to see some long-term data about how things have evolved during this pandemic.

Specifically, Benedict Evans put together some graphs looking at retail sales over time, and it's really fascinating.

First, let's look at the US:

This is a graph of the share of US ecommerce, both as a trend (the black line), and what really happened. And it's really interesting.

As you can see, when the pandemic hit and we started to see lockdowns, the share of ecommerce shot up quite quickly as people were stuck at home. But then notice how this has returned to the trend line. It's still higher than where it started, but it didn't actually change the overall trend.

I'm not surprised that the trend line looks like this. That was expected, but I'm slightly surprised that we didn't see a persistent accelerating effect in the overall share of ecommerce.

However, if we then look at the UK, we see exactly what we expected.

First, here is a graph from the UK of the retail market (excluding cars, restaurants and bars).

Again, we can very clearly see how the pandemic impacted physical stores during lockdown, but also how quickly it recovered. And again, the trend line is the same.

We can see this even more clearly if we also exclude groceries (as Benedict Evans outlines here):

Again, the lockdown did have a really big short-term effect, but the market trends don't really care about those things. You will notice a general slowdown of the market at the end of the graph, but you have to remember that the UK isn't just dealing with the pandemic, they are also struggling with Brexit, which is negatively affecting the market overall.

What's interesting though is that, if we look at the trends just for ecommerce, we see that the overall market is returning to the trend line, but then look at online grocery shopping. It's still tiny as a whole, but that's a gigantic persistent jump.

This is exactly what we expected. We know that trends that were poised to grow would accelerate, but the market overall would not really be affected by a pandemic. It's just too short-term to have any effect (and yes, two years is short-term from a trend perspective).

The thing about online grocery shopping, though, is that it's a very early trend. What you see in the graph above are just the early adopters, and the boost in use is just more early adopters realizing its potential. But we have not yet seen it go mainstream.

Anyway, the big question, of course, is what about the media? What about our trends? Sadly, I don't have that data yet. So that is a topic for future newsletters. I have seen data from specific publishers, but they were all shared with me privately, so I can't talk about it publicly.

But overall, what we expect to see is that the trend that was already in trouble and poised to drop, most likely did (just like the grocery trend increased). For instance, we have seen how print sales in the US dropped by 30%, and we are likely going to see similar problems with certain areas of advertising.

We have also seen a good jump in subscriptions for many publishers, which is wonderful to see. But it's too early to tell whether this jump is persistent, or whether it will just match the trend line once the pandemic is actually over.

It's complicated though because there are so many things happening in the world right now. But if we ignore the short-term and instead think about the next 10 years, I'm far more interested in the overall trend lines than on whatever is happening right now.

Want to know more?

Don't forget to check out the two paywall reports in my new 'known to work' series, where we explore strategies that we have clear evidence for.

Also, don't forget the article about news in Norway:

And if you are interested in interesting company stories, check out the article I wrote about Zetland. It's from 2019, but still just as relevant today as it was back then (and Zetland has grown massively since).

Support this focus

Also, remember that while this newsletter is free for anyone to read, it's paid for by my subscribers to Baekdal Plus. So if you want to support this type of analysis and advice, subscribe to Baekdal Plus, which will also give you access to all my Plus reports (more than 300), and all the new ones (about 25 reports per year).

This is an archived version of a Baekdal/Basic newsletter (it's free). It is sent out about once per week and features the latest articles as well as news and trends about the media industry. If you want to get the next one, don't hesitate to add your email to the list.


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Thomas Baekdal

Founder, media analyst, author, and publisher. Follow on Twitter

"Thomas Baekdal is one of Scandinavia's most sought-after experts in the digitization of media companies. He has made ​​himself known for his analysis of how digitization has changed the way we consume media."
Swedish business magazine, Resumé


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