Subscriptions: let’s fill the rest of the plane
My previous post on the role of platforms in building dynamic pricing for digital subscriptions earned energetic reader reactions.
In a column published two weeks ago, I suggested the two dominant distribution platforms — Google and Facebook — could boost the subscription model by providing granular data to publishers. This would help develop a dynamic pricing system comparable airline industry practices. See below:
Many in the publishing world reacted with the expected: “How stupid! You want to further throw publishers’ business models in the hands of platforms”.
I don’t think I ever said that. My points are:
- Publishers (especially legacy ones) are notoriously under-invested in critical, customer-related technologies. For most of those, nothing will change, for two reasons: management style (short-term focus, tech-averse posture), and financial inability to invest enough in game-changing engineering. As a result, the next five years will see a split between, on the one hand, a minority of publishers massively betting on technologies (e.g. The Washington Post, now largely inspired by its owner Jeff Bezos) and, on the other, the vast majority that will passively continue down their current path. (In Europe, some German publishers might do well, but Southern European colleagues will dwindle).
- Unlike what happened in the airline industry, it is extremely unlikely we’ll see publishers band together and build a giant data-driven marketing platform. (However, some independent players that developed dynamic pricing technologies might become critical intermediaries; more about those in a future Monday Note).
In this context, I remain convinced that the publishing world should come up with arm’s-length contracts with platforms. Strong precautions apply: Facebook or Google are known to change the terms of any agreement whenever they feel like it. Hence the need to structure a deal in which the giants are incentivized to become channels (among many others) to sell subscriptions based on each customer’s ability to pay. Finding such equilibrium is key.
Such type of contract could only work if publishers are able to negotiate as a group. As it happens, this could be a great project for publishers already gathered around Google’s Digital News Initiative. Just as this group of publishers had a say in the development of Google’s Accelerated Mobile Pages project (AMP), they should be able to lay the foundation of a distribution agreement (Google better move fast because Facebook Journalism project is likely to borrow most of the DNI’s blueprint. Echoes of the old Microsoft Embrace and Extend/Extinguish routine).
The biggest obstacle to a joint, data-driven, subscription program relates to privacy issues. Opening the personal data trove too generously in order to sell subscriptions could backfire in many ways: users might react angrily and regulators might prevent any move in that direction. Except if both parties — publisher and platform — decide to work on an opt-in system. This probably is the most unexplored avenue in the complicated relationship between content providers and the two major distributors.
In many cases, readers maintain a long-lasting trust relationship with a news brand. By the same token, many also have built a trusting bond with the platform: handling email with Gmail, allowing Google Map or your Android phone to remember all your trips, not to mention all the intimate material thrown into Facebook’s newsfeed, is indeed an act of blind confidence. Based on this, publishers are in a good position to ask their customers: “You are a repeated reader of [publication X]. In order to provide you a more personalized experience, would you allow [Facebook, Google…] to share with us some of your relevant data?” This would come with a proper access to the user data in question, and a clear explanation of benefits. How many regular readers would opt in? My guess is the vast majority will do.
To the many who would yell at me for advocating handing the crown jewels of the publishing industry over to platforms, I’ll respond the following:
— One, you did the same with the largest chunk of your revenue model, which is advertising: you gave up most of the value chain to a multitude of players that consume about 70% of the value you tried to create with your content. (For a colorful overview of this historical blunder, see this excellent piece Wolves, wimps…. or frogs by my strong-voiced friend Jim Chisholm (who, for the record, disagrees with my views on today’s topic).
— Why, one might ask, risk giving up the other part of the revenue stream (i.e. the subscription)? Simply because it is completely sub-optimal! Except for the top tier, most publishers I know admit that the user data they (or a subcontractor) collect for advertising purposes is not used for subscription marketing. A telling anecdote: in June 2016, the back-office contractor for some of the top French publishers lost its entire clients base — including billing! Even some backups were wiped out… (The contractor had repeatedly complained that the pressure to lower its price has made him unable to invest in necessary tech…) Will these guys be able to build a platform aimed at optimizing the pricing of their service? No! Will they be able to team up in a consortium to do precisely that? No way. Then why not try and harness the firepower of internet giants who invested billions of dollars in their technology engines to create an alternate channel for serving subscribers?
— My proposal has the merit to be market-driven. This is in contrast to those already voicing a radical surrender to platforms, like this Op-Ed contributor of the New York Times who, in a piece titled What Facebook Owes to Journalism, he naively advocates “a massive philanthropic commitment” by internet giants in compensation for the damages inflicted to the news sector (the author’s interest in faith-based pursuits is detailed here).
Let me finish by coming back to the airline analogy. Detractors find it completely out of touch, saying that large newspapers already propose twenty different price points. Here, I’m advocating for several hundred levels for a large market such as the North America.
Supporting my view, however, one reader (my thanks to her) led me to this account of a recent INMA conference (emphasis mine):
The other top-rater at the INMA European conference, according to delegates, came from a guy you’ve never heard of, talking about an industry that the media often laughs at. Christian Popp is director of revenue management strategy and development at Lufthansa, the German-based airline and aviation services group.
His tips focused on business practices that we have in common and was surprisingly relevant: Get your customer segmentation right and you’ll grow your revenues if you run tight control of your inventory.
Firstly, create an accurate segmentation of consumers and trade clients, based on their willingness to pay.
Knowing how consumers respond is key to being able to maximize the dollars you earn while you offer a range of prices (and all without losing yield). The model needs to be sophisticated enough to recognize one customer will belong to different segments in different buying moments.
Thankfully, some publishers are shifting toward this direction. In the recent weeks here in California, I met two important players in the field, each acknowledging their subscription strategy: they did well at filling the forward section of the aircraft (where the most affluent passengers sit), now they are willing to populate the rest of the cabin for a much lower price per customer. For Anglo-Saxon media, it means a vast potential: worldwide there are about 300 million English-speaking, college-educated people. Some fine-tuned pricing strategy will be required to get them onboard.
