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December 5, 2017

Can Tony Haile's Scroll Create A Large New Market For Paid News?

Tony Haile has a big idea. It’s his second big idea, but he believes it will be bigger than the first one.

The 40-year-old founder of Chartbeat Inc., one of the established standards in analytics in the media trade, left his now-eight-year-old company last year to focus on what has become Scroll.

You’ll hear a lot about Scroll into early 2018, as its product launches in beta as the year begins. What is Scroll? It’s not the easiest news product to explain — and in that may lie difficulty — but take it in initially as an ad-free iTunes for news.

That’s an old idea in the news trade, going back to industry heavyweights such as The New York Time , The Washington Post, Hearst Corp., Tribune Co. and others forming the New Century Network more than 20 years ago. That idea never really got off the ground.
Meanwhile, those in the news trade have seen business aggregation plays such as Netflix Inc., Hulu LLC, Spotify Ltd., Pandora Media Inc., Texture (for magazines) and Apple Inc.’s iTunes itself come along, but they have never developed, or seen, a model that they believed could become a win-win situation for them. That was true when they believed that the free and open web would drive digital ad riches for them as well as in the past half-decade, when they’ve seen digital subscriptions as their potential salvation.

The big difficulty: figuring out a value proposition that would work for both paying readers and for the publishers.

 

First published at The Street on Sept. 11, 2017

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Your first order of problems is the actual price itself,” New York-based Haile said. “You’ve got to be able to distribute enough cash, at an industry level which can beat the opportunity cost of revenue. These people have to make more money from this than they would have from advertising. Which, thankfully, is increasingly easy to do.”
Tony Haile believes he’s accomplished that feat — with a suitable-for-all pricing and payment formula behind it — and he’s persuaded some big names to put a little money behind it. Haile has raised $3.1 million to get off the ground with News Corp., New York Times Co. and Axel Springer SE, among the seven seed funders. Scroll, which has a seven-member team in New York and Portland, Ore., is now signing up premium publishers to be part of his launch, and at least one major newspaper chain and one large digital-only news company have agreed to be there at launch.

 

Why Will Readers Sign Up?

For a price point of $4.99 a month, Scroll will first offer news readers an ad-free experience at its partner sites. Sign up for Scroll, and when you hit one of its partner sites, it’ll look the same as it always has — but it won’t have any ads; publishers that serve as Scroll partners will “recognize” the Scrollers.

“When someone comes to their site with a Scroll cookie, the publisher’s [content management system] can check for our cookie,” Haile said. If the cookie is seen, no ads are shown. Otherwise, it’s ad business as usual.
If a site sports a paywall — limiting nonsubscribers to the site to three, five or 10 page views a month, for instance — that paywall will still block Scroll users behind that number.

Why not offer combined all-access to many news sites — something consumers would love?

Haile has delved deeply into that question.

“The audience that is viable for a bundle of an all-access pass is the sliver of The New York Times audience who is also hitting the paywall on the WaPo and also hitting the paywall on The Atlantic. It’s like a far smaller percentage of people who actually find value,” Haile said. “That’s why none of these things have really worked, and the things that people have even tried have been separate apps. None of those things ever get to scale because they sit outside discovery paths. That combination of the economics of bundling plus the way in which we discover content and meter content make any kind of all-access pass basically nonviable, at least to scale.”

Yes, while the movie and music sites can generate enough scale in customers that they may be able to contribute enough funding back to sustain content creators, there’s no clear path to such a model in news. Paid news is a big niche — but no longer mass, as it was in print days.

As Haile talks of “discovery paths,” you see how he combines his Chartbeat learning with his new gig. One translation: Separate apps — with experiences different than the experience of the news company’s own app — just create too much friction, adding another barrier to a customer plunking over money, rather than enabling it. In short, Blendle — which launched to major fanfare in the U.S. last year, after small success in its native Netherlands (with a national media community that could be counted on two hands) — proves out Haile’s contention.

While Blendle founder Alexander Klopping declined comment on his company’s U.S. experience, it’s open knowledge in the industry that it hasn’t gotten traction with its slickly engaging pay-per-premium article model. Co-founder Marten Blankesteijn recently left the company, and its fortunes in the Netherlands have gone south.  Significantly, two of Scroll’s funders — The New York Times and Axel Springer — also put $3 million into Blendle three years ago.

In the spring, Tokyo-based Nikkei Inc., owner of the Financial Times, and Amsterdam investment fund Inkef Capital put new money into Blendle as the company pivoted to a Blendle Premium model. Hope springs eternal in finding new ways to get readers to pay for serious news content in the digital age.

In sales, it’s all a game of percentages. Scroll looks to nab a 5% or less share of news readers.

At “The New York Times … about 1.8% of their audience are digital-only subscribers. You’ve only got another 3% that even see the paywall, and this is my challenge in terms of being able to grow that, that access space of cyberrevenue, when you have a predominantly casual fan model,” Haile said. “This is the good thing about having all that Chartbeat data as well.

“I know that for every single site that I can think of, the majority even, come once a week and read one story. It’s that kind of Pareto curve [the so-called 80-20 rule] [which] means that you can get a certain amount of money [80% of total sales in the original rule] out of that top percentage [20%], but I’m not sure how much that translates down and how far you can grow it. Maybe you can grow it to 5 percent of your audience.”

That led him to the embrace of the ad blockers market, turning what has been a negative for publishers into a possible positive. About 6% of users — that doesn’t include fly-bys [those that see one page and are gone] — use ad blockers, said Matt Lindsay, president of Mather Consulting Group Inc., which works with dozens of news publishers on subscriber payment optimization. But the cost to publishers may be even greater, Lindsay said.

“Looking at just the unique users understates the problem,” he said. “The people who are running ad blockers are consuming a lot of pages. If you look at the amount of pages that are blocked, that’s about 20% to 25% of the page views.”
For Haile, ad blocking is a cry for help and enables his core proposition.

“Then the interesting thing for me was to look at ad-blocking not so much as a problem with publishing but more of a consumer signal,” Haile said. “In TV, that’s what you had … increasing ad loads, which led to the consumer signal that was TiVo and then led to Netflix. Music had similar kinds of frustrations leading to Sirius XM, BitTorrent, LimeWire and that stuff, leading to Spotify.

“In media, you’ve had increasing ad load, increasing frustrations, consumer signals with ad-blocking leading to what? So the question for me was is there an orthogonal way to get direct consumer revenue? Not from access, but from experience. Is there a group of people who will pay in general for an ad-free experience across X number of sites or whatever? I kind of started with that, and there’s a few problems that you have to try and solve for. Because there’s a whole ton of corpses in this particular graveyard.”

So, for would-be customers, the value offer: No ads and a sense of a throughway to sites that they already know how to use, with no learning curve or further sign-up. Sign up with Scroll — and you get a sense of discovery, all this content to which I seemingly have access — and no ads.

In fact, Haile may further be able to “network” traffic within the Scroll network, adding new traffic to Scroll’s partners. Those sending traffic or referring new customers to Scroll also will see additional monetary compensation, Haile said. Network effects, of course, are often prophesied and seldom achieved.

Overall, Scroll wants to be seen as a friction remover for the most engaged news readers.

 

The Publisher Proposition

For publishers, Haile knew he had a tough model to prove out. Publishers gain a revenue share of the $5 monthly payments to Scroll. How much they get depends on how much of a user’s Scroll time is spent on their news site in a given month. If 5% or 50% of one user’s time is spent on that site, the publisher would get 5% or 50% of the revenue share pool. That pool equals $3.50 of the $5 price point, according to Haile.

So for publishers, the key question: Can they get more from Scroll in revenue share than they could by serving the same number of pages — with ads. Haile persuasively takes publishers through his model, showing they will gain more revenue through Scroll than through ads. Enough of them have tested the system — whether they project a small number or a large number of Scroll views each month — to take the next step and plan to be involved with Scroll — maybe in its beta launch, maybe later on.

Haile explained his process: “We raised money, right through the end of September, beginning of October. We put the team together through October to December. We started building the model in January, and we started testing this model with the publishers. The initial cohort was 30 publishers. For 29 out of the 30 publishers, this model delivered a 40% lift.”

That lift: increasing the amount of revenue from would-be Scroll pages over regular, ad-delivered ones.

“Now we’re going into long-form contracts,” Haile added. “That’s what we’re doing with about five or six publishers right now.”

One publisher offers a real-world assessment of the foray.

“We see Scroll as a way to recoup money lost due to ad blockers with little risk to pissing off advertisers,” said the publisher, who requested to remain anonymous. “They are talking about a $4.99 a month charge to readers for ad-free stories, so the risk-reward seems safe. Whether anyone will pay that is a whole other issue. And everyone likes the brains behind Scroll, and that alone makes them worth considering.”

There in a nutshell is Scroll’s balancing act: offering enough value to serious news readers and sufficient value to publishers without getting in the way of their two prime streams of revenue: digital subscriptions and digital advertising.

For publishers, I believe, there may be another play that could be more valuable. Currently, 1%, give or take, of digital audience actually pays for a digital subscription, which can cost upwards of $150 a year. If Scroll can induce more readers to pay — at a less-than-$10-a-month price point — the idea of paying for news may grow. Then, perhaps, Scroll, either formally integrated or less formally, could act as an on-ramp to greater digital subscription sales. Could it act as a groundbreaker to develop wider paying audiences?

Haile leverages one key industry relationship here. Scroll will be integrated with Piano Inc., the industry’s largest paywall tech supplier. So if Scroll indeed opens an on-ramp, Piano could connect it, presumably without much friction, to the wider freeway of single-title digital subscription offers.

Will it work this time? Has news reading, and especially paying for news, matured enough in the six years since The New York Times launched its paywall and led a movement now embraced by a majority of American dailies and some significant magazine publishers? Clearly, there’s a news hunger — fed by the Trumpian times — and a voraciousness that’s continuing as we approach 2018.

Haile certainly has the zeal needed to break what has been unbreakable ground.
He believes he sees the untapped market.

“We’ve done a fair amount of pricing studies, and we know, for example, that in general, if you make less than 39k, you’re not going to buy this service,” he said. “If you are older than 65, you’re also unlikely to buy this service. However, if you’re within those bounds, then we have a reasonable shot of converting you, because people are pretty pissed with the state of the open web right now. The ability to kind of make that better for people and support journalism at the same time is kind of cool.”

 

 

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