Twitter  High school journalism is about the process, not the product nie.mn/1oi6iYO  
Nieman Journalism Lab
Pushing to the future of journalism — A project of the Nieman Foundation at Harvard
price-tags-cc

The newsonomics of Pricing 201

Newspapers are starting to figure out what separates the successful paywalls from the also-rans.
Email

Don’t call it a price increase. Call it a re-valuation of the customer proposition.

Really.

Now, waist-deep into the digital circulation revenue revolution, we’re adding fact to hunch, data to intuition.

Take The Post and Courier of Charleston, S.C., and its spring paywall launch. The 85,000-circulation daily benefited by being a fast follower, learning from early paywall adopters, when it launched on May 1. The big result so far: a run rate that will produce a 10 percent annual circulation revenue increase.

That’s serious money, especially as advertising dollars wend farther south. Further, it’s an indication that a key brick in the foundation of the new news business model is being laid. I’ve pointed to the quick ascendance of reader revenue (“The newsonomics of majority reader revenue”) and that trend is gaining steam as we push into 2013. In fact, if you look at Charleston’s own trajectory, it now generates 37 percent of its revenue from circulation, up dramatically from 15.7 percent in 2000. (For those long in the business, we can call this Revenge of the Circulation VPs).

Circulation has turned from a means (getting ad-rich papers to shoppers) to an end unto itself, actually getting readers to pay a significant share of the journalism costs. It’s a simple proposition: You ask the people who really value you and your journalism to pay you more. Surprisingly to some, it looks like many of us are willing to. Why didn’t we think of this earlier, before the carnage of cuts overwhelmed the profession? Call it a brew of misunderstanding the digital transition, of timidity, of Steve Jobs’ iRevolutions…and of desperation. As Disraeli put it, “Desperation is sometimes as powerful an inspirer as genius.”

In Charleston, Steve Wagenlander’s inspirations were the multiple experiments he saw going on around the country and more widely. Wagenlander is in charge of audience development at The Post and Courier.

Which leads us back to that re-valuation of the customer proposition. Wagenlander says The Post and Courier is “playing off the American Express line of 20 years ago: Membership has its benefits.”

“Why should I spend $20 a month on the paper?” was the deep question Wagenlander and his colleagues asked themselves. The answer both takes papers both back to their community roots and propels them forward into this digital age.

The Post and Courier decided that it wouldn’t make a point of charging its 60,000 subscribers extra fees for digital access, as some papers are now doing. They focused on “the bundle.” That bundle is a promise, a growing bag of goodies that quickly moves users to readers to subscribers and now to members. That membership notion — also being tested at The Boston Globe, the Los Angeles Times, and The Day in New London, Conn. — restates both the consumer value proposition and backs it up with a vow to take care of its customers’ reading and shopping needs in ever-expanding ways.

The Post and Courier’s Daily Advantage membership program offers a baseline of benefits:

  • A seven-day print subscription
  • Full access to websites with online commenting
  • Full access to its digitized archives
  • Mobile and tablets apps
  • Specialty magazines; The Post and Courier’s free Tideline and Lowcountry Parent magazines, once only bulk-delivered around town, are now home-delivered to members
  • Subscriber Rewards; commercial deals of all kinds, some of which can access by simply showing a page on your phone
  • E-edition access

That’s a good beginning bundle, and Wagenlander says it will build on. The results of the new value proposition so far are noteworthy:

  • The “best value” Daily Advantage membership program is priced at $20 a month. Seven-day subscriptions had been priced at $17.50. Do the math: That’s a 14.2 percent price increase, if the apple-to-apple change hadn’t been mixed up in the fruit salad bundle.
  • Wagenlender says he budgeted for 5 percent subscriber loss, and so fair, it’s running at 1.3 to 1.9 percent. That means circulation revenue should show about 10 percent year-over-year increase.
  • As of Tuesday, The Post and Courier has signed up 1,058 digital-only customers and they’ve generated $120,000 in new revenue. Digital-only “Advantage” members pay $10 a month or $99 a year.
  • To encourage that digital-only revenue and membership overall, the paper set its paywall at a modest five articles a month, again learning from the experience of its partner RR Donnelley-owned Press+. About 2,200 people a day hit The Post and Courier’s paywall, forcing a pay/no pay decision.
  • Of The Post and Courier’s 60,000 subscribers — an incredible 96 percent of whom take seven-day subs — almost 10,000 have registered for digital access in the first 150 days of the change.

Overall, we can figure the paper should be en route for $2 million or so of increased annual revenue.

Building on The Post and Courier’s example, let’s flesh out what we’re learning about paywall strategies. I’ll call it The Newsonomics of Pricing 102, following up on my spring Pricing 101 post.

With digital circulation becoming mainstream worldwide (“The newsonomics of paywalls all over the world”) from Finland to Spain to Australia to Japan to North America, we should now see “paywalls” as vital strategy, not experiment. In fact, digital circulation provides a talisman of certainty — as certain as things get these days — in a world of flux. Quite simply, established newspaper readers are voting with their wallets. They like their local news papers and sites. If those companies offer a trusted hand, transitioning and toggling into the tablet/smartphone/Roku-assisted world along with the readers, the great majority of those readers are willing to shake on it.

Price isn’t a big deal. We’ve learned that trusted news access has been long undervalued, and we’re now testing not pricing floors, but pricing ceilings. How much is too much? How much forces too many readers to stop paying? That’s a good problem to have. Certainly, we’ll see ceilings bumped soon, as publishers further price up, but this year and next, there’s new money to be had.

A few further lessons, culled from lots of executional wisdom now being shared:

  • Digital can be used to reinforce print — for now: Most newspaper subscribers are togglers, travelers in the print/digital netherworld. Offer them a good enough deal to take both print and digital — at least the valuable Sunday paper — and most will do it. Consider this, though, a two-to-five year play. “The Sunday paper is the new Saturday night stay,” suggests Matt Lindsay, head of Mather Economics, which works with more than 250 U.S. dailies on pricing. Meaning you can force it, if the deal is good enough overall. Southwest Airlines, and others, though put an end to forcing travelers to a trip containing a weekend, and the market will eventually make newspaper’s “forced” bundles harder to maintain. Whose bundles will last longer, print newspapers’ or cable’s?
  • Content counts more than ever: Press+ now is munching more digital circ data than anyone else, with its 400-plus clients. One clear correlation: The more content on a paid digital access site, the more sales. A Steve Brill truism worth restating: “If you want to sell journalism, you have to do journalism.”
  • Focusing on overall subscriber revenue — meaning current subscribers mainly, but not solely — produces the biggest revenue increase: Many papers charge their print customers a digital up-charge, but they seem to be increasing overall circulation revenue less than by including digital access within print prices — and pricing up all-access subscriptions. Consequently, many publishers are moving to “opt-out” selling, with customers having to take affirmative action not to accept higher pricing.
  • 2 percent: How much pain is too much pain? Print circulation has been ebbing for a long time (try post-World War II) — a “natural” decrease, given aging print readers and digital migration, is inevitable. Experience has shown that 1 to 3 percent “incremental” loss of subscribers — due to higher pricing — is the price of doing this business, and a good yardstick of how valuable readers think your products are.
  • Membership is a platform, not a fixed program: Cynically, it’s easy to say that newspapers are tossing together a number of older programs and features, and putting a prettier bow on the package. Yet, in the Post and Courier package, we see a great start. Now it’s up to both the editors and the marketers to keep adding journalistic and shopping value to “the bundle.”
  • Setting the meter ever lower is key to creating member value — and revenue. Many papers started at the safe 20. Press+ clients now average 11, with one in four publishers under 10, The New York Times’ current number. A big difference between those who have made more than 5 percent added circulation revenue and those who have made less is where that meter set. Why? Simple math. Publishers tell me that 40 to 70 percent of their pageviews come from 10 percent or fewer of readers; those are the ones likeliest to pay. Yet given a generous 15 or 20 articles a month, within busy lives, they may not run into the wall often enough to pony up. Additional data: Press+’s numbers says that only 7 percent of visitors view more than five articles a month. Consequently, it says, “a high meter of 20 will affect only about 0.7 percent of visitors in an average month (or about 10 percent of the engaged population). A meter of 5 will affect about 5.5 percent of all readers, but 79 percent of engaged (those who do read average of 5-plus articles per month).” It is the engaged readers — mainly print habitués, but also digital-only ones — who are the customers.
  • Timing of change is critical: Put a price increase into effect and tell readers you’re doing it because you’ve added digital goodies, and you may be inviting customer backlash — as in, “I didn’t ask for these improvements.” Add apps or services before (best) or after a price hike, and it will be better accepted, says Mike Klingensmith, the Star Tribune CEO. In addition, how often to raise prices — especially when they’re going up in high single or low double digits — is an open question. Annually may be too much, but longer time spans complicate year-over-year budgeting.
  • Pricing itself: It’s, curiously, all over the board, with too little correlation with revenue yield. Some publishers try to peg digital-only rates at some percentage, high or low, of all-access, but again, there’s little correlation on results. That makes sense to circulation consultant Lindsay: These are two different audiences, two different markets, he says, so you have to figure out the price tolerance, within any given market, for each.

Look at this in the bigger picture. Ad revenue is in decline and circulation revenue among those who put in paywalls and do it right — a small number of “free” articles, added membership value, sufficient editorial quality, an optimized mobile experience — is up. It’s less a question, of course, of when reader revenue surpasses ad revenue. The question, can reader revenues — plus other newer initiatives — make up for ad losses and lead newspaper companies, shriveled as they are, back to a path of modest growth? As publishers budget for 2013, no one can answer with a strong affirmative “Yes!” But that potential is now surfacing.

Photo by Jessica Wilson used under a Creative Commons license.

                                   
What to read next
Mashable_GrumpyCat-cc
Joseph Lichterman    July 22, 2014
The site known for social media and tech coverage has hired nearly 30 more editorial staffers since October and, like BuzzFeed before it, is expanding into more general interest news.
  • Online veteran

    It would be useful to know the impact on the site’s page views and ad inventory as a result of making people pay.

    Most sites see a decline in the numbers — at least the ones willing to reveal them with accuracy.The increase in subscription revenue typically is not enough to make up for the loss in ad revenue.In the meantime, their competitors including TV stations are delighted that they are making people pay. It will result in their sites gaining both audience and ad share.

  • Coblyjudge

    Got any evidence for that? Our paper lost about 400 dollars in remnant rate ad revenue due the paywall in the first month. We made over 3,000 dollars in subscriptions. No advertiser…NOT A SINGLE ONE, complained. All the ad-inventory we lost was remnant rate trash.

  • Daniel Williams – The Day

    Coblyjudge has it right.  The negative effect meters cause to online advertising is grossly overstated, and our experience is showing a higher local sell through rate on lower inventory is yielding digital growth at a faster growth rate than pre-meter.  In other words, we generate more income on reduced inventory.  Its simple supply-demand economics.

  • Online veteran

    Yes, I have plenty of evidence of it. My evidence is senior management access to dozens of attempts at paywalls at two major newspaper companies plus access to dozens more at other companies where I have contacts.

    Every single one showed the exact same result — a decline in audience and revenue. The only “successes” didn’t have any audience or revenue to lose or don’t stand up to proper accounting methods.

  • Online veteran

    Circulation and marketing people always insist that paywalls are the only way to go because their jobs depend on maintaining print circulation.

    But in the long run, your online competitors will destroy your business if you insist on making your customers pay for something they can get for free elsewhere.

  • Coblyjudge

    I know there is a decline in revenue. In our case about 400 dollars. But there was also a boost in circ that was much larger than that. Trust me, there is a reason we were not alone in doing this. Online remnant rate ads, at this juncture, are trash.

  • hutu406
  • JCruzan

    I have had similar experiences. It seems that newspapers are desperately looking for a way to make the kind of money they once did as a print publisher.  The Pay Wall sounds interesting until you get to the known point that we are not offering anything that cant be found for free somewhere else.
    In the “good old” print days people payed for the paper for the convenience of getting the news delivered to their doors, they didn’t feel like they were paying for the news, only the delivery to their doorstep. Things have changed. Now days their door is digital and they are used to getting what they want for free. Charging for access will insult the average digital reader and even pose to them a challenge to find that information elsewhere for free. If news paper publishers would look at the digital media in the light of not paying for a press, the people to run it , the cost of delivery and so on, they probably could make as much in relevant dollars as they did in the good old print days.
    If we can find a way for digital media to pay for itself and not also expect it to pay for the old print version and it’s outdated structure to stay alive just a little longer. If we apply the correct, absolute operating costs of digital media I think we would find that the current advertising revenues go a lot further and we only need a few good ideas to take it all the way to profitable.