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You are here: Home / analytics / The Publisher’s Dilemma

The Publisher’s Dilemma

February 21, 2017 by Matt Lindsay Leave a Comment

Image of print type and title textOne of the most difficult analytical challenges facing digital publishers is measuring the effect of quality on revenue and profits.

Quality is a characteristic, much like beauty, that is in the eye of the beholder. What counts as quality content and an excellent user experience to one reader may be shoddy and irritating to another.

Quality is hard to measure because there is no recognized “quality” attribute with definable dimensions. Is it the frequency of publishing new articles? Is it the average length of posted videos? Despite the challenge of measurement and consensus, quality is a “thing,” and it is the attribute that differentiates digital publishers most profoundly. 

Quality Leads to Engagement

High quality products lead to greater user engagement, another difficult-but-not-impossible-to-measure metric. Engagement for a customer can be captured in their frequency of visits, how recent their last visit was, and the time they spent on the site. Other dimensions of a visitor’s interaction with a site can be used to measure engagement too, but these are the three main metrics used by the Financial Times and other leading digital publishers. 

Engagement is observed to lower churn among existing subscribers and increase conversion of non-subscribers. Certainly, there is value in keeping more of your existing customers and getting more new ones, but what is that value? How much investment in quality content, and thus engagement, is justified? How many advertising positions should be removed, and revenue lost, to improve the customer experience? These questions are at the heart of the publisher’s dilemma.

Quality vs Quantity

The publisher’s dilemma is balancing advertising revenue with audience revenue, particularly for digital products. Digital products face a more immediate and direct tradeoff between advertising and audience revenue than print products, and executing an integrated product and pricing strategy is crucial for publisher’s digital survival. 

Digital advertising revenue is a function of the number of impressions delivered and effective CPMs. Digital audience revenue is a function of sales attempts and conversion rates while acquiring new customers and retention and average rates while managing existing customers. 

At their core, these two digital revenue streams are in opposition, and for editorial staff and newsrooms, balancing these two sources of revenue requires balancing the quality of the product with the quantity of the product. In the most basic characterization of this dynamic, advertising revenue depends on quantity of audience impressions while audience revenue depends on quality of content.

More Audience Revenue Requires Higher Quality User Experience

As digital advertising revenue, particularly display ads, plateaus on publisher sites, the need for greater audience revenue is paramount. The trend in the publishing industry for years has been to erect paywalls to limit consumption of the content without some form of audience payment, but too often this desire for paying subscribers has not been supported by an increase in the quality of the digital product.

Some publishers have tried multi-site strategies, notably the Boston Globe and the Atlanta Journal Constitution. They have targeted one site at the large nonpaying audience and another site at their paying audience. These efforts have had some success, but they cause additional costs to the Publisher and there are challenges in referring potential new paying subscribers to the paid site from the free one. 

Current Case Studies

Other publishers, notably Advance, publisher of the Oregonian in Portland and the Times Picayune in New Orleans, have foregone digital audience revenue altogether and focused on growing advertising revenue. To support the advertising-only revenue model, they must capture as much data as possible on their audience and use it for targeted ads to increase their average CPM. The additional tracking and targeting causes site speed to slow down, and the data capture on the audience may become burdensome and annoying to the users.

Measuring Success

So, what metrics are important for balancing quantity and quality and thus advertising and audience revenue? The important data to capture are revenue by individual user. This is difficult because it requires attaching advertising revenue from the impressions delivered to an individual user to the site traffic data for that individual. 

Ideally, the data would also include what happened to the user as the went through a paywall funnel. Using these data, the publisher can identify the combination of product attributes, including premium content access, quality user experience, and price point, where expected advertising revenue and audience revenue is maximized. 

There are many analytical approaches that can be applied to this question, including estimating customer’s propensity to subscribe using logic models, segmentation of the online audience through statistical clustering, hedonic pricing models, and survival analysis. These tools are helpful when used within a framework for optimizing the digital publishing business model where trade-offs of different business rules are quantified. 

As in many economic questions, the point of maximum revenue for firms that have two distinct customer groups such as advertisers and audiences, is where the next dollar of one type of revenue costs you one dollar of another type of revenue. In the digital publishing context, the optimal metering strategy for a digital product would be where the paywall restricts access to the content to the point where the expected audience revenue from the next paywall “hit” is equal to the lost advertising revenue from limiting access and not less, otherwise you should adjust your content access settings, prices and product.

The publisher’s dilemma is a critical challenge not only for news media companies for many digital companies that rely on a mix of revenue streams, particularly those, like publishers, where the needs of their two customer groups have such different effects on the product. 

Filed Under: analytics, Digital Publishing, Publishing

About Matt Lindsay

Matt Lindsay, president of Mather Economics, has more than 20 years of experience in helping businesses improve performance and drive revenue through economic modeling. In consulting roles over the past 15 years, he has shared this expertise and developed pricing strategies and predictive models for clients, including the Intercontinental Exchange, Gannett, The Home Depot, NRG Energy, Tribune, IHG, McClatchy, the Everglades Foundation, the Walton Foundation, Dow Jones, and The New York Times.

Prior to joining Mather Economics, Lindsay worked with the Corporate Economics Group to leverage information on price elasticity and marginal network costs to improve profitability by customer for the United Parcel Service (UPS). He began his consulting career with Arthur Andersen, working in the firm’s Atlanta strategy practice.

Lindsay’s extensive experience in marketing spend effectiveness optimization, customer retention, analysis and the resulting predictive models have been used to support strategic pricing decisions, marketing initiatives and customer acquisition tactics, ultimately generating millions of dollars in incremental profits for his clients. He is a sought after expert and frequently speaks at industry events including the NAA’s MediaXchange, the INMA World Congress, and the WAN-IFRA World Newspaper Conference.

Lindsay has a doctorate in economics from the University of Georgia, a master of applied economics from Clemson University and an undergraduate degree in economics from the University of Georgia.

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