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This guest article is the first in a three-part series from Mather Economics, an Atlanta-based global consulting firm that helps businesses with pricing strategies.
The market for digital content is similar to the market for beer. Most readers will consume what content they can without paying, but some customers will pay for good content, just as some customers will pay for good beer when free beer is offered.
Many digital publishers have not decided what type of customer they are trying to serve and are lacking the strategic direction necessary for their digital products to be successful.
Other publishers have a strategic direction, but the structure of the digital advertising market enables advertisers access to the publisher’s audience at non-premium rates, which eliminates the return from investments in higher quality content.
Companies offering free beer expect their investment will pay off. The return may come from a cover charge, high-priced food or expensive merchandise. Likewise, digital publishers offer free content to garner advertising impressions. But the challenge with free content is that it often attracts a free beer-type of crowd, an audience that may not be compelling for advertisers and is unlikely to pay for content.
Publishers must grow digital advertising and audience revenue, but they are challenged by low digital subscription sales and low prices for their digital advertising inventory.
The inability to earn premium advertising rates in return for a premium online audience is due in part to the structure of the digital advertising market. Ad networks offer access to news media audiences to advertisers through alternative sales channels at low prices. They can do this because audience data is captured through prolific site tagging and data leakage. Publishers are “price takers” in most cases when selling inventory because the substitute targeting options available eliminate their pricing power.
Low subscription conversion rates are a function of products designed to maximize advertising impressions at the expense of the user experience. The growing use of ad blockers is a market response to the rise of advertising technology, which slows page load times as impressions cascade through a series of programmatic networks, audience and delivery verification occurs and various targeting applications are activated. User experience is further reduced by obnoxious and annoying advertisements.
A solution to these dual problems of low advertising rates and poor subscription acquisition is to create digital products designed to maximize total digital revenue. The products should offer premium user experiences that balance user experience with advertising revenue. The greater the targeted audience price point, the more the premium the user experience is paramount and vice versa.
Some publishers have two sites that are focused on different market segments. The Atlanta Journal Constitution has its non-subscriber site, ajc.com, which has more ads, and its subscriber site, myAJC.com, that has fewer ad positions. The Boston Globe has long had a two-site strategy with boston.com targeted at a non-paying audience and bostonglobe.com focused on subscribers.
Atlanta Journal Constitution’s AJC.com:
Atlanta Journal Constitution’s myAJC.com:
A one-site strategy that seeks to maximize total revenue is possible, but the strategic goals should be clear and the site design should be consistent with the revenue objectives and pricing models.
The problem of premium advertising rates can be addressed through data management and greater use of first-party data for targeting audiences on your own site. We are helping publishers define audiences using geo-location and engagement to offer local advertisers premium targeting without the use of third party data. Because there is no perfect substitute for this targeting and it yields the best results for local advertisers, it can be sold at a premium rate. It is possible to extend this targeting beyond your site as well.
Transitioning to a digital business model requires strategic thinking that addresses the realities of the digital advertising and digital content markets. It also requires executing against those strategies to achieve the necessary revenue objectives.
Giving away good beer (or selling it for too little) is a losing strategy.
President, Mather Economics
