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.

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