I'm asked regularly (as recently as yesterday), why The Magazine isn't free to read and supported by advertising? We are, more or less, "freemium": you can read an article per issue at no cost, but if you want all five articles and other stuff (like downloadable or automatically emailed EPUB and MOBI files, and more to come), you pay $2 a month (10+ articles a month) or $20 per year (130+ articles a year).
The economics are straightforward, and worth explaining. The amount of money you can get from advertising on a general editorial site has been declining as the level at which advertisers find the value worthwhile hasn't found bottom. Some sites can command high CPM (cost per mille, or thousand, ad impressions) rates because their visitors intensively click and do stuff, like buy things, sign up for offers, view other ads, and so forth. But for most publications, even those in the formerly lucrative technology/gadget space, the value of an impression has shrunk.
This is why you see a focus on high-traffic blogs of sponsors, in which the objective is branding (plus some sales), and the association with the blog is a good part of the deal. Sites that have started up in the last couple of years often have a product focus: they refer you to Amazon or other sites to buy things. Look at one of my favorites, The Wirecutter, which has ads and product links both. One person buying a $100 item could mean $5 to $10 in commissions to the site in question. Other sites continue to focus on volume, and need a bazillion page views to generate a decent return.
Let's do the simple math in my case on a per subscriber basis. If I have one person paying $1.99 in a given month to get 10 new articles (and access archives, too), I will net either $1.39 (Apple takes 30%) or $1.63 (Stripe.com takes 30¢ plus 2.9% per transaction).
How could I achieve the same results from ads? The current average CPM is $2.66 according to a recent report, and let's assume optimistically that's the net amount after commissions and other fees to me. So that should be a simple bit of math: I need about 500 to 600 page views to equal that one subscriber across the whole site. Let's say I could get a $10 CPM, because we are so remarkably awesome: then it's only 140 to 160 page views to equal one subscriber.
But that's not the whole story. First, you need substantial traffic to sell traffic. If I have 100,000 page views on my subscription-only site that has limited free content (that's not the real count) it's unlikely I can attract any advertisers directly, and I'd need to go through a network, which reduces my net income. 100,000 page views, even at a $10 CPM is $1,000 a month. It might be months or a year before my tactic of "free" works and I ramp up to 100,000s or more than 1,000,000 page views a month, if that tactic works at all.
Because I have only about 150 articles on the site, and all as single pages, my inventory of pages is low enough that it would be hard to get substantial new traffic unless every article hit a home run. So let's say I split articles into multiple pages, irritating and discouraging readers, and have 600 to 1,000 pages that people might view. It's still small. And because I have in-depth, high-quality writing that takes quite a lot of time to produce, it would be expensive to keep the standards up and have more pages to offer. (This is in contrast to good news sites that produce on a deadline, and are writing about facts, rather than constructing narratives! There's nothing wrong with reporters producing news stories quickly.)
Second, even if I can manage to attract a lot of people, one never sells 100% of your advertising inventory (available slots), even if you're a great site. Some networks do, like The Deck, because they design an approach around super amounts of attention and scarcity. But it only works in very limited cases.
Third, I have to devote attention and worry to this. Attention, because I'll be spending hours or more every month talking with ad people and agencies if I want to get the highest possible CPM. Worry, because every month is a new adventure. I have no idea what my income will be. At the end of a quarter, when ad budgets are tight, it could shrink to nearly nothing. There's simply no way to know. Or a primary advertiser might go from spending $10,000 a month to nothing, ever again, for whatever reason (budget, anger, response rates, etc.).
I don't want to reveal specific subscriber numbers as a small business, but let's take the rough number of 25,000 that Marco put out to Planet Money several months ago as a basis. Let's even assume 100% of those subscribers are monthly and through the App Store, thus grossing about $35,000 before taxes.
To achieve that number consistently, The Magazine would have to sell ads at $2.66 CPM on 13 million page views a month, which means we would probably need 20 million page views to make those numbers.
Is our modest fortnightly periodical going to attract 20 million page views against 150 or so articles every month? Unlikely. Can we attract enough subscribers on an ongoing basis to bring in revenue that lets us pay writers well and sustain our operations? Yes.
It's an ongoing experiment rather than a business model for now, but I hope this clears up why free couldn't possibly work for us in the current model of advertising-supported content.