The current context
The current double-whammy of consumer cost-of-living pressures and business cost-of-operating increases is really impacting on every media and entertainment (M&E) company. All the M&E streamers, including Netflix and Spotify, are pushing up prices at the same time as tweaking their subscription architecture.
Zooming in on the newspaper business and a number of trends can be seen:
- Prices were generally held down during the months of lockdowns (probably totally unnecessarily), and subscription sales held up much better than single copies.
- Emerging from lockdowns, publishers have been playing pricing catch-up. Digital products have been pushed with increasingly heavy discounts on subscription, whilst publishers are milking their single copy print editions with aggressive cover price rises. Here, two approaches are being taken: either smaller and more regular increases (currently averaging +5-6%) or big step changes (averaging more than +12%).
- All this means that the divergence in the ARPUs of digital and print products is growing bigger, whilst the single copy print price remains the public “gold standard” of what the brand is perceived to be worth. Yet, as a result, print volumes are accelerating their downward trend – dangerously so in some cases.
Many of these factors can also be seen in the magazine business, where the bundling together of print and digital products has been very widespread, but is now being unravelled. Here, single copy cover prices are also accelerating upwards, back up to their +7% year-on-year increases after the modest +1% during lockdown 2020.
The quotes below from mediafutures participants highlight the situation:
- “Firstly, we simply need to implement blanket price rises right across our business as our operating costs rocket. Then we will have a more stable platform for more sensitive and personalised pricing strategies, brand-by-brand, product-by-product, market-by-market… even issue-by-issue on our print products, dependent on content, pagination, etc.”
- “We’re increasing prices across the board, even when we don’t have product improvements to justify this. And we’ve moved from annual price reviews to quarterly.”
- “We’re looking at a minimum +10% price increase per year for the next couple of years. And we’re making it more difficult for customers to get out of their contracts with us. We know that this is the opposite of the low-friction world of Amazon and Netflix. But needs must!”
- “We know that we should be testing pricing more scientifically, but with rising costs, we simply don’t have the time to do that at the moment. We’re making some big decisions blindly and faster than we’d like to. We’re now waiting to see what happens.”
Yet despite the short-term panics, there is still some strategic thinking going on…
- Strategy 1: Value-Based Pricing. This is the most common approach, with 53% of mediafutures participants saying that this is their single most important factor when setting prices. It means coming to a logical assessment as to what the actual or perceived value to the end-user is. That requires a deep (and constantly updated) understanding of the audience’s needs and wants and how these differ from cohort to cohort within the total audience – something that is currently beyond the capability of many publishers.
- Strategy 2: Cost-Plus Pricing. The current business pressures are forcing many publishers to shelve more strategic planning. This is much more prevalent in the consumer sector (22% saying that this is their dominant price-driver) than in B2B (6%). B2B has been working for longer to construct multi-platform services than consumer and is much further advanced in managing dynamic pricing models around a wider range of content-delivery products and platforms.
- Strategy 3: Penetration Pricing. This is still being practised by 16% of companies. Essentially, it is a volume-driven approach to increase the size of the audience footprint through low pricing, before gradually cranking up prices to increase yields and ARPUs. A number of high-profile companies, notably Netflix, Spotify and the entertainment streamers, are now in this transition from volume to value.
- Strategy 4: Competitive Pricing. This means setting price points around what the direct competitors are doing. Whilst very few mediafutures participants are doing this as a core strategy, many are looking very carefully around their verticals to see what they can get away with.
Where pricing becomes really strategic is in the process of going through what the content structure actually looks like. As this publisher makes clear: “We are grappling with lots of questions. An all-you-can-eat bundle versus an à la carte selection. Ad hoc single copies versus a recurring revenue model. What about payment frequency… annual subs versus monthly versus quarterly? Should free content be a permanent tier or just a mechanism to stimulate trial? And then there are micropayments, which we’re really not sure about. What we charge and how we charge are big issues for us – but we don’t really know the answers to these questions at the moment.”
There is one final, existential question. Do media owners deliver content products and services that are worth paying for? One response is an emphatic “YES. Of course. Creating valuable, quality and curated content is simply what we do.” Yet there are niggling (and growing) doubts that in a world where there is an oversupply of “good enough” free content, which is being expanded massively by AI tools, paid content is under a massive threat. Ultimately, it will all come out in the wash in price.
All of these issues have been detailed in a Deeper Dive report, sponsored by software supplier AdvantageCS. A complimentary copy of the report is downloadable from: www.advantagecs.com/whitepapers
About mediafutures: mediafutures is an annual benchmarking survey of the industry undertaken by Wessenden Marketing in partnership with InPublishing and Collingwood Advisory. For a copy of the full mediafutures report, contact Jim Bilton: firstname.lastname@example.org
This article was first published in InPublishing magazine. If you would like to be added to the free mailing list to receive the magazine, please register here.