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As Facebook Inc. (FB) - Get Free Report faces challenges on multiple fronts -- legal, regulatory, political and competitive -- it's nurtured high hopes for its new news subscriptions initiative. Facebook is likely to formally announce the new program this week, and as soon as later on Thursday, Sept. 28. In that announcement, the names missing may be as noticeable as those included.

Among those not participating in this first phase of the program: The New York Times, The Wall Street Journal and the Financial Times, I've learned. All three continue to talk with Facebook, urging more flexibility in Facebook's approach -- while taking their wish list to Facebook's now archenemy, Alphabet Inc.'s Google (GOOGL) - Get Free Report , asking that platform to use its artificial intelligence in better targeting and converting subscription prospects. Those three global publishing giants are among the digital subscription leaders, making their absence from the program high-profile.

Further, I've learned that the Jeff (Bezos)-come-lately, ever-resurgent Washington Post will be the biggest name in the program at launch. Long an all-in participant in Facebook's underlying Instant Articles program, the Post continues to zag when some of its nation/global peers zig. Its experimentation has paid off. This week, it passed the million mark in digital-only subscriptions, still half the Times' digital news subscription total, but the fastest growth rate in the business.

In addition, The Economist and two big U.S. newspaper chains -- Tronc Inc. undefined and Hearst Newspapers  -- have said, "Count me in," as the program launches. In total, Facebook will be able to point to a roster of about two dozen titles, about 90% of them newspapers. Most are U.S.-based, but German publishers are among the European representatives, I've learned from multiple sources. 

Among publishers more generally, "I hear a lot of publisher skepticism about Facebook," one top industry executive said Wednesday. One larger publisher, familiar with the longer history of Facebook talks, put it bluntly, if confidentially: "It's tokenism, and it's not enough."

Skepticism and Realism

Facebook, along with Google, form twin suns in the publishing universe. Publishers can't help but realize how much of news reading revolves around those two platforms. According to up-to-date Parsely Inc. weekly research tracking, both Facebook and Google combine to send 76% of all "external referrals" to news sites. For the week just ended, each sent an even 38%.

While Facebook is part of many news readers' consumption habits, publishers have tied themselves in knots trying to figure out how to take advantage of that Facebook connection. One way is easy. Facebook's Boost program essentially sells publishers advertising so that they can boost their profile within Facebook news feeds. Publishers say it works but don't want to invest much more money on it. 

The highest-profile Facebook program? That's been Instant Articles, launched in early 2015 and now including 10,000 news titles globally.The singular idea, as expressed by Facebook CEO Mark Zuckerberg stage-side: speed. Facebook could deliver a news article to its readers as much as eight times faster than the most elephantine news site. More speed, more reading. The catch: News publishers needed to make whole-article content available -- for free -- on Facebook.

That requirement gave publishers' heartache. How could they get more readers to buy a digital subscription, if more of their content became available on Instant Articles? As Facebook expanded the program to more than elite publishers early last year, publishers continued to test the product. A few, like the Washington Post, went big, while some big ones reduced the number of articles available.

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Erecting the Third Leg of the Stool

Mark Campbell, Tronc's head of consumer revenue, sums up much of the industry's sense of Instant Articles so far: "It's a three-legged stool. We were happy with the speed and the consumer experience. We're happy with the ad revenue. And so, the third leg of the stool needs to be solved if we are to continue with Instant Articles and expand it to other properties. We've been testing Instant Articles in San Diego [at Tronc's Union-Tribune] since April. And on those first two dimensions of ad revenue and consumer experience we've been very happy. We just need to shore up our subscription-driving ability because we can't enable a free experience ad infinitum."

Consequently, as the Facebook subscriptions product launches, the Union-Tribune will be joined by both Tronc's flagship Los Angeles Times and its Baltimore Sun in the test.

"The success metric that we will be looking at, during and at the end of the test: How does it impact digital subscriptions?," said Campbell, a two-decade veteran of marketing and subscription sales at The New York Times and The Wall Street Journal. "How does it impact digital advertising revenue? And how much better was the consumer experience? ... The thing that won't be different is that if a customer chooses to subscribe ... that customer will be fed into our phone mobile web order form, with whatever friction it has. But the point is, we own the customer, we own the data, and we get 100% of the revenue." 

A direct customer relationship and 100% of subscription revenue: Those are two big deal points in this rollout, itself the culmination of months of negotiations between Facebook's growing news partnership team and top publishers.

Overall, publishers give Facebook higher marks for "listening." In their monomaniacal drive to dominate, fast-growing platforms such as Facebook have often eschewed the softer side of business, "partnership relations." As Facebook has found itself entangled in fake news controversies and more high-profile concerns about its dominance in business and communication, it -- like Google -- has seen the strategic importance of better partnering. 

Even those not participating in Round 1 give Facebook credit for new engagement. "The full context is [we] feel a lot more positive towards Facebook now than we did maybe a year ago, certainly two years ago," a senior Dow Jones executive said Tuesday.

And yet, what's come out of the most of a year of long negotiating looks as much as prologue as a finished "program." Everyone involved, or not, in the launch describes it as a "test." Expect the negotiations to continue and for Facebook to move toward a Phase 2 sometime in the first half of 2018.

Consider first what the participating publishers "won."

Indeed, Facebook has agreed to let publishers offer subscriptions related to their content and to not itself become a middleman in the process. Paywalls will pop up in Instant Articles. Readers then will have to subscribe to read more from that publisher.

Facebook, here, is doing for publishers what they asked: allowing the publishers -- not Facebook -- to completely operate the sign-up procedure for subscription. In addition, for now Facebook won't demand a revenue share of the subscription price. That's more to the good than not, say most publishers, though they acknowledge that that leaves a lot of "friction" in the sign-up process, and friction is the enemy of completed subscription forms.

By contrast, Apple makes its subscription process almost friction-free -- and takes a 30% cut of the action. Control is a double-edged sword for publishers in the platform subscription game. 

The Big Issues Ahead

If publishers got some of what they want, what didn't they get? What are the big stumbling blocks that led those top-tier players, and others, to say, "No thanks for now."

In a series of interviews, these three concerns have limited publisher involvement in what everyone sees as Facebook subscriptions, Phase 1:

  • 10 isn't the lucky number. Facebook wouldn't budge on one key deal point, and that proved a deal-breaker for some publishers. Those publishers participating in subscriptions must offer readers 10 free monthly articles before the paywall can lower. That sounds reasonable. Yet industry stats show that even in a paywall of five -- half of Facebook's 10 -- only 3% to 5% of readers will hit the wall in a given month. If they don't hit the wall, they're not going to buy a subscription. Instead, publishers -- including the big ones not participating in this launch -- want "flexible sampling." In short, they want to decide how many freebies to offer, and maybe to adjust that number on the fly -- as some are now doing on their own sites. Again, here, Google's behavior serves a competitive bargaining advantage. Two weeks ago, News Corp. (NWSA) - Get Free Report CEO Robert Thomson, a persistent critic of platform hegemony, said he's been assured that Google would end its mandated "First Click Free" program for publishers. That requirement, too, has long rankled publishers who want better control of what they offer where. 
  • Better payment mechanisms. While retaining customer control, publishers want Facebook to find ways to help them reduce friction in buying subscriptions. The more friction, the fewer signups. Friction serves as a particular problem in mobile -- where almost 60% of news reading now resides.
  • Data, data, data. Facebook will offer publishers the same kinds of data it has offered them through the basic Instant Articles program. Publishers say it's insufficient, and this issue forms a core question for any Phase 2 that Facebook devises. How can publishers understand deeply what Facebook news readers of their content read, on what and when? Further -- critically -- what's the overlap between those readers on Facebook who are also frequent visitors to their own branded news sites?

Add it all up, and what Facebook may be introducing here is more an idea than a revenue strategy that will make a critical difference in the lives of publishers, readers and journalists.

The Dow Jones executive, in estimating what percentage of Instant Article readers actually will bump into the new paywalls, said: "I think you'll see in that order of magnitude it'd be inside the 1% mark or less. So what you're talking about really is introducing a paid mechanism, and that is great. We're very pleased with that, and that is progress because a paid mechanism versus no mechanism is definitely progress. I think we underestimate this symbolic importance of introducing the principle that content has value in an ecosystem as gigantic as Facebook is really important."

That's the positive. The potential of Facebook as creator of value, down the road. Then, there is another possibility, the executive said.

"On the substance [though], it doesn't make a difference to our bottom line. You could even make the argument that it would destroy value rather than create value because why would you go elsewhere -- for example, to straight-up, pay-for-content -- if, for all intents and purposes, it's free on Facebook Instant Articles?"

Dreams of new revenue and nightmares of disaster. Welcome to the days and nights of publishers in late 2017.