Publishers may be missing a key consideration to subscription success by including a customer’s lifetime value measurement in their calculations, speakers told attendees at the INMA’s Media Subscription Summit 3.0 in New York on Thursday morning.
Greg Piechota, INMA’s researcher-in-residence, outlined significant moments of realisation in the media industry over recent years, presenting broad themes to help advance the subscriptions business.
- Content is a commodity, journalism is not. “News may be free, but journalism, the verified facts, is not,” he said.
- We need to engage people to use our products more.
- There is a problem with our brands. Not only brand awareness, but people might not understand what journalism means. “We assume younger generations know what journalism is about, but we might be wrong,” he said.
- The most recent: experience. People are paying for journalism because of the experiences and convenience created by news brands.
What’s missing, Piechota said, is a focus on profitability or customer lifetime value/lifetime value measurement. Profitability can be a decision-making tool, he added, and other industries already consider customer lifetime value, but a recent survey shows that most INMA members are not considering this in their calculations. Some may believe they have to choose between growth and monetisation in their strategies, but this is not true.
“Taking the profitability into account is actually unlocking growth,” he said. Lifetime value measurement can be a simple calculation: Multiply the subscription price by the expected number of purchases over the years, then take that accumulated revenue number and remove the subscription acquisition cost. News media companies are perfectly positioned to make accurate models based on this calculation, Piechota said.
“With our subscriptions, we can actually be pretty accurate in measuring the lifetime value,” he said. “We collect a lot of data about the transactional history of our customers, so we can actually be pretty precise about the expected revenue from the lifetime of a customer.”
With this information, publishers can think about segmenting customers by profitability and not the usual demographics. For example, Piechota cited the evolution of the KPIs used by the Telegraph to measure the success of its dynamic paywall. First, the Telegraph focused on clicks on the subscription offer, then on completed purchase flows. Now, it’s about the lifetime value of a customer.
Beyond case studies, Piechota and Patrick Appel, director of research at Piano, explored the importance of measuring customer lifetime value using benchmark data from Piano.
Appel asked the audience to consider the difference in value between monthly and annual subscriptions. An annual subscription that is cheaper for a subscriber is still worth more than a higher-priced monthly subscription, he said. A US$10/per month subscription is worth anywhere from US$60-85 for a company after a year, he said. Charging less for an annual subscription, but getting that money upfront, is where value lies for publishers. Plus, he added, these customers are less likely to churn.
“You’re retaining about twice as many people long-term with annual versus monthly,” he said.
The customer lifetime value calculation is important because it requires publishers to consider acquisition and retention at the same time. Trials are a good lens to show the importance of these calculations. By considering them with the customer lifetime value calculation, data shows they are effective for monthly subscribers, but trials backfire in annual subscription strategies.
Appel also urged publishers to consider reasons for churn, stating that most churn is active rather than passive, with 64.7% of churn coming from cancellations. This churn is driven by monthly subscribers, people who cancel quickly because they did not have a need for a long-term commitment or due to a poor onboarding experience.
Payment failure is the driving reason for annual subscription churn. Piechota asked why publishers do not focus efforts on saving these customers who may be loyal to the brand but have an expired payment method.
“You are losing 30 something percent of your customers just because you haven’t looked at it,” he said.
Appel added that the audience should ask the person managing subscriptions about actions they can take to reduce this churn, because it can be valuable in the long run. Reducing churn by even 1% per month means a 13% growth in customer lifetime value over three years.
To summarise, Piechota said individual readers hold different value for publishers, and initiatives are not equally impactful. He also reiterated that growth vs. profitability is a false opposition.
Finally, Piechota said subscriptions are a long-term strategy: “Purchase is never the end game. A lifetime relationship is.”