What works and what doesn’t in building paid digital subscriptions: Here’s what five experts say

April 14, 2020
Category: Business & Work

The urgency of growing a base of paid digital subscribers loomed as the business issue of the year for newspapers as 2020 began. And now, in mid-April, more than ever.

Paid print advertising was already fading fast. For the time being, with the pandemic having shut down much of the economy, it has fallen to near zero. The expense of paper, production and especially home delivery is crushing.

A quality news report and user-friendly experience is essential to the transition from print to digital. Hardly anyone will pay for a meager serving of local content, digital or print. And way too many newspaper sites are a pain to access and navigate. The mechanics of registration and payment are complex. Print readers will need a nudge to switch, as newspapers simultaneously face the necessity of capturing new audiences willing to pay.

The challenge has become more pronounced and central during the coronavirus and economic crises.

There is opportunity, as newspapers demonstrate every day what they do so well as they jump all over the local angles. New subscription orders are up to twice or three times the rate they were before.

But the barriers do not just melt away.

I spoke with five leading consultants to newspaper industry organizations. Each was willing to share an overview of what they tell their clients, who even in these hard times know they need help. Expensive help.

These are their views.

Michael Silberman, senior vice president strategy, Piano

Piano began a decade ago as a technology service to smooth payments for digital subscriptions. Getting that right remains a consequential problem, but Piano has also expanded to more general consulting.

I asked Silberman (and all the others) what separates companies that are succeeding from others that are not. He had a ready answer.

“Two big factors matter. The first is alignment across the whole company — the audience people, the ad people, product and tech, the newsroom. Once you get the good alignment and commit, you’re off to a start.”

Without that, an organization is likely to be spinning its wheels — a dynamic I have seen way too often in years of covering the industry.

“Second is to adopt a test-and-learn attitude,” he said. “That includes editorial, and marketing, plus price, plus user experience, plus onboarding and so on. Iterate quickly on each of those. If you just put up a paywall and then step away,” that’s not going to do it.

A focus on strategy (and tactics) does not minimize the underlying basic issue. That is providing value — with a product or group of products that target what audiences value. These days there is a ton of available data on building news consumption habits both for conversion and retention.

Silberman said that his most successful clients often get a 30 to 35% conversion of top-target customers on the first active day with Piano. Then it gets tougher.

Identifying intent to subscribe (aka willingness to pay) has progressed at sophisticated organizations way beyond the white bread approach of providing three free articles and then asking audiences to pay up or be denied access.

“The Wall Street Journal divides content into three buckets — always paid, always locked; and sometimes locked; and sometimes unlocked,” Silberman said. I learned by questioning Journal editor-in-chief Matt Murray last summer that data analysis of the frequency of visits in a month and engaged time, rather than just a number of articles read, now informs the decision for the Journal of when best to make the ask.

At first, efforts were nearly all about acquisitions. Now retention is coming to be viewed as equally important, Silberman said. That was always true in the more established print circulation arena. Net acquisition cost and churn can throw off any cost-benefit equation.

It is early days for most organizations to ask whether they’ve reached a digital subscriber plateau, he added. Certainly many “flatten on a percentage basis” and may need a different approach to reach a next wave of audiences (as former Harvard business school professor Thales Teixeira suggested in a speech earlier this year to the International News Media Association).

But, yes, Silberman said, organizations may reach a natural level, as has long been true for print newspapers and magazines. In other words, straining to add more subscribers will not pay for itself.

Silberman also offered an explanation for a common glitch I find especially annoying as a reader/subscriber: You’re registered, have a password and are automatically logged in. Then, suddenly, you are not and need to start over again.

Sometimes a tech malfunction wipes out password records internally, he said, but often “rules on cookie expiration clear the site and lock you out if you haven’t visited in the last seven days.” (Looking at you, Conde Nast magazines.)

Pete Doucette, managing director, FTI Consulting

Though not a household name like McKinsey, FTI is a huge worldwide consulting organization. It has a long-established media practice with many facets (for instance, currently handling all aspects of McClatchy’s bankruptcy). Doucette was the top audience executive at the industry-leading Boston Globe before moving over to FTI as the managing director for telecom, media and technology, in the publishing and digital media division two years ago. He spoke with me with associate Justin Eisenband on the call.

Doucette said that “to build a sustainable future,” newspapers need a suite of digital products. He and Eisenband added (as I have heard from others) that newspapers may be at a disadvantage compared to startups and newer publishers like Vice and Refinery29. The digital-only ventures have the advantage of not transitioning from an established business, so they can focus and build.

Another standout is The Athletic, whose quick and meteoric paid audience growth has stunned media watchers.

“The Athletic is a great model,” Doucette said. “The content is for a very specific audience (avid sports fans). They forego ads and offer personalized extensions (following a given team or a given sport), so they are laser-focused.”

By contrast, he continued, “the big picture for newspapers is that most are still in the early innings, even if they have been at it for 10 years.”

Industry leaders like the Globe (with 150,000 paid digital subscribers) and The (Minneapolis) Star Tribune (nearing 100,000) have a knack for identifying and serving the needs of different audience segments, Doucette said. Plus “they are really, really good at execution.”

Success, Eisenband added, entails finding “an addressable market and reasonable goals” which in turn supports rational investments. For instance, he and Doucette are watching The Daily Memphian, an ambitious digital-only full-service daily startup. It has attempted to “plug a hole” in the market as Gannett’s Commercial Appeal has contracted.

We also discussed the concept of ARPU, well known among tech investors, less so in the media world. The acronym stands for average return per user. So for newspapers or other media organizations, simplifying the concept a bit, ARPU is revenue from subscriptions and advertising, divided by the number of paying subscribers.

“That is an important metric, maybe the most important metric,” Doucette said. Applying it suggests to him that “the vast majority of newspapers are undercharging for content.” Loading up on low-price introductory offers can be a trap. ARPU can help quantify whether digital ads make the $1-per-month subscribers an asset.

The two added that surveying a wide range of clients shows serious but fixable flaws, like bad user experiences and the clutter of trashy programmatic ads from the likes of Taboola.

Nonetheless, Doucette summarized, “we are pretty bullish on (newspapers) finding success. There is a lot more that can be done.”

Tom Rosenstiel, executive director, American Press Institute

Rosenstiel joined the Institute in January 2013. It was formed by merger of two nonprofits with substantial endowments but moribund programs. So Rosenstiel needed to put together a relaunch. From the start he focused on work that would provide newspapers with a deeper understanding of audience interests particular to a given community — a pathway to a relevant news report and more audience revenue. (Rosenstiel is also a longtime professional and personal friend).

The American Press Institute research on audiences is readily available online. The Institute also consults, for a fee but a small one, on how a newspaper organization can gather and structure data to gain an actionable picture of what an audience wants.

Typically the process will identify three local passion topics where increased coverage will pay off — coastal environmental issues in Vero Beach, Florida, or outdoors, hiking and camping in the Pacific Northwest.  Investigations and accountability make the top three list consistently.

The API methodology, or variations of it, have become widely used at individual papers like The (Minneapolis) Star Tribune and Seattle Times and chains like McClatchy and Gannett.

In a conversation late last year and another this week, Rosenstiel offered two key insights to keep in mind in the quest for paid digital subscriptions.

The first of these should be encouraging to newspaper journalists, justifiably alarmed by continuing layoffs. In the fondly remembered good old days of the industry, Rosenstiel said, “the newsroom was regarded as an expense.” News often got a fixed percentage of the annual budget — 11 or 12% most places, 15% where excellence was a bigger aspiration.

Now, in a half-completed transition to digital, the newsroom and its work “is the product,” he said. That fits a changed business model with print advertising fading away. Audience revenue from paid digital subscriptions, along with remaining print subscriptions and other businesses like sponsored events, have become the core.

Rosenstiel’s other observation was less sanguine: “Broadly speaking, there are three groups of people newspapers are still not reaching adequately — the young, people of color and conservatives. They need to do that to survive. Aging white liberals are too narrow an audience base.”

Doug Smith, Table Stakes program

Doug Smith is a longtime management consultant (no company, no title, he told me, just Doug Smith). He has worked in a wide range of industries and assumed a growing role in recent years advising media companies. He leads two significant programs: the Media Transformation Challenge for top executives, based first at Columbia University in 2007, then at Harvard and now at Poynter. The other training program, now five years old, goes by the title Table Stakes (for the various things that need to come to the table for big change). Table Stakes works with newspaper organizations and others to bring the editorial and business sides together for a project, moving all the way through a process from conception to execution. At least half the teams pick some version of audience development and paid digital subscriptions — often with strong measurable results.

“We’ve learned a lot in 4 1/2 years,” Smith told me. “In days of yore, there were huge parts of the news industry that were structured as oligarchies … The corollary to that was the (tradition of) church/state separation” between the business and editorial sides of news organizations.

That model needs to be turned on its head, according to Smith. As Silberman of Piano told me, efforts to change lacking buy-in and coordination across the organization are likely to get nowhere.

Table Stakes is a step-by-step process that spreads over the course of the year. Smith emphasizes the importance of doing a series of tasks in the proper order.

“It starts with figuring out who the audience or audiences are and what job you can do for them.” Then, both in the broad strategy for the effort and execution of a daily report, “It’s digital first, then print later and better.”

The truism that change is very hard for journalists and the rest of the business applies in a big way. Specifically, Smith said, transformation will likely involve reassessment “of what high quality is … new skills and new behaviors … new workflows.”

Another Table Stakes tip is not to try to change everything all at once. Despite good intentions, quick and sweeping changes often yield disappointing results because of inadequate execution.

COVID-19 and the deep recession, Smith said, offer a fresh opportunity for what would be good practice any time — “transparency about your purpose and process.” And that’s for any platform — “local TV, digital startup.”

He suggests a letter to readers laying out what’s happening and what will be needed to keep the local report strong. (George Stanley, editor of the Milwaukee Journal Sentinel, provided a model in a column this Monday).

That opens the door to asking directly for audience support, “but you had better follow through,” Smith said. “Don’t make the mistake of promising then not delivering.”

As news outlets move through to multiple projects for multiple audiences, Smith advocates “a mini-publisher approach,” in other words, identifying who can assume “whole enterprise” responsibilities. For instance “you would not necessarily need to change the title but you could have a CEO of food,” not only editing day-to-day coverage and a weekly section, but eyeing new product possibilities like newsletters or video.

While the Table Stakes process usually begins with newsroom initiatives, Smith said he by no means minimizes the need for “cash,” aka operating profit. You need that money for the complex exercise of capturing an audience and bringing a number of them along a path to subscribing. And, as is painfully evident right now, cash provides the cushion to get through hard times.

I asked Smith, as I had other consultants, about the metric of ARPU. I hear about it regularly in The New York Times’ discussions about digital audiences in earnings conference calls with financial analysts. But rarely at regional papers.

Return per unit will become a growing part of the conversation, Smith said, “but in order to make it useful, you need to have a significant number of subscribers and two or more revenue streams.” Then you can look at indirect revenue payoffs in advertising, event sponsorships, direct sales and brand building as well as the revenue from the subscriptions.

But only a handful of regional news outlets are that far along yet.

Matt Lindsay, president, Mather Economics

Lindsay and Mather are go-to consultants for companies looking for a guide through the maze of building a paid digital subscription base. His first area of expertise (and still a specialty) is pricing, but the consultancy’s offerings have grown broader. Thanks to its large client base, Mather — like editorial metrics firms Chartbeat and Parse.ly — can identify trends and provide benchmarks. A company could, for instance, see how its improved traffic and new subscription sales as the pandemic took hold compare with peers. Also, as the paid digital subscriptions effort matures, retention and the downside of expensive subscriber churn assume greater importance.

I spoke with Lindsay as pandemic coverage was beginning, and it was at the top of his mind.

“We’re seeing enormous growth (in traffic) across the board in response to the COVID-19 coverage,” he said. “But it is different on subscriptions. Some are not moving at all, some are growing fast.”

The firm’s research suggests that there are three buckets of readers — those who are coming just for the coronavirus coverage, those who want that on top of general local news coverage and those not at all looking for pandemic news but rather something other than the grim details of infections and death.

So Lindsay suggests that the optimal strategy is a form of “freemium” — “the basic coverage of government, health and business impacts (should be) open to anyone.” But reserve some of the features and in-depth analysis as premium content, requiring at least an introductory paid subscription to access.

Another idea: A special newsletter, which at least captures an email address (as newsletters do generally) that can form the start of a relationship with a potential customer.

More generally, Lindsay said he is seeing the benefit of a long effort at newspapers to refine content choices to what readers most want. You can do fewer articles and, if they are the right ones, attract a greater audience, especially an audience likely to pay.

With outlets just starting out on paid digital subscriptions, Lindsay said, “you capture the loyal fans out of the gate and (often) can start them at the full price. … After that, the work gets harder.”

The good news is that tactics to move people to subscribe — say on moving the paywall limit up or down or making the ask after a number of repeat visits — are getting more effective all the time. More challenging is blocking out the money needed to invest in retention.

As Smith and others had, Lindsay talks about audiences, plural. Good things await those who can invent a strong product for an audience beyond their primary one. He gave as an example the Bangor Daily News, which has started a report on rural life (BDN Nation). That has relevance not just to the Daily News’ city audience but to all of Maine and potentially to rural areas in other states.

ARPU “has been very common in other industries” — tech particularly, Lindsay said, and applies in several ways to growing paid digital subscriptions. The obvious one, as Silberman had told me, is to avoid the trap of building the raw number of subscriptions with deep discounts, while depressing the average return per customer. The dollar-a-month club may be hard to convert while adding almost nothing to the revenue line.

A trend in industry practice, not solely the fruit of Mather’s consultancies (but he is influential), has been to charge much higher rates than were prevalent just a few years ago for print plus digital subscriptions. That approach can be paired with asking longtime loyal customers to pay the most (as airlines do). But it may make sense to offer those calling to cancel an extension or multiple extensions of a deep discount rate.

My main takeaway from talking with Lindsay and the other experts: It is hard to say whether this is the second inning or the fifth inning, but many regional papers are midway to building a paid digital subscription base as core revenue to support robust journalism.

Unfortunately, to mix sporting metaphors, it is not clear that they will get there before the clock runs out.

Rick Edmonds is Poynter’s media business analyst. He can be reached at redmonds@poynter.org.