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.