Advertising or pay models? European publishers face an increasingly stark choice over which direction to take.

Should news organisations continue to pursue digital advertising and large scale audiences to grow their business, or should they put greater emphasis on developing pay models, even if this may limit their audience reach?

Major European publishers approach the question in different ways.

Some, like La Repubblica in Italy, seek a dominant position in their domestic market and continue to operate a free, advertising-supported model, even as competitors like Il Corriere della Sera have introduced pay models. “We believe that only a limited number of big media organisations today have the opportunity to reach a big audience of millions of daily visitors” says Alessio Balbi, Head of Online. La Repubblica intends to be one of them in Italy.

Others question whether the free, advertising supported model will work for news organizations. Donata Hopfen, publishing director and head of the management board, at BILD in Germany says “Large platforms take out large portions of the money in the digital market, so we have concluded that we will not succeed with advertising revenues alone.” BILD is therefore developing a freemium model with free content to maintain reach and premium content that requires subscription. By the summer of 2016, BILD reported 320,000 monthly subscribers.

In a new Reuters Institute report, Private Sector Media and Digital News, by myself, Annika Sehl and Rasmus Kleis Nielsen, we examine how 25 different private sector legacy news organisations in six European countries are developing their business in a changing media environment. Balbi and Hopfen were amongst the 54 executives, senior managers and editors we interviewed across Finland, France, Germany, Italy, Poland, and the United Kingdom.

Challenges to digital advertising

The people we spoke to highlight three main challenges when it comes to digital advertising, so far the dominant business model for digital journalism:

1. The increasingly dominant role of large US-based technology companies, which are able to sell to larger audiences, more targeted advertising, and at lower rates than those of legacy news providers;
2. The low average revenues per user, especially on the mobile web;
3. The growing number of people who use ad-blockers.

Faced with these challenges, we found that more and more news brands are developing various pay models—freemium models and metered paywalls in particular. This is the case of BILD, but also of other leading European newspapers such as the Finish Iltalehti, the French Le Figaro and the German Süddeutsche Zeitung. But La Repubblica is not alone in continuing to bet on an advertising-supported model free at the point of consumption.

A number of other national newspapers with very large audiences—like the Mail Online—as well as all the commercial broadcasters we interviewed continue to pursue a similar free, advertising-supported model, and seek scale rather than paying readers. As Kevin Beatty, CEO of dmg media, explained when we spoke to him: “We have set out very clearly that we are in the process of building large audiences and high engagement levels with that audience, and in doing that we need to be free to access”.

It is clear that while more and more news organisations in Europe are adopting pay models, there is no consensus on the best way forward. As both Balbi and Beatty suggest, scale may still work for those with the largest audiences. But for others, paying subscribers is increasingly more important than sheer scale.

New ways to develop revenue

Whether news organisations pursue scale or pay, our research also shows that many, in particular national newspapers who experience substantial declines in their print revenues and are working hard to grow their digital business, are investing in developing new sources of revenue to supplement display advertising and user payment. The most important types of initiatives we identified are:

1. The launch of new content offerings based on a closer collaboration between editorial and business departments, like Pixels and Les Décodeurs at Le Monde and the free-standing app IL Pika (translated: ‘IL Quick’) introduced by the Finish tabloid newspaper Iltalehti;
2. Investment in branded content, like Spark, the Daily Telegraph’s branded content division, and BILD Brand Studios, a with the aim of capitalising on legacy brands’ storytelling skills to better compete with the big technology companies that dominate other sectors of the digital advertising market;
3. Diversification strategies, with a move into e-commerce and business-to-business services, pursued by German regional newspapers like Rheinische Post and Westdeutsche Allgemeine Zeitung.

Given declining or at best stagnant legacy revenues, and increasing pressures on digital display advertising, finding the right path forward is clearly key for private sector news media’s ability to continue to invest in journalism.

The full report is available here.

Pic credit: Niels Sienaert Flickr CC licence .