Twitter’s rumored subscription model reflects a broader difficulty within the industry

Twitter chief executive officer Jack Dorsey announced this month that, in the wake of the coronavirus pandemic and civil unrest across the United States, the social media platform would make plans going forward to increase “[Twitter’s] revenue durability so that we have multiple lines of revenue to pull from,” including a possible subscription-based model for the website.

Dorsey’s announcement, which was preceded by the appearance of a job opening at Twitter focused on building a subscription platform code-named “Gryphon,” would appear to shift the previously free-to-use website to a (at least partly) subscription-based model in the wake of the broader difficulties faced by companies dependent upon advertising revenue in 2020.

For social-media platforms like Facebook and Twitter, which are largely dependent upon advertising revenue, the impacts of the COVID-19 pandemic, as well as corporate boycotts of the platforms in the wake of social unrest in the US, have challenged existing assumptions about how sustainable these platforms’ revenue streams are in the long-term.

With advertisers and companies on more stringent budgets due to COVID-19 and less consumer demand due to a widespread decline in spending, the main sources of revenue for social media platforms like Twitter are looking increasingly unstable.

According to Debra Aho Williamson, a market analyst, companies dependent on ad revenue must come to terms with the instability and uncertainty that has been caused by the coronavirus pandemic. This is especially true since “businesses will open up at varying rates” and thus begin spending on ads at different rates, making it difficult for companies dependent on ad revenue to get “ad sales momentum back.”

For Twitter, the decline in advertising revenue has been relatively sharp. For the second quarter of 2020, Twitter posted total ad revenue of some US$562 million, about a 23 percent decline from this point last year. In the last three weeks of June, ad revenue compared to last year was down another 15 percent.

Even the search engine and tech industry giant Google has posted significant ad revenue declines.

The tech giant reported an estimate of its 2020 ad revenue at around US$39.58 billion, a decline of some 5.3 percent from the US$41.80 billion pulled in over 2019.

As Forbes reports, “this mark[s] the first time the digital media giant will have an annual decline in ad dollars” as a result of the extraordinary circumstances produced from the COVID-19 pandemic.

This problem is not solely confined to social media platforms and tech giants, however, but is replicated across the industry and on all platforms dependent on advertising revenue.

Before the outbreak of COVID-19, advertising revenue was projected to grow to US$865 billion by 2024, but as the Interactive Advertising Bureau has reported, almost a quarter of media buyers and planners have paused spending until the end of 2020 and nearly half have indicated they will adjust and reassess ad spending efforts across the same time period.

The decline in ad spending has also accelerated as a result of the “Stop Hate for Profit” campaign, which called on advertisers and corporations to halt ad spending on platforms like Facebook for the month of July in protest of hate speech hosted on the platform amid the perception that little has been done by Facebook executives to address this.

Although it originally targeted just Facebook, the campaign has expanded to include other social media platforms such as Twitter and hundreds of companies have signed up, the most significant support coming from the consumer giant Unilever, which announced it was halting ad spending on Facebook, Twitter and Instagram for the rest of the year, the announcement of which saw Facebook shares drop by 8% in June.

However, social media giants like Facebook and Twitter can take solace in one thing. Although ad spending has declined both as a result of the coronavirus pandemic and coordinated boycotts, the growth in user numbers on these platforms has continued unabated.

In the second quarter of this year, Twitter’s daily user count rose to a record 186 million, up from the 166 million recorded in the previous quarter. Likewise, Facebook continues to report growing active user counts, unaffected by either the pandemic or boycotts, last reporting a monthly active user count of some 2.6 billion worldwide.

The move to a subscription model for Twitter is, as Dorsey himself states, a response to the current uncertainty surrounding advertising revenue and an attempt to move away from monolithic revenue streams into more stable and multifaceted ones, in which subscription revenue would be “complementary.”

Planners for the social media platform would be wise, however, to take into consideration the cautionary tale of the newspaper industry, which has also been devastated by the recent decline in advertising revenue. With advertising revenue monopolized by the likes of Facebook and Google over the last decade, newspapers moved to an online subscription model to establish a more reliable income source. However, while readership across the industry rose during the pandemic, most online news sites converted less than just one percent of visitors into paying readers.

If Twitter moves toward a similar subscription-based model, it would likely face similar difficulties in convincing users to pay for a platform they are accustomed to enjoying for free.

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