It is always the retail supply chain which seems to catch the trade press headlines. Yet behind the drama and politics of the newsstand, subscriptions continue quietly to increase their share of copy sales. The subscription function has been subject to the same pressures and strains as the rest of the publishing organisation. So, what is actually going on at this end of the business?
How many people are employed in a typical subs department and what do they spend their time doing? How big are subscription marketing budgets and are they growing or shrinking? What are average acquisition costs looking like and which sources are growing? How does online fit into subscription activity? Where are publishers pitching subscription prices? Has the industry become any smarter with its retention activity?
These are the kinds of questions that lie at the core of Subscription Marketing 2009, a major survey involving 132 publishing companies – newspapers and magazines, consumer and B2B, from major international groups down to small independent publishers. These 132 companies between them publish almost 1,000 brands and manage a total of 5.9m paid-for subscriptions plus 2.7m free records. So, this survey is the largest and most detailed benchmarking exercise on subscriptions ever undertaken in the UK publishing business.
Subscriptions sales in context
Across the total sample, slightly more publishers are seeing growth in the subscription file (37%) than either stability (34%) or decline (29%).
| Company’s Current Subscription Performance | ||||
| Consumer Mags | B2B Mags | Newspapers | Total Sample | |
| Our subscription file is growing | 46% | 21% | 62% | 37% |
| Our subscription file is holding steady | 32% | 37% | 25% | 34% |
| Our subscription file is shrinking | 22% | 42% | 13% | 29% |
| TOTAL | 100% | 100% | 100% | 100% |
Newspapers, who are coming relatively late to the subscription market, are seeing most growth. Consumer publishers are significantly more buoyant than B2B publishers – a recurring theme running throughout the survey. The overall picture is one where subscriptions are adding stability and slow growth to circulation rather than a dramatic uplift, with business markets under more pressure than consumer.
Subscription versus retail
Comparing subscriptions to the retail channel shows that just under half of the industry is seeing subscription sales outperforming retail sales with 42% seeing parity in the trends between the two routes. Only 9% report that their retail sales are doing better than their subscriptions. So, subscriptions continue to edge up their share of copy sales. Yet behind this trend, there have been some subtle shifts in how publishers value the relative characteristics of the two channels. Respondents seem less concerned than in the past about retail availability and the potential threat of delisting – this is still a major issue, especially in specialist consumer markets, but it is almost as if publishers have got used to the possibility. Instead, it is the financial benefits of subscriptions which have assumed a greater importance (better cash flow, good margins, less waste).
What is driving subscription growth
Looking inside publishing companies, what is it that is driving them increasingly down the subscription route? The prime reason, as in past surveys, is the ability to lock readers in and to build loyalty and frequency of purchase in a volatile market. What is significant is that advertising-driven reasons have become more important than in the past, such as delivering better quality and more committed readers for advertisers or providing more detailed information about readers. Also, the ability to use the subscriber database to cross-sell and upsell has become much more important. There have been some subtle shifts in how publishers perceive the relative strengths of the subscription and retail channels as detailed above.
What is holding subscriptions back
There are two key barriers to subscription growth which are both driven by the current economic environment. The first is internal company budget and resource constraints. The survey shows that subscription marketing budgets are averaging 13% of annual subscription revenues. This is a big reduction on the 24% figure seen in Wessenden’s 2004 survey. Also, the proportion of publishers looking for year one profitability has risen from 32% in the 2004 survey to 56% currently. The average breakeven point, when an individual subscriber becomes profitable, now stands at 1.6 years for consumer magazines, 1.5 years for B2B titles (a big reduction) and 1.7 years for newspapers. While the strategic benefits of subscriptions are appreciated by senior management, only 57% of respondents feel that subscription economics are well understood within their organisation and only 48% state that the principles of lifetime value are actually applied in day-to-day business practice. So, while the theories of subscription marketing are well accepted, the practice still has some way to go.
The second key barrier is a concern that readers have become more cautious about making the financial commitment of a subscription – an issue that looms even larger for B2B publishers than consumer.
There are other important issues as well, which include:
* The cost of the postal service (an old publisher favourite!)
* Increasing acquisition costs
* Competition from the providers of free content
Competitors undercutting on subscription prices is also highlighted, but seems very localised in specific markets where a key player is driving for volume. Instead, the general intention of most publishers is to hold firm on prices in the current economic climate.
What the key opportunities are
The report goes into some detail as to where publishers see their subscription future. Online is a key part of this. That means a mix of using digital as an acquisition tool (digital sources now account for 40% of all new subscriptions, up from 17% in 2004) and of building digital content applications into a value-added subscription package.
Other key opportunities are seen to be:
* Database activity which drives smarter retention activity and cross-sell / upsell.
* A wider range of acquisition sources and techniques, particularly online.
* More sophisticated payment options, increasing direct debit penetration on print subscriptions and micropayments on the internet.
* International sales opportunities.
* Adding value to the core subscription through premium online content, loyalty clubs etc.
Digging into the detail
The report provides a wealth of detail across a wide range of subscription areas:
* Staffing. Subscription department sizes range from nothing up to 60 people with the average being 5.6 and the average number of records handled per person being 17,500.
* Subscription Profitability. Breakeven points are being tightened up. Yet only 43% of publishers include other revenue streams when assessing the profitability of a name.
* Subscription budgets are reducing and a greater proportion of what is left is going into retention activity than in the past.
* Acquisition costs are rising slowly to an average of £14.67 per name, approximately three times the cost of renewing an existing subscriber. The range and fragmentation of sources is increasing and is putting extra pressure on subscription staff.
* Non-subscription revenues (ie. revenue generated from a subscriber though additional products and services on top of the core subscription) are steadily growing with online being the single biggest revenue channel.
* Name generation is growing rapidly.
* Digital editions show a growing usage with 68% of publishers currently involved, but most respondents are still looking for the real killer application and digital editions are still not yet a central element of most publishers’ strategies.
* Gift subscriptions look to be holding steady, accounting for around 15% of consumer magazine subscriptions.
* Retention. The trend in renewal rates is very varied from market to market: 22% of publishers see them rising, 32% falling and 46% holding steady. Despite the growth in emails and self-service areas on publisher websites, mail and phone remain the core renewal contact media. The average number of renewal efforts per subscriber is 4.4. The average cost per renewal is £4.88, a third of the cost of acquiring a new subscriber.
* Subscription Pricing. 53% of publishers are holding their discounts at current levels which average 19% below retail cover price across the whole publishing market.
* Payment Method. Direct debit penetration continues to rise, but is very varied from company to company, with some real gains that can still be made.
* Subscription Services. Publishers use a wide range of external service companies from creative through telemarketing and on to database. 35% use an external fulfilment bureau (13 different bureaux are named in the survey) with different levels of publisher satisfaction.
* Database. Most publishers (91%) claim to have one, but only 33% feel that they are getting the return on investment that they had hoped for. The most important application is felt to be in retention activity with upsell / cross-sell coming at the bottom of the priority list. Data Protection remains a significant concern to many publishers.
So what is the overall view?
Subscription Marketing 2009 shows a really mixed picture of financial caution and rapid technological change. On one hand, publishers are reluctant to fiddle with the core economics of their current subscription model and clearly feel happier sticking with subscription sources and techniques that are known and quantifiable. Yet on the other hand, digital developments have transformed where publishers acquire new subscribers, how they communicate with them especially at renewal and how they build added-value into the core subscription. Change means new staff skills, investing in the database, following new technology and new techniques. That all adds up to more money. The bottom line is whether that investment will be forthcoming to ensure a subscription future for every publisher.
Opportunities
High Importance: Online development
Mid Importance: Digital subscriptions, International sales, Database activity, Smarter acquisition, More sophisticated payments
Low Importance: More internal resource/focus, Adding value/loyalty schemes, Cut/convert free circulation, Events/exhibitions/etc, Improved editorial, Acquiring competitors
Threats
High Importance: General market conditions
Mid Importance: Lack of internal resource/focus, Postage + fulfilment costs, Free/online competition
Low Importance: Rising costs, Editorial losing touch, Price cutting competition, Falling renewal rates, Lack of database/customer insight
About the project sponsor: CDS Global
CDS Global is a world leader in providing customer relationship management solutions to the publishing industry and other targeted sectors. With more than 35 years’ experience and operations based in the UK, Australia, USA and Canada, CDS Global is the partner of choice for a number of leading consumer and business-to-business publishers.
Contact: Mark Judd
Email: mark.judd@cdsglobal.co.uk
Tel: 01858 468811
Website: www.cdsglobal.co.uk
