NEWS PROVIDED BY
MGV Capital Group
Aug 12, 2022 11:00:00
Media Tech Platform Zette Raises $1.7M To Provide Access To Paywalled Articles
News publications have relied on paywalls to monetize online access to their digital content, but such tools have extremely low conversation rates from free to paid readers. Zette, founded by former Forbes reporter Yehong Zhu in July 2020, is media tech platform that providers pay-per-article access to online publications via a monthly subscription. The startup, with footprints in Los Angeles and New York City, raised a $1.7m pre-seed round from Afore Capital, Halogen Ventures, Hyphen Capital, The Community Fund and MGV Capital Group.
The pre-seed round was closed in March 2021. Zhu plans to use the funds raised to further develop efforts in growth marketing, publisher partnerships and licensing deals, operational and software development expenses and headcount. The startup has seven team members. Their competitors range from Apple News+ to Blendle and Nicklpass. Currently, Zette changes $9.99 per month for subscribers to access up to thirty articles in that timeframe.
Frederick Daso: How did your time as a Forbes reporter and Twitter product manager germinate and evolve Zette’s conception?
Yehong Zhu: Having worked for years as a journalist, I remember how excited I was to receive my offer letter to write for Forbes. Working in a national newsroom felt like a dream come true. But in the newsroom, my eyes were quickly opened to the economic realities of the media industry, particularly when it came to monetizing digital content.
I soon realized that the problems Forbes was facing were not unique but rather problems that every modern newsroom had to reckon with. That inspired me to want to innovate on existing issues to provide a better solution. I wanted to build the next frontier of consumer tech to democratize access to information in a scalable way.
So I went to work in product at Twitter, where I got a glimpse of where social media was heading. Twitter is where people get their breaking news today, and from my perspective on the Tweets team, I was on the front lines of seeing how users engaged with content. I was concerned when users weren’t able to read the full story on fact-checked sites because those links were often gated, while misinformation spread like wildfire.
I wanted to level the playing field by providing an alternative for readers to quickly and easily access legitimate journalism. As a lifelong reader, I also wanted to build a product that would provide easy access to high-quality content and unlock my own curiosity.
Daso: Why do paywalls for online articles have such low conversion rates? How do paywalls serve more as a barrier than a conduit for converting free readers into paid ones?
Zhu: Paywalls for online articles have an average customer conversion rate of 0.5%—that’s super low! Case in point: in 2020, the New York Times had 130 million unique readers per month but only added 1.6 million new subscribers throughout the entirety of the year. There are a few main reasons newspapers are struggling to convert readers.
For one, paywalls are a huge source of friction. Once a reader runs out of free articles, they must create a new account, input their credit card details, and select a subscription plan before reading more. Each media outlet also uses its own unique payment and account platforms, meaning there’s no automatic way to sign up for additional subscriptions—you would have to repeat this process every time, across every website with a paywall.
Cost is also a huge factor. Paying for multiple premium news subscriptions can easily add up to hundreds (or even thousands) of dollars per year. That’s why the average reader only has one news subscription. When you take into account the fact that most readers are grazers who only want to browse a couple of articles per premium publication, it doesn’t make economic sense for most readers to subscribe to every outlet for unlimited access.
Daso: What is driving the growth behind digital subscriptions to online publications?
Zhu: The business model of news is changing and has been for quite some time. After the decline of print media and the rise of digital consumption at the turn of the 21st century, many outlets experimented with new models to stay in business.
Programmatic advertising came first, but with the razor-thin margins of ads and the rise of AdBlock, this proved to be a challenging model to sustain newsrooms by itself, especially given the sheer competition of the attention economy and the dominance of ad-based platforms like Google and Facebook.
So when the New York Times pioneered its paywall program in 2011 and started gaining traction, others quickly followed. Throughout the next decade, most prominent newspapers instituted paywalls, leading to the modern media ecosystem we know today.
Nowadays, the vast majority of consumers read their news online; moreover, at least half of all Americans pay for their news. Newspapers have collectively amassed well over 30 million online subscribers globally, creating a nearly $40 billion digital news market.
Looking ahead, we don’t see this trend showing signs of slowing down anytime soon. We’re so excited to engage with a growing market of news readers and offer our product to both readers and publishers as an alternative to paywalls and ads.
Daso: Zette’s facilitation of accessing paywalled news articles seems to be a mixture of a traditional cable subscription with pay-per-view channel offerings. How does this blend of content access shape the value proposition for both smaller and larger publications within the Zette ecosystem?
Zhu: Our goal with Zette is to provide access to a variety of vetted news. We believe that a diversity of journalistic sources allows the modern consumer to stay better informed. By accessing content with Zette, readers will be able to see all facets of an issue rather than just a single perspective. We want universal access to both the headliners and household names in journalism, as well as the more niche, vertical-specific offerings that smaller outlets provide. We see a lot of value in the long tail of publications, and we think our readers will, too.
Daso: Recently, Zette has landed major licensing deals with various top-tier publications, including Forbes. As the number of publishers within Zette’s platform grows, how will the current pricing structure change to reflect the growing value the startup brings to its user?
Zhu: Zette will initially charge $9.99 per month for 30 article credits, which refill monthly; each credit unlocks one paywalled article. We offer a revenue share agreement on the backend with publishers so that journalists are compensated for every read. Moving forward, we plan to expand to a three-tiered, usage-based pricing structure that offers options for readers to buy more credits per month. We are also exploring the possibility of buying one-off credits for a single article and charging more than one credit for more in-depth content.
Daso: Is the revenue share with newsrooms standard across Zette licensing agreements, or is it negotiated on a case-by-case basis?
Zhu: We sign a custom revenue share agreement with each publisher we work with so we can better meet the diverse and varied needs of our partners. We aim to negotiate revenue share agreements that give 50% of Zette revenue directly back to publishers. We strongly believe that the best way to support great journalism is by funding it directly, and that’s exactly what Zette’s business model does.
Daso: What’s one common trait that all Zette team members share?
Zhu: We’re all willing to roll up our sleeves and move mountains in the media industry. Media tech startups have long been underrepresented in the startup and VC landscape, which is exactly why innovators in this space will have an outsize impact on the world at large. It takes a certain kind of optimist to want to catalyze a seismic shift in media—and in consumer behavior. I’m so proud that we get to work on a mission that we love.