Maximizing Audience Revenue while Minimizing Advertising Loss
by Matt Lindsay*
Your readers most likely to subscribe also produce significant advertising revenue. Targeting digital subscription offers to the right people at the right time is important for maximizing total digital revenue.
The news media is transitioning to a business model increasingly focused on audience revenue from digital subscription or membership payments, e-commerce, or micro-payments. Subscription or membership revenue currently is the largest of these audience revenue categories. Digital advertising, events, and services revenue are also important, but they are insufficient for many news media publishers to sustain the newsrooms necessary to fulfill the journalistic mission. Non-news media digital publishers also are seeking, or considering the potential for, subscription revenue as they too find digital advertising revenue insufficient for sustaining their operations.
Before committing to a subscription revenue strategy, publishers will need to estimate the potential number of subscribers among their current and future audience. The potential subscriber base will be determined by the nature of their current digital audience, the product offering, the pricing strategy, and alternative products in the market. Analyzing the existing digital audience is a good first step to estimate the addressable market for a publisher. Data on their core audience’s consumption of their content provides insights into who is likely to subscribe and what content will most engage these customers to keep them subscribing.
The potential for lost advertising revenue from reduced site traffic and product design changes is another important consideration of a subscription revenue strategy. As digital publishers begin to require payment from their audience to access content, they will be placing some advertising inventory at risk. A membership model strategy, such as that pursued by De Correspondent in the Netherlands (see a previous Monday Note here), or a contribution revenue strategy, pursued by The Guardian in London, may alleviate some of this lost advertising revenue, but all audience revenue strategies will have some effect on advertising inventory and ultimately revenue. Advertising revenue will also be at risk due to the product changes required to make a digital product compelling to a paid audience. Improving the user experience typically requires reducing the number of advertisements on a site relative to a pure advertising-revenue business strategy.
A sample analysis of two news media company’s digital audience and advertising revenue is presented below. The data has been adjusted to protect confidentiality, but the relative metrics across segments remains accurate.
- Publication One is the second-largest newspaper in a large American city with about 10 million average monthly page views and about 4.5 million unique visitors. It is focused on long-form articles.
- Publication Two is a regional publication with about 120 million average monthly page views and about 22 million unique visitors. It has infinite scroll and publishes shorter articles. Neither publication had a paywall at the time of the analysis of their audience.
The current audience for each publication was segmented by engagement, which is defined using three dimensions: the volume of content consumed, the pattern of consumption behavior, and the nature of the content consumed. There are six metrics helpful for quantifying these three dimensions:
- total page views
- article page views measure the volume of content consumed
- frequency, recency, and time on site measure the consumption behavior
- content breadth and scroll depth measure the nature of the content consumed.
These engagement metrics are used by many publishers to segment their audience, and they are correlated with a customer’s propensity to subscribe.
As a side note, other factors and customer attributes can be added to the segmentation process to create audience personas, which are helpful in determining content and product strategies. These personas often will have motivations for subscribing that are have important implications for the monetization of the audience. More on this topic will follow.
In this table, engagement decreases from left to right moving from the Fanatics to the Non-engaged. Metrics for each segment are reported for a 30-day time period. The Fanatics and Enthusiasts are the customers most likely to subscribe while Stable Users and Dabblers require more engagement before they are viable subscription candidates. Fly-bys and non-engaged are unlikely to be observed again beyond the one visit captured in this data. Using these metrics, it is possible to estimate a propensity to subscribe for these segments, and we are able to measure advertising revenue from a user in each segment (1).
The propensity to subscribe can be estimated using a number of approaches, including machine learning methods and different econometric models. The segmentation is determined by relative propensity to subscribe, and differences in audiences can be seen in the metrics. For instance, the Fanatics in Publication Two have more article views than the same group in Publication One, but this is in part due to the nature of the two products and the mix of mobile browser versus desktop browser traffic. Other behavior metrics, such as time on site and scroll depth, are affected by the nature of the site user experience and hard to compare across sites, but visits and unique days are helpful for comparing the two audiences. In these two metrics, the audience for Publication Two is found to be relatively more engaged for a comparable level of subscription propensity.
As expected, the audience segment most likely to subscribe are the Fanatics, which average 2.5% of the site users. The Enthusiasts are the next most likely group of subscribers, with an average of 4.5% of the users. Together, these groups, represent about 7% of the audience. Given the current product configuration and digital audience, these two customer segments represent the addressable market for acquiring digital subscribers. Stable-users are potential subscribers, but the best tactic for that group is to grow their engagement via registration, newsletter promotion, and content recommendations before seeking a subscription. Publishers that have print products and all-access subscriptions may have a significant portion of these addressable customer segments already as digital subscribers. Some of these customers may be economically unable to subscribe, and many digital readers will take a long time to convert to subscribers or will not subscribe due to the value proposition of the current digital product. Reaching 1% of average monthly unique visitors is a milestone many publishers have reached with some leading publishers having surpassed 2%.
An important observation from these data is that the customers most likely to subscribe generate a significant share of the advertising revenue. Asking for subscriptions from this group would appear to significantly reduce advertising revenue, but not all of the ad revenue from these customers is at risk from a metered or premium content model. Pages that will not be behind the paywall, such as the home page and index pages, are a large share of the ad revenue. Other types of ad revenue not affected by a paywall are also removed from the at-risk revenue. The chart below shows how the at-risk advertising revenue is determined for a site.
The target groups for subscriptions, will have relative high conversion rates, which will also mitigate the loss of advertising revenue. When the at-risk advertising revenue is calculated for the segments and adjusted for likely conversion rates, we find that the revenue at-risk by segment are about equal, as observed in the following chart.
A conclusion from this analysis is that an across-the-board paywall will increase the advertising revenue loss because it is going to restrict access to content for segments that will not subscribe. If the paywall limits access to only those customers likely to subscribe, the lost advertising risk will be significantly reduced. Another conclusion is that the across-the-board paywall will attempt too few subscription sales to the target audience because it is balancing the revenue streams across all customer segments and not just the segments likely to subscribe.
To illustrate these points, the table below gives forecasted results for two alternatives meter strategies for a site currently using a 10-article paywall. The first alternative reduced the number of articles a reader will receive before reaching a paywall modal with subscription offers from 10 articles to 5 for all users. The second is an average meter of 5 articles where those customers that are likely-to-subscribe get fewer articles and all other readers get more articles with a maximum of 10.
Comparing a targeted paywall strategy to the current state and across-the-board meter of 5 article views per month:
The key findings from these alternative paywall scenarios is that targeting the readers most likely to subscribe with acquisition offers increases the number of acquired subscribers by 11% while saving about 30% of the lost advertising revenue relative to the more aggressive across-the-board strategy and raising the net digital revenue by 27%. A metric for measuring the effectiveness of a subscription acquisition strategy is the ratio of subscription revenue to lost advertising revenue. In the table above, this metric is labeled the Dollar Tradeoff, and the use of targeted acquisition offers yields $5.98 of subscription revenue for every dollar of advertising revenue lost compared to $3.78 for the more aggressive across-the-board strategy.
This analysis assumes that the product remains the same and the audience targeted are those currently engaged with the site. As mentioned previously, changing the digital product to appeal to core audience segments will affect the addressable market and potential advertising revenue. Segment personas can identify the motivations and value proposition for core audiences. Common reasons for readers to subscribe include supporting the journalistic cause, community engagement, access to unique content, convenience, and cost. Publishers are experimenting with different revenue strategies to appeal to these customer values. Contributions are well suited to readers wanting to support investigative journalism. Memberships focus on community-minded readers, and micropayments can monetize readers wanting access to specific content. Subscriptions are an appealing model for publishers due to the recurring revenue stream, and they work for most customer segments. Subscriptions will likely continue to dominate digital audience revenue models. How they are offered and marketed can be focused on the core audiences and values of each publication.
Understanding the economics and engagement of the current readership is the starting point of a digital audience revenue strategy. Devising a strategy to maximize audience revenue while minimizing lost advertising revenue is the challenge facing digital publishers. Finding the best path forward requires innovation in product design, content marketing, and subscription sales tactics. An often-overlooked aspect of a successful digital subscription model is retaining customers once you have them. That can be the topic of another Monday Note.
—M.L.
*Our guest contributor, Matt Lindsay, is the Founder and President of Mather Economics, a consulting firm that works with publishers around the world on audience analytics and subscription revenue strategies. Mather’s clients include the many of the largest news media publishers in North America, Europe, Asia, and Australia. Matt can be reached at matt@mathereconomics.com
(1) This data comes from the Listener data capture tagging solution. Ad impressions are captured in the data with JavaScript tags and revenue per ad is added to the data from the advertising billing systems, advertising platforms, and other sources.
