April 10, 2015 Last Updated 9:32 am

Changing the economics and the use of data in the news media

Guest column: Matt Lindsay, president of Mather Economics, discusses the changing nature of publishing economics and the need for new analytics

The economics of the press are changing from an advertising-dominant revenue model to one where the audience is the primary revenue source. An advertising revenue-based business model for news publishers has not always been the norm. That business strategy was an innovation by Joseph Pulitzer around 1900, who said in support of the focus on advertising revenue, “If a newspaper is to be of real service to the public, it must have a big circulation, … because circulation means advertising, and advertising means money, and money means independence.”

A New Era of Publishing Economics

Prior to this shift, news media received most of their revenue from their audiences, much as they will again in the near future. In fact, the publishers leading in the transition to the new business models such as the Financial Times, The Economist, and The New York Times all have more audience revenue than advertising revenue.

NYT-FT-EThis transition in revenue sources is due to two reasons, both the result of the Internet’s emergence: the proliferation of advertising opportunities outside of the print medium provided by newspapers and the expansion of the market reach of publishers.

Advertising has become a data-driven activity with advertisers seeking greater targeting and measurable benefits from their marketing investment, which is leading them in ever-greater numbers to focus on digital advertising channels at the expense of print. This is true despite considerable evidence that print provides a higher return on investment than other media.

Just as the Internet enables targeted advertising, it also expands the reach of publishers outside of their traditional markets, which were defined by their print circulation footprint. Even though the likelihood of monetizing audiences decreases as the distance from their direct market increases, the marginal cost of reaching these remote audiences is close to zero. So it is profitable to service customers wherever they may be if they read via digital platforms.

A New Era of Publishing Analytics

This shift in revenue sources for publishers has profound implications for the way that journalism companies manage their business, and it will require a new set of capabilities for news publications to succeed. Specifically, publishers will need to understand their customers, segment them based on their preferences and price elasticity and target them for acquisition, up-sell and retention offers. Since advertising will still be a source of revenue, they can use this understanding of the audience to sell targeted impressions to advertisers.

As audiences become the primary revenue engine, analytics around the audience will take on an unprecedented urgency and importance for publishers. The transition likely will resemble the evolution of other industries that have experienced significant disruption from new technologies or regulatory changes, specifically airlines and hotels, which now generate nearly all of their profits from yield management strategies driven by customer analytics.

Mather-pageviewsA challenge with understanding digital audiences is the need to process and analyze enormous amounts of data to develop actionable insights. There are a vast number of tools that have been developed, but many require large capital investments or specialized technical skills. It is inevitable these technology inputs will become less expensive over time, but the ability to use these data and tools to increase revenue and operating margins is likely to remain scarce.

Two approaches for applying customer insights to improve publisher’s’ financial performance is to target subscription and retention offers to specific customers based on their interests and to package content into products and bundles that appeal to specific customer segments. Targeted pricing can improve top-line revenue while minimizing customer churn. Product development can improve conversion rates from acquisition offers and provide additional pricing differentiation across the customer base.

As publishers begin the process of understanding their audiences at the level of the individual customer, whether they are paying customers or anonymous visitors, we recommend they start with the end in mind. Understand what decisions will be affected by the analysis, what analysis will be completed and what data are necessary to answer the specific questions addressed. That process will enable publishers to focus on getting the right data from the outset, which should save them time and money.

Mather-featurePublishers in the digital era can survive with a majority of their revenue coming from their audience, just as print publishers did more than a century ago. They will need to be innovative and sophisticated marketers using data to understand and deliver the products their customers want and how much they will be willing and able to pay. Joseph Pulitzer would approve.

Matt Lindsay is president of Mather Economics, a global consulting firm that applies analytical tools and hands-on expertise to help businesses develop and implement pricing strategies

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