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Aug. 17, 2010, 1:30 p.m.

Summer of (Groupon) love: Social discounting helps magazines sell subscriptions on the cheap

With Groupon growing by the day, the overwhelmed merchant is part of its lore. The Boston helicop-tour that sold 2,600 rides in four hours. The Seattle guitar teacher booked through New Year’s. The Chicago nail salon keeping women flipping through magazines waiting for their cheap mani-pedis. So when magazines go Groupon in an attempt to sell print subscriptions, are they overwhelmed, too?

“No. We’ve been able to accommodate those guys just fine,” says Daniel Brogan, publisher of the Denver monthly 5280.

5280 recently sold 4,715 subscriptions in one day, the biggest success in a wave of city and regional magazines offering group-discounted subscriptions this summer. Groupon’s social-coupon service provides a more direct connection between merchant and consumer than display ads ever could. And the numbers coming out of that connection are impressive. Since early June, 31 different titles have attracted some 32,851 new subscribers. (And that’s just among magazines; newspapers — the Chicago Tribune and Washington Post among them — have also been dipping their toes into Groupon.)

“The promotion was immediately profitable for the magazine,” explains Ken Sheldon, New York magazine’s head of consumer marketing — who took the first available Groupon slot in late June and promptly sold 2,536 subscriptions. Groupon-ing is relatively low-risk: Readers pay up-front (no chasing down Bill Me Laters), and publishers don’t have to put down cash to secure a sales date – all good economics, says Sheldon.

Good economics, though, aren’t perfect economics. Subscriptions come at a deep discount for consumers — “40 percent doesn’t speak to someone the way 50 does,” notes Groupon’s Julie Mossler — meaning, of course, less revenue for publishers. On top of that, the Chicago-based startup generally takes half of the revenue from each deal, meaning that New York’s $33,000 in Grouponed sales, for example, translates to $16,500 in revenue for the magazine.

Hooking them, keeping them

The main benefit of group-purchased subscriptions, for publishers, is the potential for subscriber retention: Get ’em now with the Groupon rate, get ’em next year at full price. Groupon boasts deep, vertical subscription lists of young, proven consumers who are buying real-world goods and services — “as much as Groupon is an online thing, I don’t see this as an online audience,” notes Lute Harmon, Jr., publisher of Cleveland magazine — and the networks are large. In Milwaukee, where the service launched in February, Groupon boasts a database of 77,000 potential subscribers; Dallas‘s database has 215,000; and New York‘s has 350,000 — growing, of late, by 2,000 people each week.

The networks’ demographics are appealing, too — particularly for publishers seeking to corral their next generation of readers. The majority of Groupon’s audience is in the 29-to-33 age range; 77 percent are women, and 75 percent are fully employed. “In some ways, they’re the perfect audience for a city magazine,” 5280’s Brogan says; the overlap between Groupon members and city magazine readers is generally a wide one.

Take Ro Hawthorne, a 32-year-old corporate public relations and marketing manager — and, thanks to Groupon, a new subscriber to Dallas’s monthly D Magazine. Hawthorne has lived in Dallas for seven years, but never subscribed to D Mag. She’d purchase the pub’s twice-yearly “Best of” issues to save as references for local places of interest, she told me, and otherwise would read it for free — at the hair salon. The D Magazine Groupon offer that came her way in late July, though — $9 for a 12-issue subscription — was appealing enough to make Hawthorne one of the outlet’s 3,214 new subscribers. As she explained: “It was under $10. That helps a lot.”

While snagging new subscribers with Groupon discounts is relatively easy, ensuring that subscribers come back — and that they pay full price on their return — is not. The subscription-rate slashing that takes place on Groupon’s roving newsstand, though, puts even more pressure on the need for renewals.

“If all we get is a one-time subscription, it wouldn’t be that great a deal for us. It wouldn’t be a deal at all,” notes Dan Crutcher, publisher of Louisville Magazine. During its Groupon promotion in early March, the magazine sold 258 subscriptions. (Louisville has 21,000 paying subscribers, Crutcher told me, so while the Groupon achievement is not plaque-worthy, it did mean that one day’s promotion was five times more effective than the roughly 50 subs initiated each month on Crutcher says he’ll be satisfied if half his Groupies renew — and ecstatic if 70 or 80 percent (the typical renewal rate for longtime customers) make an encore purchase. Both are optimistic goals, though: In general, the newer the subscribers, the less likely they are to renew.

Bundling the discounts

Then there’s the question of balancing the Groupon audience with the rest of a magazine’s subscriber base. Lawrence W., for example, presumably a loyal subscriber to 5280, took offense at the deeply discounted rate that he wasn’t privy to. (“Guess I will let my subscription expire and try to get in on the next deal,” he wrote on the mag’s Groupon deal discussion board.) One way to combat that kind of resentment — and customers’ coming to see deep discounts as a norm rather than a rare occurrence — is, ironically, to limit the viral potential of Groupon deals. 5280, for example, kept its $7 Groupon deal away from fans on Facebook and Twitter to limit the overall exposure of its bargain-basement subscription. Cleveland Magazine, similarly, relies on its Groupon community remaining somewhat isolated from its traditional subscriber base. “If it’s really a separate group,” Harmon points out, “it’s easier to rationalize giving them a different price.”

Mags are also experimenting with packaging Groupon deals along with other valuable perks – just as they’re experimenting more broadly with package deals as a way of selling subscriptions. Cleveland, for example, packages tickets for its Best of Cleveland party at the Rock and Roll Hall of Fame along with magazine sales, with $15 from each $40 ticket going to the price of a subscription. And Milwaukee magazine recently paired a year’s subscription with two tickets to the city’s Lakefront Festival of Arts, where the mag and its publishing company Quad/Graphics were presenting sponsors. For $18, almost 400 customers took advantage of the package deal.

Going long

The Daily Deals facilitated by Groupon are proving to be a good way for city and regional magazines to inject numbers into their rate base. For national titles, though, the Groupon road hasn’t been so smooth. Newsweek floundered in Seattle and Sioux Falls, South Dakota, adding only 31 more subscribers through its group-buying scheme. Vivabox, meanwhile, a Belgium-based company that sells custom gift boxes, recently pushed a $19 sampler of magazines including National Geographic, Fast Company, Real Simple, and InStyle — and was rewarded for its efforts with only four (yes, four) takers.

“That doesn’t surprise me,” says Louisville’s Crutcher. “What makes [Groupon] work,” after all, “is its localness.” New York magazine’s Sheldon, formerly the finance director at Time, agrees. Bigger brands, he notes, are stuck trying to push national titles into regional pegs. “If you pick any random Time Inc. title, it doesn’t feel like it’s a special city promotion.”

The power of the social deal has given rise to efforts like Try It Local, the Louisville chamber of commerce’s group-discount site. While the service lacks, for the moment, Groupon’s robust subscription list, it offers businesses a bigger cut of the revenue – about 70 percent.

That improved business proposition may be necessary for group-discounting to offer long-term benefits to magazines. Even the publications that have gained subscribers, in the short run, from Groupon are waiting to see whether the benefits translate to the long term. Future renewal rates will be crucial data points. “It’ll be two or three years before we really know what the effect is on magazine subscriptions,” Cutcher says. In the meantime, publishers are left with a challenging balancing act: spreading their products to new customers while retaining the value of their brands.

POSTED     Aug. 17, 2010, 1:30 p.m.
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