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How one news media company rescued saves without revenue-losing copies

For news media companies, the tension between top-line versus bottom-line objectives has never been more pronounced.

As seen in the diagram below, some companies are in current pursuit of a top-line goal, such as boosting circulation, often at the expense of a bottom-line goal, such as increasing cash flow. 

This can be seen in such tactics as an over-investment in acquisition, the acceptance of unprofitable customers, the use of too many channels, or an overextended geographic footprint.

Meanwhile, other news media companies are trying to pursue a bottom-line goal, such as lifting cash flow, often at the expense of a top-line circulation goal.

This can be seen in the systematic migration or pruning of unprofitable subscribers, the reduction or elimination of aggressive introductory pricing programmes, or a more targeted participation strategy.

Yet in the long-run, an inevitable trade-off exists between top-line circulation and bottom-line cash flow goals.

As seen in the chart, a company in pursuit of a top-line goal has no choice but to pursue potential subscribers that are increasingly marginal in their profit potential. Eventually, all profitable subscribers have been captured (blue star) and the newspaper must choose to either stand pat with its profitable subscriber base or pursue subscribers that it knows (or strongly suspects) are unprofitable yet are nonetheless needed to achieve that top-line goal (red star). 

The slope and arc of the curve may look somewhat different for every newspaper, but the relationship is effectively identical – a news media company can successfully prioritise one goal or the other goal, but it can’t achieve both.

A company must choose, and then it must be consistent in its choices throughout all segments if it is serious about maximising the impact of that goal.

But what happens if a company pursued top-line goals in some segments and bottom-line goals in other segments? One might compare this tension to a “tug of war” – a battle between two sides that usually results in a standoff that nobody wins.

The accompanying chart for a top-50 newspaper shows an economic picture that, based on our experience, is quite typical. The average copy saved via retention is usually quite profitable (in this case, US$0.64 per copy), while the average copy acquired through new paid starts is usually unprofitable (US$0.18) per copy).

Why is this important? Because it demonstrates the tug-of-war strategy that exists within most media companies. Publishing executives will proclaim that they want to pursue a top-line circulation goal, undertaking each of the steps (including the tactics outlined earlier) to support that strategy within the acquisition function.

However, their strategy in retention completely contradicts that approach, as they take none of the steps in that activity to maximise copies. In fact, they often do exactly the opposite, which is to pursue tactics that maximise a bottom-line cash flow goal, with huge negative consequences for circulation maximisation.

Thus, while the company likely doesn’t realise it, it is engaging in the tug-of-war strategy, as some of its tactics support one strategy while other tactics support a strategy that is the exact opposite.

The net result is that neither goal is fulfilled.

As a result, circulation-focused executives miss out on a great chance to generate incremental copies via more aggressive pricing efforts in retention, while the cash flow-minded executives skip right past a prime opportunity to generate incremental cash flow by overinvesting in acquisition and acquiring many paid copies that lose money for the newspaper.

One recent Impact client, the same top-50 newspaper depicted above, recognised this inconsistency in its strategy and decided to address it. The client wanted to find new sources of copy growth and it was willing to sacrifice profits that might have accrued from a higher pricing strategy. However, the company did not want to explicitly add any money-losing copies to its existing circulation base.

While adding break-even copies was not a viable option in the area of paid acquisition as its average copy per acquired start was worth (US$0.18) and it did not want to increase that loss, such an approach was a very viable option in retention, as its average copy per retained save was worth US$0.64.

This company realised that when the retention of existing subscribers is so profitable, it provides a valuable option to price those stop-saves more aggressively for additional copies.

And, because the company was committed to a top-line circulation goal, it was just as willing to incur similar losses in retention (on a per-copy basis) as it did in acquisition. Thus, a new top-line stop-save programme was proposed.

To reiterate, a news media company’s goal should be to continue to selectively expand some of its segments and contract other segments to the point where all copies are generating a similar profit or loss per copy.

The goal itself (e.g., profit or loss) is inconsequential – it is whether the company is setting an identical profit goal across all of its activities that determines whether the newspaper is being consistent strategically, or whether it is unintentionally engaging in a tug-of-war strategy.

As we have discussed many times previously, Impact’s ICAPTR™ data can be used in a myriad of different ways, depending on the current and projected needs of the newspaper. 

To facilitate the implementation of this new stop-save strategy, ICAPTR™ data was used to pinpoint exactly how the newspaper could maximise copy growth in its stop-save programme, but to do it without taking on additional money-losing copies.

The premise was that, by forgoing any chance of incremental profits, the newspaper can offer the lowest possible stop-save price, which will maximise the likelihood of incremental copies and higher overall retention levels. 

Impact’s ICAPTR™ system calculated a fully loaded incremental cash flow per copy for the entire universe (i.e., hundreds of thousands) of individual subscribers who could potentially call in the future to cancel their subscription.

Historically, the newspaper offered a high level stop-save price that was clearly profitable but made little to no distinction for the unique economics of each subscriber, whether it was due to unique preprint revenue, delivery expense, newsprint and ink expense, etc.

Further, each subscriber possessed a different delivery frequency that needed to be accounted for, as well as a projected retention after the hoped save. ICAPTR™ provided the exact price that was needed for each individual subscriber to break even, taking into account all of the unique economics described above.

Because this meant that every current subscriber had his own unique stop-save rate, it was no longer possible to simply provide a one-page rate card to the newspaper’s telephone operators who handled stop-save calls as the newspaper had done.

Instead, Impact worked with the newspaper’s IT department to build a new set of tables within their existing IT architecture that calculated and stored the unique break-even rates.

Thus, when any subscriber called to cancel his subscription, a uniquely tailored save rate would immediately pop up on the telephone operator’s computer screen – a rate calculated to offer the lowest possible renewal rate while still breaking even financially. 

This data was refreshed monthly to account for new incoming starts who might cancel in the future, as well as for monthly changes in preprint revenues, delivery expense, newsprint and ink expense, etc. By tailoring these offers to better align with performance in acquisition, this newspaper avoided the tug of war.

The results of this new top-line oriented stop-save programme were undeniably effective. During a 22-week programme period measured in 2015, average retention was 88.4%, up 22% from the 72.3% retention rate recorded during the same time period in the prior calendar year.

As a result of this improvement, this newspaper generated an extra 50 to 60 saves each week. Because each save was projected to generate an incremental 200 copies over its remaining lifetime, the improvement in aggregate saves and subsequent retention was responsible for an increase of 525,000-650,000 copies annually, an amount far greater than any new acquisition programme this newspaper could conceivably pursue.

Of course, these extra copies may have been priced at break-even, but it is important to recognise that the opportunity cost associated with these copies was very real.

By pricing them at the lowest possible level without losing money (i.e., at break-even), the newspaper was essentially foregoing the profits for some of those saves that might have been willing to continue at a higher price.

While it is impossible to quantify the exact amount, we already know the profit for the average saved copy was US$0.64, so it is reasonable to assume the worst case scenario for that opportunity cost was equal to 650,000 copies times US$0.64 profit per copy for US$416,000.

But, because it stands to reason that a subset of subscribers who retained at the break-even price point would have canceled at the higher price, the opportunity cost was certainly lower than this hypothetical maximum.

In sum, creative options are available to drive incremental circulation, but it always comes at a cost to cash flow. But more importantly, regardless of whether you decide to pursue a top-line or a bottom-line goal, be sure to pursue it consistently throughout your entire organisation.

Otherwise, the tug of war you are engaging in will make it impossible to succeed, regardless of which goal you choose.

About Jim Fleigner

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