Mather Economics Multi-Platform Pricing Executive Overview

Mather Economics LLC

43 Woodstock Street

Historic Roswell District

Roswell, GA 30075

770-993-4111 voice

www.mathereconomics.com

Mather Economics

Multi-Platform Pricing Executive Overview

2012

Revenue Management & Pricing Strategy Across Industries

• 1985 American Airlines launched inventory control

pricing system

– Revenue up 14.5%; Profit up 47.8%

• ~1990 Marriott Hotels launched revenue

management system

– $200 million incremental revenue per

year

8/30/2012 Copyright 2009 Mather Economics LLC. All rights reserved.

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• 1994 National Rental Car launch Revenue

Management system

– Saved National from Bankruptcy

• 1998 United Parcel Service launched B2B Pricing

Optimization

– $100 million additional profit in year one


3


• ~2000 Ford Motor Company launched Targeted

Pricing by Geography

– $3 billion in additional profits in first

decade

• ~2005 InterContinental Hotels Group (IHG)

Enhanced Revenue Management

– Increased Revenue per Available Room

(RevPAR) by 2.7%


4

Revenue Management at Newspapers – Big Opportunity

• Targeted Subscriber Pricing – Both Print & Digital

– Acquisition

– Renewal

• Bundling of Print and Digital Products

• Targeted Upgrades

• Advertising Pricing – Both Print & Digital


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6 Revenue Management For Newspapers – Targeted Subscriber

Renewal Pricing (Market Based Pricing)

Market Based Pricing Overview:

• Market Based Pricing manages profitability on a subscriber level

• Each subscriber’s renewal price is analyzed each time they renew

• Weekly or Monthly reports compare actual revenue and stops to predicted revenue and stops for test & control groups

• Market Based Pricing has been implemented at over 150 newspapers

Sources: Mather Economics LLC analysis

Traditional Price Increases Disproportionately Affect New Customers


7

Sample Customer Segmentation and Pricing Grid


8

Circulation percentages

Young Mid-Age Mature Older Sum

Poor 1% 2% 2% 1% 6%

Downscale 2% 3% 3% 2% 10%

Lower-mid 4% 6% 7% 4% 21%

Midscale 4% 8% 9% 5% 26%

Upper-mid 2% 6% 7% 4% 19%

Upscale 1% 3% 4% 2% 10%

Wealthy 1% 2% 3% 2% 8%

Sum 15% 30% 35% 20%

Simplified Example of Price Discrimination (Note: Tenure, Preprint revenue, Direct costs, EZpay, Service, Term

effects not included)



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Price elastcity index

Young Mid-Age Mature Older Average

Poor 3.0 2.6 2.4 2.6 2.6

Downscale 2.5 2.2 1.5 2.0 2.0

Lower-mid 2.0 1.8 1.2 1.5 1.6

Midscale 1.5 1.0 1.0 1.0 1.1

Upper-mid 1.0 0.8 0.8 1.0 0.9

Upscale 0.8 0.6 0.6 0.8 0.7

Wealthy 0.6 0.5 0.5 0.6 0.5

Average 1.7 1.3 1.0 1.2 1.2





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Average increase per week

Young Mid-Age Mature Older Average

Poor $0.10 $0.12 $0.13 $0.12 $0.12

Downscale $0.12 $0.14 $0.20 $0.15 $0.15

Lower-mid $0.15 $0.17 $0.25 $0.20 $0.20

Midscale $0.20 $0.30 $0.30 $0.30 $0.28

Upper-mid $0.30 $0.38 $0.38 $0.30 $0.35

Upscale $0.38 $0.50 $0.50 $0.38 $0.46

Wealthy $0.50 $0.60 $0.60 $0.50 $0.56

Average $0.21 $0.30 $0.34 $0.28 $0.30



Demographic Groups – Reporting Price Effect with Target and Control Groups by Segment


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POOR INCOME GRP

Total Targets 6,091

Total Controls 120

Average Increase $0.13

Average Rate $2.94

Avg Target Stops 19.0%

Avg Control Stops 15.8%

Price Elasticity -0.72

WEALTHY INCOME GRP

Total Targets 5,896

Total Controls 147

Average Increase $1.30

Average Rate $3.45

Avg Target Stops 12.6%

Avg Control Stops 10.9%

Price Elasticity -0.05

Digital Content Business Model – Key Questions

Key Questions:

• How will charging for content affect advertising revenue?

– What number of Page Views will be at risk

– Can CPM be increased due to higher engagement/less supply

• What is audience revenue potential?

• What digital pricing strategy maximizes total revenue?

• Does digital pricing improve print business?

– Incremental print circulation from bundles

– Improved print retention

– Incremental revenue from print-only subscribers


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Digital Content Business Model – Challenges

Challenges

• Identifying best way to “monetize” digital audience

• Maximizing adoption of new formats

• Competitive Landscape

• Effective Yield Management in Advertising & Subscription Pricing

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Digital Content Business Model – Products

Digital Products

• E-Edition - Digital replica of print product

• Paid Web Site – Metered site or Pay wall

• Tablet or Smart Phone Application – “Apps”

– Existing publication content

– Target audience products, such as sports, hobbies, weather, traffic

• Mobile Access – Configured for smart phone screens

• “Complete Digital Access” – Bundle of all digital products

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Digital Content Business Model – Tactics

Tactics

• Bundling Digital with Print products for new acquisition sales

• Introductory offers ($0.99 for 4 weeks)

• Converting existing print subscribers to digital customers:

– Opt-out – Adding digital access to existing print subscribers prior to their requesting this change, usually at a higher cost, unless they request to remain print only

– Opt-in – Offering digital products to existing print subscribers; both free and paid

• Optimizing digital advertising & digital subscription revenue simultaneously

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Digital Business Case – Opportunity Assessment

Measuring Revenue Potential

• Digital Audience Analysis

– Measure Digital Audience traffic by section

– Measure Meter Elasticity and Price Elasticity for Digital audience

– Estimate conversion rates and meter hits on web site

– Model print customer conversion

– Model field sales volumes, retention, revenues

• Digital Advertising Analysis

– Measure sell-through for guaranteed and targeted inventory by section

– Measure Price Elasticity for advertiser segments

– Model CPMs for digital audience inventory

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Typical Newspaper Website – 58% of Unique Page Views from Users with 1 to 5 Page Views Per Month

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Typical Newspaper Website: 93% of Unique Users Consume 1 to 5 Page Views Per Month

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Hourly Data Analysis shows 40% of Page Views occur between 10:00 AM and 3:00 PM

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Hourly Data Patters Are Consistent Across Days Of The Week (Page Views)

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The Number of Unique Users to Hit A Meter By Number of Free Page Views Per Month

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Expected Page Views At Risk From Meter By Number Of Free Page Views By Month

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Business Modeling – Audience Metrics By Meter Level 23

• Conversion Rates can be maximized through pricing strategy & tactics

Meter Optimization – Percent of Visitors That Reach Meter Level (Free Articles Per Month)

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0%

20%

40%

60%

80%

100%

120%

1 100 meter

Percent of subscribers reaching the meter limit

The Percent of Visitors Reaching the Meter That Accept The Digital Subscription Offer

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0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

1 meter 100

Percent of subscribers that accept the offer

The Number of Expected Digital Subscribers 26

0%

2%

4%

6%

8%

10%

12%

14%

1 100 target meter meter

Expected number of subscribers

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0%

20%

40%

60%

80%

100%

120%

1 100

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1 100

0%

2%

4%

6%

8%

10%

12%

14%

1 100

As meter is increased, fewer visitors will reach the limit of free articles per month

As the meter is increased (to an extent), a greater percentage of subscribers will accept the offer

We can experiment with the meter level to maximize the number of digital subscribers

Percent of subscribers hitting meter

Percent of subscribers that accept offer

Expected number of digital subscribers

target meter

Conversion Rates Depend On Meter Level and Price Points – Sample Conversion Rates

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Business Modeling – Audience Metrics By Meter Level 29

• Net CPM of Lost Page Views reflects potential for raising prices on digital advertisers and lowering remnant share

Expected Change in Annual Revenue by Meter Level – Sample Analysis Indicates Optimal Meter About 15 Page Views per Month

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Seasonal Market Case Study – During Low Season 50% of Ad Inventory Sold As Remnant; Optimal Meter at 15 PV

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Seasonal Market Case Study – During High Season 30% of Ad Inv. Sold As Remnant Space; Optimal Meter Very High

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Optimal Metering By Section – Sample Case Study


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Key To Optimization – Not All Inventory Equal

• Dynamic Meters or Porous Pay walls need to reflect balance between

Advertising and Audience Revenue

• Subsets of Inventory have varying demand

– Targeting by Time – Day Part, Day of Week

– Targeting by Interest – Sections, Content

– Targeting by Geography – National vs. Local

• One Newspaper found Entertainment Impressions consistently sold

out

– Exempt these Impressions from the Meter

– Raise Advertising Rates

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Digital Content – Test All Aspects of the Digital Program Using Multivariate Testing Program

• Meter levels for the web site, perhaps by section

• Price points – Stand alone products and bundles

• Annual vs. Monthly price ratio

• Warning message presentation for metered web site

• Acquisition messaging for bundles

• Track: Page Views, Unique Visitors, Conversion Rate, Machine ID, Mac ID, IP address (ABC advantages for having machine ID/mac ID)


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Strategically Set “List Rates” To Build Perception of Value & Make Subsequent Prices Changes Easier

• Many newspapers are making their target price the “list price”

• If they hope to acquire customers at $5.95 per month, that is their list price

• New product pricing suggests creating a “reference price” that the customer will use to gauge the value of the product

• Acquiring customers on a “promotional rate” gives them a sense of receiving a good value for their payment, and it gives the perception of higher value for the product

• Just as in print pricing, no one has to be acquired on the list rate


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Digital Bundle Price Test – Raising Relative Price of Digital-Only to the Bundle Increases Adoption at Same Monthly Price

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Selling Digital Content – Pricing Benchmarks

• Average Digital Pricing:

– Digital-only Prices typically from $4.95-$9.95/month

– Adding Digital to Print customers typically $0-$2.95/month

• For Digital-only:

– 33% of publishers charge less than $6.95/month

– 40% of publishers charge between $6.95/month and $6.99/month

– 27% of publishers charge more than $6.99/month

• For Print subscribers:

– 80% of publishers charge print subscribers for digital access

– The average discount for print subscribers for digital access is 71.5% (vs. Digital-only price)

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Average Subscription Prices – Note: these prices are predominantly from smaller market newspapers

• Print subscriber prices:

– Annual: $17

– Monthly: $2.25

• Online-only subscriber prices:

– Annual: $55

– Monthly: $6.95


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Average Meter Settings For Publishers

• Welcome meters are set at 3

– Range: 1 to 16

• Warn meters are set at 12

– Range: 3 to 26

• Stop meters are set at 14

– Range: 3 to 36


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What percentage of a newspaper’s site unique visitors are signing up for digital access-only subs?

• The New York Times broke the 1% barrier last year: 390,000 subs compared to 33 million U.S. unique visitors.

• The Memphis Commercial Appeal: 0.8%

• The Minneapolis Star Tribune: 0.25%

• The Columbia Tribune: 0.2%

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Factors That Can Inflate Unique Visitors Counts in Logfile Tools

Factor

Portion of

Visitor Base

Over-Count

Possible per

Visitor

Clear-Cookies Daily/Weekly 34% 4 to 18 times

Access both Home/Work 38% 2 times

Other Multiple computer users 14% 2 times

Multiple Browsers Unknown 2 times

Effects compound for each computer used --and over 50% of users report 2 or more

computers used in a month.

Digital Content Business Model – Early Observations

• Free web sites cannibalize paid Apps but not e-editions

• Mobile growing much faster than Web traffic or Apps

• $0.99 introductory offers work well with 80% retention following introductory term

• 50% of digital customers are print subscribers

• 45% of digital advertising space sold as remnant with little revenue

• 20% average loss of page views from metering or porous pay walls

• Bundling Sunday Print with Digital can yield 5% growth in Sunday Home Delivery

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Digital Content – Pricing Recommendations

• Digital content pricing strategy needs to reflect digital advertising revenue & inventory at risk

• Include all digital content formats in your digital offer – bundle Apps, Digital Replica, and the Web Site

• Consider low-cost introductory offers, such as $0.99 for 4 weeks

• Create incentives for subscribers to select bundles that yield incremental print subscriptions from digital customers

• Test everything: Meters, Pricing, Messaging

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Key Takeaways

• Have a dynamic meter that maximizes total digital revenue

• Use an “opt-out” conversion strategy for your current print subscribers

• Lead with Print, add value with Digital, and raise your price

• Tag the vast majority of your content to count against the meter

• Add a “Subscribe Now” button to your web pages

• Test meter levels, price points, messaging

• Have a high “List Rate” for subscriptions and sell using promotional offers


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46 Contact Information

Matt Lindsay, Ph.D.

Mather Economics LLC

43 Woodstock Street

Roswell Historic District

Roswell, Georgia 30075

[email protected]

www.mathereconomics.com

(404) 395-4937 direct

(770) 993-4111 main

(770) 993-4977 facsimile

mailto:[email protected]

http://www.mathereconomics.com/

Documents

Mather Economics Multi-Platform Pricing Executive Overview