Digital pricing – lessons still being learned

Digital pricing – lessons still being learned

Digital pricing – lessons still being learned:

Producers/suppliers are still struggling to find the right pricing model – especially in Newsmedia

 

Content producers are not learning from best practices

It is strange that suppliers of digital products and services continue to face difficulties in finding sustainable pricing strategies. This is most apparent in the Newsmedia (and Magazines) industry as well as those which have both physical and virtual versions of the same product (such as videos and books). It is more puzzling in light of the well documented mis-steps by the Record industry with regard to music downloading and well proven lessons from Retailers, the Airline industry even Gaming. There are lessons still to be learned from those digitized industries.

Exhibit1: Portion of digital content

Changing share of digital content

 

Newsmedia are particularly hard hit given their over reliance on advertising spend. Today, on average, ad spend in Newsmedia is only 10-20% of historical levels. While the aggregate amount of ad spend has increased much of it has shifted to digital and other media.

 

Digital consumers do pay for content

The file sharing habit has meant that not all online users are used to paying for content. However, more sophisticated consumers understand that “for free” does not equate to meeting the quality / convenience / functionality equation. It is well documented that digital consumers are willing to pay for services. In fact this percentage has increased; reflecting demographics (usually millennials) and platform delivery (to tablets).

 

Matching offerings with a robust pricing matrix

The challenge for producers is to determine what pricing schedule best reflects their offerings with customer demands. At the moment, the Newsmedia industry seems caught in this whorl; with an ongoing debate about paywalls, content integrity and marrying print and digital versions. It is not helped by the disconnected nature of the customer experience across platforms and operating systems.  Assuming that a producer can develop a coherent offering there is a relatively robust pricing framework along two dimensions: type of access and; frequency of payment.

Exhibit 2: Indicative pricing matrix (sources – Raktas analysis) Pricing matrix 3

There are different trade-offs to be made dependent upon: company economics, industry dynamics and competing alternatives that will dictate the actual price points. Also the nature of the digital world encourages innovation. The more successful producers are ensuring that they are: target segments, customization, bundling, community pricing and provide cross-platform functionality. While suppliers seek out advertising supported pricing structures, many consumers prefer uninterrupted experiences. One-off payments are preferred. Yet customers are willing to purchase subscriptions, if the initial payments are lower than any one-off charge.

 

Experiences of different approaches by different industries

The approach in on-line Gaming industry reflects the demands of the customers: access to a community and uninterrupted use. The pricing strategy trend has been to a combination of: single access point (through an initial one-off fee for membership); coupled with ongoing subscription for continued service as well as add-ons and enhancements. Overall price points are low but aggregated revenues higher. While a robust strategy there remain tensions between: creative studios, competing distribution channels, operating systems /software and platforms. Yet the industry thrives.

In contrast, the Newsmedia industry continues to struggle. Particularly due to: its dogged ties to the printed past, a perspective of its own self-worth and value offerings. None of these may actually reflect digital-savvy customers’ desires nor their alternatives. The vast majority of the industry remains wedded to older models, with an annual single subscriptions and reliance on advertising spend, which itself has many attractive alternatives. The term “paywall” is inappropriate and reflects Newsmedia’s dilemma. The industry has suffered badly.

That being said there are some better practitioners. Notably the “The Wall St Journal” has been the most proactive and persistent with its hard single subscription; yet targeting and bundling content and encouraging communities. It enjoys consistent improvements in both volumes and revenues.  The “FT” has adopted a freemium or first-click approach to lock-in a subscriber, with some form of graded or tiered services (reflecting improving value). It has had notable success.

The “New York Times” has fared worse with a metered approach which falls between the two extremes. The weakness of the “NYT’s” approach has been compounded by poor relative price positioning. Especially as the subscription is digital only; unlike competition which include the print version for free or a marginal additional charge.

Exhibit 3: Comparison of digital subscriptions

Comparison of price points across digital media

 

Summary

The Newsmedia industry lessons to learn from other digital sectors. The pricing challenge is vital for its survival yet must be linked to customer relevance Gaming has shown the benefits of consumer driven offerings, with lower price points, reflecting use. Digital consumer are exercising the right to choose.

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