Newspaper Publishers: Don’t Make a Bad Situation Worse, Part 2

Part one of this series looked at how newspapers are shutting down free access to their Web sites to offset declining print readership and ward off much-hyped cannibalization fears. This is short-sighted and will accelerate the decline of the core print franchise. Circulation departments should instead use the Web for more productive purposes, such as acquiring and retaining subscribers. Properly applied, the online channel could save them hundreds of millions of dollars per year.

The Specifics

Of course, I’m biased when it comes to advertising-supported online media. Advertising is the primary, if not solitary, revenue stream for most consumer-focused online media businesses. Here’s why:

  • The marginal cost of most online media distribution is essentially zero. Whether you reach 100 or 1 million consumers, on a given day the incremental cost is essentially the same.

  • For every new consumer reached, the marginal value to advertisers is significantly greater than the marginal cost.
  • Collecting substantial fees from tens or hundreds of advertisers is cheaper and more efficient than collecting tiny fees from hundreds of thousands or millions of consumers.
  • Someone will always give away for free what you want to charge for. Think craigslist, alternative newsweeklies, Metro Newspapers, HarmonHomes.com, Google News, MSN Video, broadcast radio, broadcast TV, and Valpak.

Internet-Driven Acquisition and Retention

Newspapers must aggressively use email and the Web for print subscriber acquisition and retention. Check out some of the Newspaper Association of America’s (NAA‘s) great publications on the topic, especially “Come Together 2: Leveraging Online to Build Newspaper Sales and Readership” and “2003 Circulation Facts, Figures & Logic.” It’s astounding stuff.

Churn is the percentage of the total circulation base that must be acquired, or reacquired, each year. The newspaper industry’s average churn rate is 60 percent. A newspaper with 100,000 subscribers must acquire 60,000 new “starts” each year to maintain its circulation base.

How’s that possible? Consumers drop newspapers. They move. They game the system by signing up for discounted promotional offers, then drop the paper when the promotion ends. Lots of circulation is bad. It’s sold or delivered to people (or to dumpsters) who don’t really want it.

The total number of daily and Sunday newspaper subscriptions in the U.S. is over 60 million. The average marginal cost of a subscriber acquisition (via telemarketing, postal mail, or a contractor fee) is over $28, excluding the fixed costs of running a circulation marketing department. The industry spends in excess of $1.6 billion in marginal costs per year acquiring subscribers.

Acquiring a subscriber online costs $3.00 to $11.00. This includes a media cost, which is eliminated if the user is acquired on the company’s own Web site. The retention rate for a subscribers acquired online is dramatically higher than for those acquired by other means. Online subscribers churn at significantly less than half the normal rate. This is probably due to the large number of online users who pay with credit cards and because these readers voluntarily subscribe.

Online subscriber acquisition accounts for some 2 percent of all newspaper acquisitions. For the magazine industry, it’s 15 percent. Surveys indicate almost 25 percent of consumers would prefer to subscribe online than via mail or telemarketing.

If the newspaper industry were to appropriately use the Internet for acquisition and shift telemarketing, postal mail, and sales agent costs online, it could save hundreds of millions of dollars per year.

Say an additional 20 percent of acquisitions (12 million) were made online per year. The industry would save approximately $21 per acquisition, over $250 million annually. If the churn rate on those subscribers were half those of telemarketed subscribers, the industry would save 30 percent of the total in “reacquisition” costs, the total acquisition costs for more than 3 million subscribers per year, another $60 million or so per year thereafter. Bottom line: lots of money.

Great theory. Can it work?

Yes. The NAA publications listed above cite several examples of newspaper companies using database marketing techniques and the Web to dramatically change their acquisition costs. Other industries, such as travel and airlines, have achieved this with great success.

Look at the results True North Inc.‘s email renewal programs delivered over the past two years for Hachette Filipacchi’s Woman’s Day, Car and Driver, Popular Photography, Cycle World, Sound & Vision, and Road & Track. Hachette used email to change renewing subscribers’ habits. It created a Web-only special rate, promised never to offer subscribers a lower rate, and delivered the message to subscribers at the beginning of the renewal cycle, rather than at the end as is usual in the publishing industry. That practice has trained subscribers to wait until the last possible moment to renew. They know cheaper offers are always coming.

Some results:

  • Instead of cannibalizing offline renewals, email lifted renewal when combined with direct mail. Lifts averaged 12 percent for the early mailings and 16 percent for “urgent” mailings at the end of the cycle.

  • E-mail renewal rates were as high as 6 percent for some groups, with an average of 4 percent.
  • Of those who clicked through to the sign-up landing page, conversion rates were as high as 75 percent.
  • The credit card option was used by 31 percent for Woman’s Day and 49 percent for Car & Driver.

This stuff works. A lot of money can be saved.

Newspaper management should spend time and energy using this exciting new medium as a consumer marketing channel. Stop devising ways to stunt online growth by limiting consumer access. Newspapers need more consumer channels and more consumer touch points, not fewer, to maintain appreciable consumer relevance.

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