In the digital news subscription business, marketers are shifting their focus in 2023 away from growing market share and instead focusing on value.
Rising costs and a slowdown in advertising have caused overall news media profitability to decline, from 6.34% net margin in third quarter 2021 to 2.83% in third quarter 2022, based on the financial results of publicly traded U.S. companies.
The mood has gotten grimmer, with 37% of executives uncertain about this year’s business prospects and further 19% expressing low confidence in a survey by Reuters Institute.
Boards have put digital subscription teams under pressure to “show the money,” and executives of Bloomberg, Fortune, The Washington Post, and others are discussing strategy recalibration.
In this analysis, we consider where to focus for a short-term revenue impact and where to invest for the long term. Basically, online reader revenue depends on subscriber volume and the total value customers bring to the company over the course of their lifetimes as subscribers.
There are three ways publishers can maximise the customer lifetime value organically:
Develop customers — in other words, charge them more or sell more to them.
Let us start with pricing, believed to be the fastest and most effective way for managers to increase profits.
How to charge more during the downturn?
INMA’s research showed 34% of the top 50 news subscription brands have increased retention prices in third quarter 2022 vs. first quarter. The average increase was 27%, and the maximum increase we observed was 70%.
Publishers need to be mindful when increasing subscription prices in 2023. Amid high inflation, consumers’ budgets got tighter. A November survey of U.S. consumers found 43% had doubts they would renew one or more of their subscriptions.
One approach often discussed in the INMA network is to personalise prices based on tenure and engagement as a proxy for the value readers get from the subscription. This requires fluency in data analytics and the appropriate technology to target readers.
While increased prices can drive profitability in the short term, brands see most of the value of a subscription captured over the long term, with high retention and not just a high price.
How to retain subscribers during the downturn?
Based on the data of 160 news brands benchmarking with INMA, we analysed their average monthly retention and revenue per user, grouping brands based on their performance: “normal performance” (or median in a sample) and best and worst performers (upper and bottom quartiles).
We then modelled the difference in 12-month average subscriber lifetime value (LTV) between the low retention, low-priced brands and the high retention, high-priced ones. The best performers’ LTV was 2.8 times higher than the worst performers. (See the chart.)
Then we modelled the difference for the same groups but for a longer, three-year period. The gap between the average LTV of the worst and the best performers widened — from 2.8 times to 3.7 times the difference. This shows that, in the long term, a high retention is a stronger driver of profitability than a high price alone.
Retaining subscribers can be a challenge when news cycles are low and some readers feel overwhelmed with news, yet adding non-news content and non-content services can help keep subscribers from cancelling.
For example, The New York Times reported last autumn 1 million of its 9.3 million subscribers, or 11%, enjoyed an all-access bundle, which combined news, lifestyle, and entertainment products; 10% to 20% higher proportion of the bundle subscribers engaged each week when compared to the news-only subscribers. Additionally, the bundle subscribers paid roughly 50% more.
While large publishers, such as The Times, can afford to build or buy products for bundling, others might wish to partner more with other publishers or service providers. In 2022, only 30% of the top 50 news brands sold multi-product bundles, as pictured by the INMA’s research.
How to get new subscribers during the downturn?
Surveys have led INMA to coin 2023 as the Year of Retention, but reaching and habituating new audiences remains essential for scaling digital subscriptions in the long term.
In most markets, this product category is still in its nascent stage. Compare 7% adults paying for news in the United Kingdom vs. 65% paying for Netflix or similar in 2022, per Reuters Institute.
To expand demographically, geographically, and even across political, societal, or economic divisions, news publishers need to understand non-subscribers and find new ways to engage them. This could include leveraging research and data analytics, personalising the user experience, investing in new formats such as audio and video, and capitalising on mobile.
In general, INMA subscription benchmarks link performance to long-term strategy, internal alignment, operational excellence, and a readers-first culture. The market headwinds do not change the business fundamentals, but may inspire a review of priorities and costs to ensure financial sustainability, as well as cash for selected growth initiatives.
The shift to value will be the core theme of the upcoming INMA Media Subscriptions Summit in Stockholm in March. Join us and retool your strategy and tactics for 2023.