Category: Paid Models

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.

 

 

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.