How to ROI Your Paid Content Strategy – Part 1 – Retention

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.



8 Traits Your Digital Leader Must Have

I recently got a call from a friend who is the CEO of a media company.  He was looking for a VP of Digital and asked if I knew anyone who might be a good fit.  I asked what his goals were.  He said to make his digital business x% larger.  I suggested that he get a Chief Digital Officer.  The difference in my mind was that a VP of Digital makes your digital business better, a CDO makes you entire organization better with digital.  The CDO understands your core business, has a vision of the future state and understands how to close all the technology, human capital and content gaps.

That call had my mind racing as I thought through the predicament the newspaper industry is currently in.  Here’s a scary fact, the person in a newspaper’s digital leadership role in 2012 will make or break the company.  The print picture is getting increasingly dire and most newspapers have an 18-36 month window to turn it around.  That means it’s not a time of many small experiments.  It’s a time of decisive moves that will make the biggest difference in the shortest amount of time.  It’s not a time for incremental improvements, it’s a time for curve jumping/paradigm changing stuff.

Digital Leadership

Over the past 12 years I’ve worked in media companies managing technology, in technology companies supporting media organizations and as a consultant aligning media  and technology companies.  I’ve seen several dozen leaders both great and terrible so I put this list together of some traits I believe a digital leader should have to lead the pivot from being a print-centric organization to a digital media company.

8 Traits Your Next Digital Leader Must Have

They must have run a p/l that was not based solely on digital advertising – There are a lot of “digital” people out there looking for work, either from pureplays or media companies.  Most grew up believing that aggregating as much traffic as you can and selling ads against it was a viable model.  That model never really worked once you got below say the top 500 web sites or had more than 5 employees.  Look for someone who has run a paid digital subscription model.  That is your future.  There is an art and a science to acquiring, retaining and winning back digital subscribers.  It’s even better if you can find someone one who ran a business based on multiple revenue streams like subs, lead generation, advertising, events and business services.  Running a p/l is critical.  There is a big difference between running a digital operation when it was someone else’s problem to figure out the business model or define the product mix.

They should understand content but not be a “content” person – I know it sounds counter intuitive but a “content” person will usually be passionate about content to a fault.  You have an editorial team for that.  The data will tell you what good content is.  Your audience will vote with their usage.  Your digital person must look at content as product and figure out the best ways to monetize that product.

They must be a great teacher – The future of your company is on having a deep bench.  The players that you need to build your digital future don’t really exist today.  In the wild you have technology people, either developers or operations people.  You have technology sales people, ux people, etc.  These people are expensive and likely won’t understand the intricacies of local media business.   Your best bet is to build your own team from within.  You don’t need developers, they are everywhere.  You need product visionaries, project managers and strategists who understand your audience.  Unless you are a venture backed start up you likely can’t afford them, they are expensive.  Invest in retraining your top people.  They will love you for it.

They have worked in a large company and a small company – I ran a business unit with an 8 figure expense budget and one with a 4 figure budget.  You have to be far more creative with the 4 figure budget.  People coming from large companies learn to throw money at problems.  If you’ve worked with a small or no budget you can work with a large one.  It doesn’t always work the other way.  No matter what your budget is someone who has worked with a small budget can get you maximum return on your digital dollar.

They have to be a great communicator – The future is going to be very confusing to the non-technical.  Your digital leader will have to be able to communicate the vision to your management team, your board of directors, your staff and advertisers.  Don’t underestimate the value communicating complex thoughts and concepts.

They have to understand the core print business model – The key to surviving is making the print to digital pivot and leveraging the treasure trove of existing print assets.  Someone who is a digital native might not understand all the value that sits in the print business.

They have to know technology really well but not necessarily be technologist – They should know how the sausage is made and understand all the moving parts.  The vendor choices are vast and the different ways of licensing and acquiring technology is changing every day.  They also need to know how to evaluate their internal teams recommendations.  Sometimes those recommendations are not in the best interest of the organization.  I’ve seen a lot of recommendations that were made around job protection of internal teams.

They must have demonstrated a “leader” role in an uncertain landscape – The newspaper industry is full of followers.  It’s really difficult to take point walking into a pitch dark room.   “Leading” is a born trait.  It takes conviction of belief, connecting dots from outside the industry and past outcomes and the ability to analyze and adjust to all the datapoints along the journey.  Ok, there’s only one Steve Jobs but those are the key traits of who you need leading you into the future.  Oh, you should be able to look at your leader’s history and see a recurring pattern of being right the majority of times in similar situations.

You likely won’t find someone with all those traits but having run a p/l, understanding your core business, demonstrating a proven history in emerging technology leadership, being a great teacher and communicator are key.  Make the decision quickly as time is not on your side.



What Newspapers Should Learn from the Apple and Microsoft Dance

There have been many great moments in the history of Apple.  Some say it was the invention of the Macintosh or iTunes or most recently the iPhone or the iPad.  Others say it was the return of Steve Jobs.  I believe its greatest and most defining moment was when it was on the brink of death, pre or post Steve’s return.  At some point, in some boardroom a switch was flipped and a license was given to innovate and disrupt and a plan was set in motion to win the “post-PC” war.

For those of you who might not remember in the mid and late 90s Apple was quickly losing its already small market share to the Wintel (Microsoft and Intel) juggernaut.  Its luster and cool had been lost as the post-Jobs Apple started following the Wintel playbook by licensing the OS and allowing clone builders to make beige PC-like boxes in an attempt to gain on Wintel.

Apple’s strategy, I’m not a Trekkie but I’ll use this reference, was Kobayashi-Maru – in a no-win scenario change the rules.  Instead of focusing on chasing the PC business, Apple began focusing on defining and winning the post-PC game.  They began not by creating great products but by creating a great ecosystem in the iTunes marketplace.  They knew content drove hardware adoption.  The greatest hardware with nothing to do on it doesn’t inspire adoption.  I recently was convinced that I needed a 7″ Android tablet.  After having 4 iPhones and 2 iPads the thing that jumped out at me when I had an Android tablet was the Android Market is not very good.  It’s better than it was a few years ago where it felt like you were shopping the backstreets of Manila but it’s still not the Apple app store.  Apple also stole a page from the AOL playbook where they realized the new currency was registered users and “cards-on-file”.  If you had someone’s credit card enabled for one-click purchasing you had gold.

In the time that Apple went from near death to owner of the “post-PC” ecosystem and eventually the most valuable company in America, Microsoft existed.  It was never on the brink of death so it never had to reinvent.  It was fat, living on its legacy products and revenue streams.  It had a huge Windows user base who updated every 3 years and a dominant share of the enterprise computing works who are slaves to the cost of switching.  I live 8 miles from Microsoft’s main campus and new towers are popping up all over Bellevue, WA emblazoned with large Microsoft signs.  Microsoft tried to do mobile, remember Windows CE, Windows Mobile and Windows Phone.  It tried to do tablets before the iPad, remember Windows XP Tablet.  It tried to do digital media, remember Windows Marketplace.  Do you see the common thread?  Everything was around protecting the legacy brand and core product.  Rather than taking a new approach and building from the ground up for the platform it branched existing products with a tieback or some motivation to use Windows.  Then again in the non-Windows branded products for every XBox success there was a Zune.  Microsoft thought Windows first.

Newspapers are falling into a similar trap with print being Windows.  It’s still the cash cow, like Windows.  When you are so fixated on protecting legacy revenue and legacy brands it’s tough to see the forrest through the trees.  Sometimes those parameters stand in your way of growth and innovation.

As paid content models are evolving much as been said about the current wave of strategies being about protecting legacy print.  That’s true, it’s because that’s where the real dollars are in the overall revenue mix.  The savings dwarfs any digital subscription or ad revenue today.  That won’t always be true.  In an upcoming article and at the next NAA conference I’ll show exactly how to measure the financial benefits of a print retention strategy.  A good strategy manages the pivot well, respecting and maintaining print retention revenue at the same time innovating and taking risks with pure digital growth.  I’ve seen some, maybe too many, publisher price print and digital lower than digital only.  An example, print/digital for $10/month and digital only $11/month.  1) why would you disincent people from buying your most profitable product and 2) if I’m an advertiser or a competitor I would quickly point out that you’re “paying” people $1 to take your print.  Of course as a subscriber I’m going to want the $10 subscription and throw the newspaper in the recycling bin.  The print usage will fall at it’s natural rate, the circ numbers will remain artificially high and the advertiser will see rapidly diminishing response.  ABC will be all over your back and all copies priced that way will be subtracted out of the circulation numbers by advertisers.  What’s the point?  It’s not fooling anyone. The ABC question of wantedness will be resurrected.  I subscribe to a national sports magazine.  For $20/year I get the magazine and access to their premium digital content vs. $6.95/month for digital only.  That’s not a tough decision, I don’t think I’ve looked at a single print issue since I got the subscription.

So what can newspapers learn from Apple and Microsoft?

Respect the legacy cash cow but not at the expense of innovation and moving into new markets – Windows is not cool, newspapers are not cool but they still make a ton of money.  I was just on a college campus last week and saw fewer Windows-based computers than I saw people reading newspapers.  You can build and innovate but it doesn’t need to be tied to legacy.  Use legacy product’s and assets when needed – trusted brand, content engine, established relationship with consumers and advertisers but don’t use it if it will get in the way of growth.  BTW, the Zune and Windows Phone are actually pretty cool from a technology, functionality and value perspective but even here in Seattle it’s kind of embarrassing to be seen with one.  A few months ago a friend of mine was embarrassed that he had an older Blackberry in a world of iPhones and wanted to get a Windows Phone.  I told him a Blackberry says “I made a bad decision 2 years ago”, a Windows Phone says “I just made a bad decision”.  Friends don’t let friends buy Windows phones.

Kobayashi-Maru – The Gretzky metaphor of skating to where the puck is going to be is so appropriate here.  Don’t try to win the print advertising and circulation and even online advertising battle.  It’s not winnable.  Focus on what it will take to dominate in the post-print and next generation local media world.   Get your content under management, get your users under management and prepare to easily distribute across platforms.  Focus on what Apple, Amazon and Groupon have proven – the biggest asset going forward are registered users and cards-on-file.

There are great ideas already out there, pairing your assets with them can be game changing – Apple didn’t invent the mp3 player or the digital media store, they made it better with their secret sauce.  Well it’s not that secret, because of their loyal and somewhat fanatical user base the iPod had a built in audience at launch.  Because of their size, remember in 2001 there were very few standards in digital media, they could create standards.  Apple had also established itself at the top of the price/quality matrix enabling them could charge a premium price that a sizeable audience was happy to pay (and stand in line the night before for that privilege).  The first iPod when introduced in 2001 cost $400 and came with a massive 5gb that people had a hard time filling.  The built in customer base and large margins on their product gave Apple a snowballing advantage over lesser known mp3 player manufacturers fighting the battle on price.  By the way if you had bought Apple stock instead of that iPod you would have almost $11,000 today.

Another note on finding great ideas.  Look around outside of the newspaper industry and in the app store.  Most innovative ideas and products are created by technologists who don’t have the marketing expertise, brand credibility or ability to create content to make it successful.  Most newspapers have all of those things without the ability to create technical innovation.

We all trusted Steve – Steve was a face we all knew and trusted.  We knew him since the 80s.  We watched him grow up and there was very few aspects of his life we didn’t know.  He didn’t give us what we asked for, he gave us what he knew we needed even if we didn’t know at the time.  He was almost always right.  Very few entities have that kind of trust established through a proven track record.  Most newspapers still have that level of trust today.  The public expects the local newspaper to deliver next generation information products and services.  The window is closing quickly.  New entities are trying to establish inside of your communities.  Many don’t have sustainable models like local blogs but others like Patch are backed by deep pockets.

Today newspapers are stuck between Microsoft’s and Apple’s positions.  Many still have a cashcow in print (Windows) but that’s changing quickly.  Some have been pushed to the brink of death and died.  Others have been pushed to the brink of death and had that defining moment Apple had where the current trajectory was so dire they had to change the rules.  Not long ago people followed the well documented New York Times story as it was forced to reinvent itself and has pivoted to become one of the largest digital media companies with the advantage of still having a billion dollar plus print business.  On the local media front I don’t see anyone who has truly figured it out.  That day will come soon when a local media company will reinvent itself with a truly unique model that will sustain its on going business operation.  Newspapers can’t be followers.  If you follow, and are wrong it will take 18 months before you realize it.  Many don’t have 18 months to waste.




Why Newspapers Should Never Do a Metered Paywall

I really dislike metered paywalls.  The first thing that publishers want to talk about when they call me is where they should set their meter.  I tell them to set it aside so we can figure out something that works better.

The philosopher George Santayana’s quote “those who cannot remember the past, are condemned to repeat it” needs to be posted on the wall of every newspaper in America.  It was only 16 years ago when the newspaper world watched The New York Times launch a free, ad supported website and said “yeah, that’s the model, if they’re doing it it must work.”  We all know how that turned out.

Virtually every letter to readers justifying a paywall and industry quote from publishers talk about The New York Times metered model.  When you have 33 million unique monthly visitors and high value content that model almost works.  The Times has been very vocal about saying that it is a holistic digital strategy that focuses on all their digital platforms.  Even at 390,000 digital subscribers they understand that they have a way to go to close the revenue gap and create a sustainable business model.  I’ve been in meetings where NYT executives caution that what works for The Times rarely works anywhere else.  Actually when I was their Internet strategist for advertising I used those words to caution other newspapers on their expectations for getting Internet IPO advertising.

Let’s think about the origin of the metered model.  The most recent and most known model was The Financial Times, and that meter was set at 3 stories and it required you to register so they knew it was you looking at those 3 stories no matter what device or browser you used.  The Times’s meter is set at 20 because that is the number that presumably exposes all their ad inventory.

I have yet to see any meter model “work” or rather make a difference.  I will always recommend against a meter for the following reasons:

1) It’s not restrictive enough – If you set a meter at say 20 and your main internal selling point is that only a small percentage of readers will ever hit that number.  What have you really accomplished?  If you figure that only a small percentage of those people are willing to pay, you’re not going to keep the lights on with the incremental revenue it generates.

2) It creates unwanted behavior – Let’s say that a reader does hit that wall.  There are two things that they’ll likely do and neither is reach for their credit card.  The first thing is try to figure out how to game the system.  The second and possibly most dangerous behavior is it makes them seek out next best free alternative or what I call the “osmosis of free”.  When The New York Times put the wall up my 16 year-old son came to me and said he tried CNN and other alternatives but nothing else compared and that I should get him a digital subscription.  If you’re in an extremely competitive space you’re going to drive your core users away.  How many paywalls of any kind do you see in the extremely competitive world of sports news?  Staying with that sports example, Wally Pipp, the baseball player whose day off cleared the way for Lou Gehrig to begin his 2,130 consecutive game streak, showed you never want to give anyone a reason to see how good your backup is.

3) It’s the easiest system to game – The original FT model worked because you had to register.  Fearful of requiring registration and losing readers, newspapers have never forced the issue.  To implement metering most systems rely on javascript code on pages, browser cookies, in some cases persistent cookies buried deep on users’ computers in multiple spots.  Some of these border on malware and sometimes are recognized that way by virus protection programs.  Gaming the system includes clearing your browser cache, switching browsers or simply using multiple computers.  I routinely work off of 4 computers and 2 ipads.  I’m an extreme case but users working off of multiple computers are becoming the norm thanks to cloud-based applications and programs like Dropbox.  When I look at some metrics of publishers who have implemented the metered model and hear that their uniques visitors have not changed I immediately ask if those are fewer people coming from more computers.  No one has ever been able to answer that for me.

4) It’s the most difficult to implement well – As I mentioned earlier the only way to truly make a meter work is to force registration.  Not many have.  When I worked in the ebook/emagazine space we always worried about digital rights management (DRM).  We’d always joke about “military grade” protection or “pain-in-the-butt” DRM.  In most cases you settled on PITB DRM.  You want the user to say, it’s easier to give you $9/month than jump through  these hoops.  Of course there will always be a small percentage of people who will try to game the system for philosophical reasons.  Find them and make them part of your “security” panel.

5) It’s the most difficult for users to understand – Most users will never hit the wall.  The ones who do wonder what counted as an article view and what didn’t.  20?  20 what?  Why am I getting this message?  No publisher wants to post a giant sign on their home page that says “come enjoy your 20 free stories a month”.  I like easy to understand hard walls were you know what’s free and what’s not.  No secrets or surprises.

Let’s face it the only reason you want a paywall or website restriction is to create the sense of scarcity and create greater perceived value for your digital subscription package.  We have a metered wall in Memphis set at 10.  It wasn’t my recommendation and when asked I didn’t have a better suggestion, but that was a year ago.  The mobile web has a hard lock on it with password required to view.  My recommendation is always to have a great product suite in your digital subscription package.  The better the products the tighter the restrictions you can put on access. Nothing good ever comes of a bad suite of free mobile apps, replica edition iPad apps and a meter set at 20.


5 Mistakes Newspaper Publishers are Making with Pay Models

This month marks the one year anniversary of the launch of The New York Times pay model 2.0, remember TimesSelect in 2006.  Many local newspapers have been using that precedence as the poster child for launching their own paid strategies both internally and justification to their subscribers.  Some have followed the leaders, others have followed the vendors and others have followed their internal compasses.  We’ll spotlight who we think is doing it right but we want to call out 5 common mistakes that we see the industry making as many publishers are being more tactical than strategic in their launches.

Common Mistakes:

1) Relying on a “Metered” Paywall to Save the Business

I really don’t like “metered” paywall and advise against them.  It’s like being kind of pregnant.  Publishers are setting it high enough to deliver all their advertising inventory to keep their ad revenue intact but not high enough to generate any real revenue.

So how many people will really pay for access to your website?  On a recent NPR broadcast, Denise Warren general manager of NYT Digital redirected host Neal Conan’s focus/fixation on the paywall by saying it is a “holistic strategy, and it’s across all our digital platforms.”  The digital all-access model has been around since the early 2000s.  Many variations of “value” were tested like digital editions, archives, newsletters, club membership but it didn’t work until a compelling set of digital products were included.  Thank you Steve Jobs.

Take away: The only reason you want to put up website restrictions is to create greater perceived value to your overall digital offer.  A “metered” paywall on its own will never generate enough revenue to keep the lights on.  Too timid a restriction will never real create value for your digital package.  As Denise said, it’s a hollistic strategy and includes all the mobile and tablet offerings.

2) Setting the “Bar” Too Low

I recently launched a project with a publisher which includes a 4 app suite, sub management system, the whole nine yards.  The project was initiated by the Publisher and I had a kickoff meeting with the General Manager.  A very smart and forward thinking man.  Since he hadn’t been in the early meetings I asked him what his goal for project was.  He started out by saying that he was looking for an incremental 20% in digital revenue.  I made a gameshow buzzer sound and I told him you can’t use the word “incremental” in your thinking.  This is your future.  There’s nothing we see in our crystal ball that is going to save the industry.  This is for all the marbles and we need to figure out how this is going to give you a sustainable business model for the next 10 years.  We’ll discuss that more in future articles.

In the mid 90s when the current web model was invented, newspapers were making money hand over fist and online revenue was considered “found” money.  E-editions and ereader revenue was “found” money.  The new paid models has to support the business going forward.

Take away:  I know we’ve been saying it for a while but the newspaper industry as we know it has about 3 years to pivot from print to digital business.  It can’t look at the current paid content model as incremental or  “found” money.  The bar needs to be set at creating a sustainable business model.

3) Bad and No Value Digital Packages

Publishers are attempting to try and piecemeal their paid content digital packages.  Many are attempting to copy the leaders by duct-taping and rubber-banding solutions together.  In a recent MarketWatch article Ken Doctor very accurately point out that using replica edition iPad apps and free or low cost iPhone apps isn’t going to create the necessary value to drive adoption.  As I mentioned we’ve known about the “all-access” model since the early 2000s.  We just never had anything that could create enough value to get subscribers to open their wallets in meaningful levels.  NYT’s 380,000 digital subscribers is a great number but it represents only 1% of their online digital audience.  Other markets who have had success converting digital users to paid subscribers are currently at that 1% number.  The true test of value is continued growth and retention.

I built the Memphis Commercial Appeal paid content strategy and product plan 18 months ago and launched it 9 months ago.  We had to build everything from scratch at that point.  They understood the value of spending to do it exactly right.  Since then a handful of others have done it exactly right but the industry at large has been afraid to spend.  In a future article I’ll show you how the cost of not doing anything far outweighs the cost of spending to do it right.

Take away:  You don’t need great product but you need good enough.  Launch your pay model with quality digital products in your core offering.  Don’t obsess about your products.  Focus on making your business model work and then focus on a great v.2 product suite.

4) Pricing Models that Incents Bad Behavior

I advise my clients that there are only 3 questions that they should be asking themselves about paid content models.  The 3rd question is “how do you successfully pivot from a print-centric business to a digital subscription business?”  That might seem obvious but publishers have many different internal motivation.  It might be to generate incremental digital revenue in 2012 or getting a return on investment to justify the expense of launching the paid model. We see all kinds of pricing models out there from the classic digital upsell model where you charge your print subscribers an add-on for digital.  That model gives you neither print retention benefit or high print user adoption of digital.  We also see the digital priced significantly less than print model.  That’s a recipe to accelerate yourself out of print along with all the circulation and pre-print that’s still out there.  The model that has been starting to emerge is pricing print/digital all-access lower than digital alone.  While at first glance it will keep your print numbers up it’s a shortsighted solution for a number of reasons.  Let’s use the example of $3.50/week for print/digital and $4.00/week for digital only.  If I’m an advertiser or your competitor I see that you’re “paying” subscribers $0.50/week to take your print.  They would be crazy not to take the $3.50 package.  Over time the print number looks good and likely will grow.  Inside that number, no one is looking at the ads and advertisers will see diminished response.  The print model soon implodes on itself.  Remember the utility of print is going away, that’s a fact.  Artificially keeping the number up while the natural behavior is flowing away is very dangerous.  On a personal note I subscribed to a sports digital/print package for $20/year rather than pay $7/month for digital only access.  I’ve not looked at a single print issue since I subscribed.

Take away:  Publishers’ best option is to price for maximum print retention in the near term and digital adoption in a way that subscribers still see value in print.  More strategic insights in upcoming articles.  Note, The New York Times does it the best if you understand what they have done to balance the two.  It’s not an NYT phenomenon that only works with them.

5) Launching with Tactics Before Having a Strategy

There’s a great Sun Tzu quote to paraphrase – “Strategy without tactics is the longest path to victory.  Tactics without a strategy is the noise before defeat.”

I’ve been in and around the newspaper/magazine industry for 23 years.  I’ve been on the publisher side for 16 years, selling technology solutions to publishers for 5 years and consulting to protect publishers from vendors and themselves for 2 years.  This is how new technology usually gets adopted.  A publisher or sr manager comes back from a conference and says “someone is doing x, we need an x.”  They call their digital guy to start researching and put together a short list of vendors.  The vendors come in and pitch their solutions and give them the “strategy” pitch selling benefits not features.  This is how you use an x.  This is the revenue you can expect and it’s going to cost this and this is how you ROI it.  I call that the vendor driven strategy.  In a vendor driven solution the strategy and numbers always justifies the cost of the investment.   Note, very few technology vendors actually ran a P/L on the publisher side where they are delivering solutions.  I can think of only 2.  I sat in on a vendor call with one of my clients and the sales person quoted an adoption rate and made pricing recommendations.  I asked them to cite the publisher example and the exact scenario.  They said it happened at a very niche website of a small publisher.  I told them to take that number out of the presentation because it was totally irresponsible to quote numbers like that.  I’m sure it’s still in there.  The person who is making the buying decision will take that number back to the publisher as an expectation of what they might see.  They’ll never get there.  For the first 9-12 months they’ll blame themselves that maybe they are not pushing hard enough or marketing enough to get that number.  It will be 18 months before the publisher realizes they bought a bag of magic beans.  I’ve seen it while I was on the publisher side.  When I sold technology I instructed my team not to pitch the beanstalk and most publishers thanked us for our honesty because the previous vendors had been in pitching beanstalks and high adoption.

I recently spoke with two different publishers who launched with a number of tactical tests with a number of vendors at the time we were launching the Memphis project.  One year later they are back to square one finally working on their strategy and realigning a new set of vendors.

Take away:  It doesn’t cost anymore to get your strategy right first.  Paywalls and apps are all tactics.  Define your strategy, understand your endgame then fill in the tactical pieces.  At this point the most important thing is to get your strategy right.  Your publication, your market, your competitive situation and your organizational structure will define your strategy.  It is not a one-size-fits-all world.

It is still very early in the game but publishers should look very hard and understand what other publishers are attempting to accomplish rather than simply following it at face value.   Remember that your paid content strategy must be the right thing for you and if you use the word “incremental” you’ve already lost.

Full disclosure, I ran one of the first paid content models at The New York Times as the product manager for the digital edition from 2002-2005.  I was not involved with the launch of the current model.