The strategy and tactics behind digital subscription price increases was the focus of a Readers First meet-up with INMA members and Grzegorz (Greg) Piechota, researcher-in-residence at INMA, on Thursday. The meet-up looked at questions such as how to fund further investment in the news product or raise the overall profitability, how to learn what subscribers really value and want to pay a premium, and how to communicate price increases.
Thursday’s meet-up included presenters from three media companies. Piechota began by sharing statistics on digital news subscription price increases from 2018 to 2020 in the top 50 leaders in the world:
He also shared several key trends emerging in 2020:
- Increased popularity of billing every four weeks instead of monthly (20% of news publishers are doing this now, versus 3% in 2018).
- Half of the sample data publishers increased their digital subscription prices.
- Looking at news subscription prices in relation to Netflix as a benchmark, the median listed price for a basic news subscription is 140% of a Netflix subscription, versus 125% in 2018.
“Netflix sets the rules of the game,” Piechota said. “So it’s interesting to see that most publishers are charging more.”
Case study: Dennik N, Slovakia
First up was Tomas Bella, head of digital at Dennik N, which launched in 2014 with a freemium model. In a country of only five million people, the publication has 45,000 digital subscribers.
After five years in business, Bella said the company made the decision to raise subscription prices after adding more journalists and new services.
“One of the first indications for us was that people actually stopped complaining about the price,” Bella said. “This is a good indication that you are probably charging too low.”
Some readers even commented that they thought the value of the subscription was higher than the amount they were paying. To determine where to raise prices and by how much, the Dennik N team did some research and testing.
- Research was conducted to find out what features subscribers valued the most.
- The next step was to experiment with testing six new price lists, eventually settling on three tiers (five, seven, and nine euro) rather than the previous two-tier pricing model.
- The old standard tier subscription package was renamed “Mini,” as it no longer included access to all the features offered in the new Standard package.
- Dennik N launched a new product: a business daily news service offered in a bundle to Standard and Klub N premium subscribers.
- The news media company also made it easy to upgrade, enticing people by offering them a free upgrade for the first three months with a one-click process. Only 5% of subscribers opted out of this.
The results? One year ago, only 11% of subscribers were paying more than five euros for a subscription. Today, that number is almost half (48%). The number of subscribers also increased from 39,300 to 44,100.
One of the biggest surprises for the Dennik N team was the most requested feature, which was donating content to students by allowing a new subscriber to choose to buy an additional subscription for a student. “It was also the only feature we don’t have at the moment, so it was the first one we started building,” Bella said.
The justification of the price increase to the readers was the new products and services, as well as the three separate tiers so that people could choose their own level.
Piano, United States
Next, Piechota introduced Patrick Appel, director of research at Piano, to share information from a research study the company conducted about subscription trends and effects.
“Longer-term subscriptions tend to be higher value just because there’s such high churn at the beginning of monthly, short-term subscription,” Appel said. He added that publishers shouldn’t ignore monthly subscribers entirely: “There is a conversion rate, certainly, by offering monthly as an option ... but after a subscription has been around for a year, you’re seeing a majority of annual.”
He advised publishers to think about the balance between short- and long-term commitments, as well as the pricing strategy between those two.
“It’s really critical,” he said. “When we think about optimising ultimately for revenue, we want to think both about what is the increase on acquisition, and what is the hit on retention.”
Appel shared a slide that takes a look at the historic data for monthly subscriptions. After the first month, there is a huge fall-off where subscribers churn and abandon. But if you look at the longer picture, going into month two and three and so on, the retention evens out after that first drop-off.
“Really you’re talking about the first three months, the first six months, as this risk period,” he said. “Either [the subscriber] bought it with the intent to churn — we’ve seen that before — or it hasn’t been effectively communicated about the value. Or maybe they bought it and were thinking about it and that first month, they didn’t see the value.”
Therefore, when looking at monthly subscriptions, Appel said the focus is really on that onboarding campaign.
“What’s really important to understand about overall churn is that a majority of churn we see on our platform is active churn, people actively cancelling,” he said. Credit card failure is also a factor, but the real question is how to stop people from actively cancelling.
“The other thing you see is that the type of churn changes over time,” Appel added. “So once you get further out into that tail, it’s more passive churn. That active churn, all that cancellation, is happening pretty early.”
The next big drop-off happens at that year mark of an annual subscription, when renewals again create churn. “There are ways to minimise that,” Appel said. “At this point, you’re really focused on passive churn. It’s not people actively cancelling; it’s people whose credit card expired. There are different tactics you can use to minimise that in terms of credit card retries, and certain payment providers are better. But just understanding the value of these two types of subscribers, you can calculate the value over longer periods of time.”
Mather Economics, USA
Senior directors at Mather, Matthew Lulay and Dustin Tetley, presented a price elasticity/digital engagement case study.
“The best thing a publisher can do when they are thinking about raising prices is to start moving away from a gut feeling approach, where you ‘think’ you should move prices, and at least start with some data and see what that tells you,” Tetley said. “And test as much as possible before moving forward or throughout the price increase process. We find there’s really a lot you can learn from each price increase.”
Tetley led Webinar attendees through the case study on what impact different levels of engagement have on retention for different price increases.
“One of the things we look at is price elasticity,” Tetley said. “There are a lot of different ways we can measure that. One very easy way is to have a representative group that you hold out from the price increase and compare that to the group that received the price increase.”
Customers who are more engaged tend to accept price increases more readily than those that are not engaged. Engagement also has a big effect on overall stop rate and retention.
“When you see a group that had no digital usage in the month prior to the price increase, they stopped at a much higher rate than customers that were highly engaged,” Tetley explained.
Tenure is also meaningful when it comes to price increases, Mather found: “In the first year, a customer will not respond well to a price increase, so really building that loyalty and tenure can be very beneficial,” Tetley said.
Lulay continued by sharing some case studies from a U.S. midwest metropolitan market, a U.S. west coast metropolitan, and a Northern European metropolitan. The mean price elasticity of all three is approaching zero, so really quite low.
“Over the past year or so, publishers have become much more interested in how price elasticity differs between their print and digital audiences,” Lulay said. “Over the past few years in general, publishers have spent a lot of time, energy, and money into acquiring digital subscribers, really at all costs. They’re trying to grow those volume numbers.”
Now, however, publishers are getting to the point where that has matured, and they are trying to grow subscription prices on digital-only accounts. The general wisdom has been that digital-only subscribers are very price sensitive, so publishers have been very reluctant to raise prices on those accounts.
“But really what we’ve found in the industry is that the overall price elasticity of digital accounts is actually quite a bit lower than their print counterparts, on average,” Lulay said.
The bottom line? Mather finds aggressive pricing on tenured digital accounts is revenue positive.
“I think really the main takeaway here is that we shouldn’t be afraid to test rate adjustments on digital accounts,” Lulay concluded. He stressed the importance of getting customers to that six-month and beyond mark: “We found that markets that implemented these rate increases on tenured digital accounts had the most success. That relationship between value and price is so important.”