50/50: Star Tribune consumer-driven strategy brings in 42% of revenue

by Rob Gursha        

The Star Tribune in Minneapolis has seen 24 months of consistent circulation growth. Subscriber revenues across print and digital platforms seem to be on their way to meeting the company’s goal of a 50% consumer/50% advertising revenue share. Here’s the strategy behind the numbers.

Click the image to view a larger versionI spent 20-plus years in the magazine industry. At Time Inc., in New York City, my primary role was general management and audience development circulation. With this perspective, I came to the Star Tribune 21 months ago. 

At the time, the newspaper — like many — wasn’t very focused on consumer marketing. I’m happy to say it is now.
The audience challenge in this industry is that newspapers historically have had a one-way audience strategy in place. Let’s deliver to as many folks as we can to support the advertising; give me as many paid audience subscribers no matter what it costs. Historically, the revenue mix for a newspaper business has been 70% to 80% from advertising, 20% to 30% from consumers. That is not a sustainable business model in the current environment for most newspapers.
Advertising continues to decline but it looks like we are close to the bottom. If newspapers are to survive and support the kind of infrastructure they currently have — and deliver quality news and information to their audience — amid this advertising decline, they must make significant cuts somewhere. And it shouldn’t be the 265 journalists here who create the wonderful content our readers expect.
Star Tribune CEO Michael Klingensmith also came from Time Inc. When I arrived, the two of us talked about the strategy we’d like to see going forward. We wanted to create a more balanced revenue model over time, ultimately getting to a 50%-50% revenue split between advertising and consumer sales. That way, when the economic cycles that inevitably affect advertising go down, we’ll have a cushion. Ideally, half our revenue will be coming from the more stable and predictable consumer side.
This is our overall revenue strategy. Currently, 42% of our total revenue comes from the consumer side, and, as our consumer revenue continues to grow, we are still shooting for 50%.
How? It’s actually quite simple. We’re asking users to pay more of the freight. But for that strategy to work, we knew we needed to focus on high-quality customers who see value in our products and have low churn. And to get those high-quality customers, we’ve focused on three areas: our core print audience, pricing/retention, and accessibility.
Focus on core audience
Our audience is made up of people who pay us good money to get our printed newspaper. We focus our customer acquisition efforts on attracting more people like this, getting customers who will stick with us. Attracting high-churn customers is easier, but it is a very expensive proposition.
Previously, we had relied on telemarketing, door-to-door, and kiosk sales. Those aren’t bad ways to sell a newspaper, but they were overdone in terms of our circulation sales mix. When we looked at the pie of how we’re bringing people in, we realised we needed to mix it up a bit to get sources that have higher retention rates and a higher lifetime value for us.
We focused on few things here, incorporating best practices from other industries — like the magazine industry, of course — keeping in mind our ultimate objective of reducing churn and acquiring high-retention customers:
  • First, we expanded our new home delivery subscription sources of sale, including promotion in our single-copy sales newspapers. If a consumer likes our product after purchasing it on the newsstand, we need to give that consumer a vehicle to subscribe at the introductory rate. That’s one of the best sources of circulation we have.
  •  We also rely on direct mail much more than we did two years ago. This way, we can more easily target the kind of audience that we know is more likely to stick with us for a long time, which makes good financial sense. 
  •  We also take better advantage of our Web site, which has an outsized reach in our market. We use key banner display positions to promote our print and digital products and to test offers. 
Finally, we began reviewing our customer service experience to better focus on our core customer — our print customer. We know we can affect retention by providing great service when people call in and getting the newspaper to their home. There are a lot of best practices and metrics available to make sure you’re delivering superb customer service. When you do that, you retain more customers. 
Because we — like all newspapers — only deliver our newspaper in a certain geographic region, we don’t want to upset a customer and lose a household due to poor customer experience with our brand. Once you lose them, it is almost impossible to get them back.
Focus on pricing 
We hadn’t raised our prices in more than a decade. It was time.
In April of 2011, we increased our home delivery rates by an average of 9.2%. Yes, we lost some people, but very few and nowhere near as many as we thought we would. This was all part of our strategy to get consumers to pay for a greater portion of creating our content and, we felt, worth the risk.
The fundamental foundation of our paid content strategy is that you can get consumers to pay for your product if you have two things: 
  1. An established, trusted brand. You have to have this. If you have this, you’re going to get people to come to your product for their news and information, stick with it, and pay for it. 
  2.  A product that is relevant to your market and meets the needs of your consumers. The content we provide isn’t available anywhere else. This is local reporting — business, local sports, city council meetings. You are doing that, and you are relevant. Differentiate yourself from your competitors. Once you do that, you’re going to get people and you’re going to get them to pay.
We’ve done a lot of work in the past two years to acquire the right kind of customer that will stay with us. We did a lot of analysis on retention to understand: How does the pricing model work? How do we take people from the introductory rate to the full rate? One answer is step-up pricing, which many magazines do. The magazine industry has spent much time on retention, something newspapers really need to focus more of their marketing efforts on. 
At a newspaper, there’s generally not a great deal of marketing, no welcome package. You are coming to our brand, and the only touchpoints you get from us is the invoice or a charge on your credit card. We’re trying to enhance this experience, which ultimately will reduce churn. In the past, newspapers were willing to have an increased churn because the advertising side could support that. That is no longer the case.
Focus on accessibility
Short and sweet — your brand must be accessible 24 hours a day, seven days a week. Any way your customers want it. Anywhere your customers want it. You’re pricing for the consumer in a way that creates a strong price-value relationship. The goal is to make your brand a necessity, not a luxury.
Involved in all of this was research. We wanted to understand our market and our audience better, and we hadn’t done primary research in quite some time. We spent a significant amount of money on qualitative and quantitative research in 2011, trying to understand how our consumer felt about our brand, the quality of our content, where they currently are getting their news and information. We also wanted to understand the overall media landscape of our marketplace. This helped us enhance the offerings in our print product.
Based on this research, we refreshed the front page and section fronts of our printed newspaper, adding content from specific geographic areas, as well as more content to our Sunday newspaper. We also added more four-colour pages to the product. In addition, we refreshed our Web site, making it more relevant and robust.
Keeping and increasing paid audience
The Star Tribune has multiple products:
  • A total market coverage product called Twin Cities Value, an advertising delivery vehicle that goes out to households not paying for a subscription.
  •  StribExpress, an opt-in advertising, pre-print delivery vehicle that has some content wrapped around it. (“Strib” is consumer shorthand for “Star Tribune” in our market.)
  •  Our print newspaper.
  •  Our digital product line. 
If you include all of these products, we are touching more than 70% of our market. Our goal was to hold onto that and increase that percentage. That’s the challenge. For the folks who are paying, great. That’s the ultimate goal. But for consumers who churn out, we still want to hold onto them as customers so they continue to interact with our content and brand, whether it is with our total market coverage or StribExpress product, or even our online newsletters. 
We continually try to move our opt-out consumers to opt-in consumers. And once they are opt-in, we try to get them to paid consumers. If you lose them, have something else you can give them. Unless you’re The New York Times or The Wall Street Journal, you only have a limited audience in your geographic footprint.
In 2011, we decided we had to find a way to get people to pay for digital content. We spent six months pondering the right kinds of offerings to make, finally deciding on two digital bundles and installing a meter on our Web site.
Our bundle does not offer a la carte options. If you are an existing print subscriber (two days a week or more), then your digital bundle is included in your print price. If you are Sunday-only, you pay a nominal amount to get digital access. We didn’t want to give people an incentive to downgrade their subscription to just Sunday because they could get digital that way. While it’s a departure from what other newspapers are doing, we thought it was fair to have Sunday subscribers pay a little more to get digital access. You can also subscribe to our digital bundle and get the Sunday newspaper with it. This enabled us to grow our Sunday print circulation.
By the end of April, we had about 19,000 new digital paid subscriptions. That is significant to our bottom line.
Next steps
We will soon be releasing our Android tablet news app, and we’ll be looking for other apps down the road. Currently, we have a news app and several sports apps for smartphones and a news app for the iPad. We’re laser-focused on our retention rates for our digital customers to see how they are reacting to our digital suite of products. This is new territory for us — all of us. We’re testing prices to see how we can grow our digital subscription base and how to make sure we’re at the optimal price with our offers.
Our customers likely will see more price increases in the future, whether they are a print or digital subscriber. But we don’t want to force many of our core subscribers out by pricing too aggressively. We want to hold onto as many of our print people that we can. And, ultimately, our Sunday newspaper is extremely profitable for us. We are very focused on protecting that audience. We expect that our weekday audience may be going more toward digital than print, and we’re OK with that.
We’re getting closer and closer to that 50% goal. Are you?

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