Publishers Need to Apply Yield Optimization Techniques To Subscription Pricing
The migration of advertising spend from print, television, radio, and cable to digital platforms is transforming the business models of publishing and broadcasting companies all over the world. Magazines are no exception. The good news is that magazines in the United States have long under-charged their customers, and they can likely increase audience revenue significantly to offset some of the lost advertising revenue.
Other industries have demonstrated the opportunity that exists for additional consumer revenue. Newspapers have doubled the price of their subscriptions in the past five years while only increasing their subscription losses a few percentage points. Networks have moved to paid subscription models, and dramatic changes are taking place with the introduction of “skinny bundles” and other video packaging offers. Broadcasters are using digital platforms to interact with their audience to establish direct economic links to move away from advertising-only revenue models.
Magazines in the United States for many years have guaranteed advertisers a paid audience of a certain size (rate base) and sustaining those levels of paid audience has forced the average revenue per subscriber to a fraction of the levels publishers receive in other countries. It is not uncommon to have average prices of $12 per year for U.S. titles, while in Europe the level is 10 times as high or greater. The enormous domestic national advertising market in the United States has made this business model attractive and profitable for a long time. But now is the time to move away from the rate base. The permanent decline in print advertising revenue necessitates a change in strategy.
To survive and succeed in the post-rate base industry, magazines need to accelerate their use of audience yield management. They have long used database marketing to identify, target, and acquire subscribers, and they now need to use these same capabilities to manage the profit of subscribers throughout their lifecycle. Steps along the process will include measuring customer profitability, segmenting their audience, estimating retention by customer under alternative pricing and retention offers, and A/B testing to validate their pricing and retention tactics are working.
The truth is that many magazine readers would pay far more for their subscriptions than they are today. There are also many readers who will not remain subscribers once their price is increased, but these lost subscribers are very likely unprofitable, even without considering the cost of acquisition; so losing them will improve operating margins. The gains in additional revenue from the core audience and the reduction in operating losses from the non-core audience can offset most if not all the effect losses in advertising revenue are having to the bottom line.
On the advertising side, magazines will need to sell advertisers on an engaged, targeted, valuable audience over an audience of a certain size. This is the language of digital advertising, and that is the audience advertisers are seeking.
In my work with magazines on audience yield management, I have found that engagement is a better predictor of retention and price elasticity than income and age, the factors most important in other subscription-based industries. This is particularly true with titles focusing on a narrow content category. Combining data on digital engagement with offline data on the subscription account provides powerful insights into likely consumer response to price changes and sales offers.
Each magazine is different, and there is not an off-the-shelf solution that will work with everyone, but the same analytical and operational tools are available to all magazines, and they can help the industry succeed in the post-rate-base world. Ultimately, the transition away from the rate base will help everyone: magazines, subscribers, and advertisers.
Matt Lindsay, president of Mather Economics, has more than 25 years of experience in helping businesses increase operating margins and grow revenue through economic modeling and analytics. Over the past 19 years, he has developed pricing strategies and predictive analytics models for clients including the Intercontinental Exchange, Gannett, The Home Depot, NRG Energy, Tribune, IHG, McClatchy, the Walton Foundation, Coca-Cola, UPS, Dow Jones, Chick-fil-A, Clorox, Scientific Games, and The Georgia Lottery.