Across the board, digital media companies have seen a sharp spike in engagement and subscriptions over the past month, and traffic to local news sites has gone through the roof. We’ve seen it in our own numbers — Zuora’s digital media vertical has tripled its compound annual growth rate in just one month.

At the same time, the digital media industry is still heavily reliant on advertising, which is always the first budget to get axed during a recession. Even with the traffic boost, primarily ad-driven media sites like Vice and Group 9 are getting absolutely hammered. To add to the pain, Walmart and Amazon are already pulling out of commerce marketing deals with sites like Buzzfeed and Vox. We are clearly at the beginning of a huge wave of consolidation in media, and a subscription strategy is going to be absolutely crucial for sites that want to stay standing on the other side of this crisis.

This week we spoke with a digital media leader who is currently navigating the dynamic between subscription and advertising revenue. James Heckman is the CEO of Maven, a digital content publishing platform that currently supports over 300 publishers, including A&E’s History, Ski Magazine, Jim Cramer’s TheStreet, and Sports Illustrated (yes, that Sports Illustrated!). Full disclosure: Zuora manages subscriptions at TheStreet.

Thanks for taking the time, James. It’s a really weird time in digital media right now — usage is through the roof, but advertising is in free fall. Can you talk about what you are seeing?

Fortunately, it’s not a bad time to be a digital media company with a subscription model in place; we seem to be converting much of the new traffic into recurring revenue. TheStreet is up 100% in year-over-year traffic, as well as new subscription sales. Media investors are concerned in general about their investments and were certainly alarmed at the elimination of sports, but Sports Illustrated subscription sales remained steady, and traffic as well, which gives us a nice bed of monthly recurring revenue to count on. So we’re doubling down on subscription revenue.

Of course when the crisis came, we anticipated overall digital advertising and event sponsorship revenue would drop, at least 40 percent, so we reduced our sales team accordingly and made other staffing adjustments. It was pretty straightforward because we had a pretty good idea of where and how much revenue would be affected. The benefit of being an infrastructure and technology platform as opposed to a pure media company is that you can scale up or down quickly and so we believe our cuts will keep EBITDA+ for the year.

In terms of digital media in general, we’re all hearing about how the national brands are doing really well right now. The Atlantic picked up 36,000 new subscribers last month, which is basically unheard of. But if you’re not the Washington Post, how should you be thinking about a paywall strategy?

Hard paywalls make sense for big national brands: The New York Times, The Wall Street Journal, Netflix. The value proposition is obvious to a consumer because they already know the product. I will sign up for these services without needing to be sold. I know on the other side of that Netflix sign-up page, there are a million things to watch. But for smaller publications, a hard paywall could risk the entire enterprise. It’s like asking someone to marry you on the first date.

Selling media subscriptions comes down to a pretty basic formula: X times Y equals Z. X is your total addressable audience (and the number of times you get to address that audience), Y is your conversion rate, and Z is net new subscriptions. And guess what? When it comes to Y, anything above a one percent conversion rate is off the chart, so you need to focus on that X number. You need to grow engagement, if you want to grow your subscription base and blocking access isn’t going to get that done. We specialize in making sign-ups as simple as possible, but it’s still a tough ask, particularly considering that most people are consuming media on their phones. So, after we loosened the paywall at TheStreet last year, we literally doubled our subscription sign-up pacing.

So the idea is to get more people into the club. As much work you can do on optimizing your conversion rates, the addressable audience number is probably your most effective lever. Especially considering the fact that even the biggest publications are operating metered paywalls that give you 5 or 10 free articles a month.

Yes, it’s critical to get them in the club first, before you can sell them the VIP experience. Especially if people don’t really know what’s on the other side of that front door.

Makes sense. You’ve been in digital media since the 1990s, pioneering the way sports are consumed online, and I’m assuming you experienced the dot com crash and 2008 financial collapse like I did. Do any lessons from those past crises apply here?

Definitely. I guess the first thing to note is that even though Maven launched it’s brands only a couple years ago, much of our team has worked together twenty years and for some, thirty. We built the first centralized digital publishing platform for third-party journalists for the Seattle Goodwill Games in 1990; when we were all young kids who basically figured out how to templatize publishing. In the Nineties, we built one of the highest-traffic sports networks in the world, including Rivals.com and Scout.com using a similar model, and followed architecting platform media businesses for News Corp and Yahoo! – and one of the keys to survival in down market is dual revenue.

In terms of the balance between subscription and advertising revenue, things really changed for us during the dot-com crash. In 2000, we realized it cost more to serve ads on DoubleClick than the CPMs yield (note — cost per thousand impressions, or how much money it costs you to reach 1,000 readers). It was the subscription revenue that carried us through the crash. So the subscription model has been a foundational part of our business plan for twenty years.

That sounds very familiar. At Salesforce, for example, we survived because we were this brand new thing, a SaaS company that you could access through a web browser and didn’t require a big installation or CapEx investment. Today you have over 100 million people looking at your network of websites, which are all run by independent publishers. What have you been doing in terms of outreach and doubling down on reader relationships?

In terms of reaching out to our subscribers and thinking on our feet, our publishers are certainly doing that — Sports Illustrated just launched a new Covid-19 podcast, for example. But I think we’re also benefiting from the work we did last year into making SI, The Street and our publishing platform work better as overall experiences: quicker load times, better landing pages, smarter lead gen and email marketing efforts. Again, we are infrastructure and optimization specialists, and there are huge benefits to be gained just from making digital content work better. We’ve all been getting the Covid-19 emails. Anyone can do that. The real dividends come from investing in your service during good times as well as bad.

I totally agree. Constant innovation is baked into this model. You need to win your subscribers every day. Thanks for the chat, James.

Any time.

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For more insights from Zuora CEO Tien Tzuo, sign up to receive the Subscribed Weekly here. The opinions expressed in the Subscribed Weekly are his own, not those of the company. The companies mentioned in this newsletter are not necessarily Zuora customers.

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