I’ve spoken to a lot of publishers over the past year. I always know exactly who actually has developed a strategy and who just thinks they need apps and a paywall. I know because the ones who don’t have a strategy are extremely price sensitive and nothing can be cheap enough.
I walked into a publisher meeting with 5 sr. vice presidents and they said “we know how much you spent at Memphis and we don’t have that kind of money.” They’ll end up spending more than we did in Memphis. They got there not because I told them to. They got there because they knew how to understand the true return on their investment and what the opportunity cost was.
When we developed the strategy for The Memphis Commercial Appeal it was late 2010, the iPad had just launched, no one really knew what was going to happen with Android and the city of Memphis was not an affluent or high tech city. The knee jerk reaction in doing a digital strategy is to focus on how many digital subscribers you can convert. I told the publisher that we would build a retention strategy first and a digital growth strategy second and that’s how it should be positioned to his sr. management team to manage expectations.
What is a retention strategy?
A retention strategy is a pricing and packaging model designed to increase the retention of your existing print subscriber base. There are several flavors of it. Some publishers have chosen to preserve or force multi-day (more than 2) or 7-day buys. In other words you get digital for free if you buy these packages. In Memphis we chose to allow print/digital all-access (digital included for free with a print subscription) when you purchased a minimum of Sunday only. The goal was to preserve Sunday circulation and pre-print revenue. The hypothesis was that by adding digital access for free it increased the overall value of the print subscription. Because your increasing the value of the print package you increase conversion and reduce cost per order. You also increase retention and reduce churn. Both those factors reduce your circulation expenses and increase your circulation revenue. In addition, by getting a net positive on both those factors you slow your print decline or better yet grow your home delivery number.
Awesome, right? But how do you factor that into a revenue model to justify or understand how much you should spend on your paid content strategy? Just a word of warning for the accountants and purist, this is going to give you a rough number to understand the model. You’ll have to figure out if the incremental effort to get to the exact number is worth it to you.
Step 1: Building the Model – Understanding Your Circulation Delta
How has your circulation changed over the past 24 months? For most papers you are probably seeing a negative circulation trend. For the purposes of this exercise get 24 months of average monthly Sunday home delivery circulation and calculate the year over year change per month. Calculate the average year over year change per month for the most recent 12 months if you explored more than 24 months. For any of this that isn’t obvious shoot me an email with your question. From this exercise you should have calculated your circulation delta for the model. Let’s say for arguments sake it is -4%.
Step 2: Pre-print revenue per copy sold
One of the big goals of preserving the Sunday home delivery number is the pre-print revenue associated with it. Pre-print is direct income meaning that if you lose 1,000 Sunday subscribers you lose direct pre-print revenue. The same is not true for ROP. If you lose 1,000 copies you aren’t going to drop your ROP rate to adjust for that circ loss.
To calculate your pre-print revenue per sold copy get your pre-print revenue for Sunday distribution only, scrub the TMC and daily pre-print revenue out of there. If your reporting allows for it drilldown to home delivery only, scrub single copy and any other non-HD copies out. Your single copy shouldn’t really matter unless you are The NY Post or Daily News. You should now have pre-print revenue for the past 12 months.
If you have the actual Sunday home delivery copies sold number line them up by month. If you have the average then don’t forget to account for 4 Sunday and 5 Sunday months. At this point you have the total pre-print revenue for Sunday home delivery copies by month. You also have the total number of Sunday home delivery copies sold for each month. When you divide the revenue by the copies sold you should now have the average pre-print revenue/sold Sunday home delivery copy for the past 12 months. Calculate the 12 month average. It should be between $0.85 and $1.10.
Step 3: Sunday home delivery revenue per copy sold
You might have a headache by now so this is easy. What is your wholesale rate to carriers? Or the cost that you recognize as a sold Sunday home delivery copy? Let’s say it’s $2.50.
Step 4: Add the two together
Add the average pre-print revenue per Sunday copy and the average home delivery circulation revenue together and that number is your “total revenue per Sunday home delivery copy sold”. For argument sakes let’s say it’s $1.00 of pre-print and $2.50 of circulation revenue. You make $3.50 in revenue per Sunday home delivery copy sold.
Step 5: Go back and plot the graph from step 1, the circulation change
For simplicity sake imagine your circulation delta was trending at -4%. If you did nothing at the end of a 12 month period you would have 96,000 subscribers from a base of 100,000 in the example shown.
If your retention strategy and pricing allowed you to improve by 3% to -1% decline you would have 99,000 subscribers at the end of the 12 month period. If you reversed the trend and went to a +1% trend you’d have 101,000 subscriber. The area between the lines on the graph represents copies and revenue. Remember each copy is worth $3.50 in revenue. In the example above, the -4% to -1% change represents 74,000 copies retained through the end of 2012. Converting that to dollars by multiplying by $3.50/copy, you would have retained $260,000 in revenue. That is just through the end of 2012. That number gets larger as you calculate further out because a lost copy today is a lot copy forever. Going from -4% to +1% represents $435,000 in revenue just through 2012.
Depending on your market, even if you don’t expect a high rate of digital adoption initially the retention benefit of a paid content strategy will give you a good baseline for how much you can spend on developing your suite a quality products. In Memphis we’ve publicly stated that the trend reversed from -3% to +1% in 4 months. The turnaround happened almost immediately. Anecdotally it was a combination of two things, better value of the core print subscription product. Also, the lowest print offer is $11.00/month and digital is $9.95/month. People weren’t saying I’m going to get a digital subscription, they said they’d be crazy not to get a Sunday only subscription. We had a high quality suite of locked (authenticated against the subscriber database) iPhone, iPad, Android phone and tablet apps. The metered paywall (not my idea) was set at a very tight 10 stories. The value of the suite was high.
Next week we’ll discuss the “Digital Burrito” strategy for digital subscriber acquisition.