Insiders say once-buzzy Quartz is on track to lose money again this year as it faces a subscription shortfall

Mike Theiler/Reuters

Quartz co-CEO Jay Lauf.

• Buzzy business news startup Quartz made headlines in July 2018 when it sold for as much as $110 million to a Japanese media company at a time when other digital media companies were selling for a fraction of their announced value.
• A year later, several key leaders have left Quartz and insiders say a new membership program is less than halfway toward its 2019 goal and that the company is on track to lose money again this year.
• On the ad revenue side, its bread and butter, native advertising, isn't that special anymore as it's become table stakes for publishers.
• The company's co-CEO said Quartz was doing fine and that membership was showing "steady progress."
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Quartz, a quirky but admired business news startup, made headlines in July 2018 when it sold for as much as $110 million to a Japanese media company.

It was a win for digital news at a time when other online media companies were selling for a fraction of their announced value. Quartz's new owner, Uzabase, was little known in the US but its founder Yusuke Umeda expressed no shortage of ambition, saying he wanted Quartz to help NewsPicks, his news aggregation app that's little known in the US, compete with Facebook and Twitter.

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The two companies came from different places. Quartz was built on a free, ad-supported distribution model, and was rarely profitable under its former owner, Atlantic Media. Its new owner was a publicly traded company and saw Quartz as a way to expand its digital subscription model.

A year later, several key leaders have left Quartz, and insiders say it's on track to miss its new membership program goal and lose money again this year.

Membership has fallen short of goals

Two months after the sale was announced in July 2018, Quartz named an experienced journalist, Sam Grobart, to figure out the journalism that would drive a new membership program.

The program launched a mere two months after that, alongside a US version of NewsPicks that featured big-name business execs like Richard Branson and Roger McNamee, in an effort to create a safer online conversation alternative to Twitter.

The $100 a year (increasing to $150 in year two) membership program was pitched as a suite of extra benefits above and beyond the site's daily, free content. Members get exclusive content such as subject-specific deep dives called Field Guides and the ability to have contact with other members at events and access to journalists on conference calls.

Internally, the goal was to get 20,000 members by the end of 2019; multiple sources said as of this summer, it was less than halfway there.

While the company sought new revenue from membership, the core business had its own headwinds. Quartz, which lost $7 million in 2018 (it reportedly took in $28 million in 2017), was on track to lose money again this year, and laid off a handful of people on the sales side, insiders said they were told by leadership.

With the business picture in flux, a handful of key people have voluntarily left the company since the beginning of the year, including its heads of revenue, membership, and video. The company started offering stock options to employees, which could keep more from heading for the exits.

Some called membership strategy confusing

Some insiders said the membership program felt rushed, that they were unclear on the strategy, and that the criteria for which articles would be free and which members-only felt arbitrary. New Field Guides came out each week and tackled diverse subjects from the future of vaping to the rise of China, which is fine for a general-interest business publication, but raised doubts about whether the content was specific enough to compel people to subscribe.

Six months after the membership rollout, Quartz walled off its free content behind a metered paywall to help drive memberships, adding to staff confusion.

Quartz co-CEO Jay Lauf told Business Insider Quartz was doing well and that he was pleased with how the membership was going, though he wouldn't give specifics.

"The first year under new ownership has broadly been good for us," he said. "The business is strong and I'm very optimistic about where things are headed. It's been steady progress on membership. August was the best we've seen."

Quartz is tweaking its membership

Quartz's chief product officer, Zach Seward, said the company saw the first six months of the membership program as "experimenting with a bunch of potential offers to get a better sense of what would work."

• Based on what's performed so far with members, Quartz is refining its Field Guide topics to focus on topics that are "Quartzy" and not overcovered by other outlets.
• It's increased its conference calls with reporters to three from one a week and doing more member-only videos.
• It's also reworking its app to help drive membership, and plans to relaunch it this fall.

Seward acknowledged the need to make sure Quartz makes its membership valuable to people in various ways, beyond the initial reason they subscribe.

"If we had all the data we had today, we would have gone straight to all those decisions," he said. "We're cognizant it can't be yet just another news subscription. There are a ton of subscription offerings in news already."

The membership program was priced aggressively

News publishers all over are pivoting to reader revenue to supplement advertising, but only a few have made material business from subscriptions. Only a few news publishers have made a material revenue stream out of subscriptions. Three of the most successful, The New York Times, The Washington Post, and The Wall Street Journal, have taken decades to build their subscription bases by emphasizing journalism that's unique and high-quality and which many people charge to their corporate cards.

Quartz set its price close to that of premium-priced The New York Times and The New Yorker and double that of its former sister publication The Atlantic, which just launched an annual subscription for $50 a year, and five times what Vanity Fair and Wired charged at launch.

"Because it's not B2B and not robust enough like the Times, it was caught in this limbo," one insider said.

In addition to Twitter, Bloomberg LP was often mentioned by the new owners as a company it wanted to compete with. It's true that Uzabase has a product in Japan, Speeda, that's similar to the Bloomberg terminal that's ubiquitous on Wall Street.

But that comparison had some scratching their heads. Quartz, as a small startup that had to pick its spots, proudly let its staff focus on "obsessions" with given topics that would change with the news cycle rather than be pinned down to specific beats. Bloomberg, meanwhile, is a news juggernaut, with thousands of journalists reporting on industries, "not Quartz at all," recalled one person.

"Our parent company has big ambitions to expand the company globally, and Quartz is really the tip of that spear," Lauf said.

Quartz faces other revenue headwinds

Quartz faces other challenges as it pivots to reader revenue.

• Quartz had a weekly Facebook Watch show, but Facebook canceled it. Facebook reportedly paid publishers around $1 million for weekly news shows.
• The native ads that differentiated Quartz when it launched in 2012 have now become table stakes for the industry. This year Quartz started focusing on selling bigger ad deals, which are more lucrative but hard to win, especially for a small publisher; Quartz reaches fewer than 10 million unique visitors a month, according to Comscore.

"At this point, the majority of leading publishers have a branded content studio and distribute that content. From that standpoint, it's pretty ubiquitous," Jeremy Tate, SVP and GM of the Merkle agency DWA, said of Quartz's offering.

For Quartz, it's a bet worth taking as chasing small deals eats up valuable time and resources, while high-impact programs can increasingly go beyond advertising to include custom research, events and the like.

"We are focused on executing those at the highest levels versus using our time and attention on responding to long-shot, low 5-figure RFPs," Lauf said.