Using metrics such as Customer Lifetime Value can help news organizations decide how to invest their resources
Last month, the Portland Press-Herald decided to stop publishing regional book reviews focused on Maine authors.
It was a business decision. Lisa DeSisto, CEO of Press-Herald owner MaineToday, told me that the reviews were eliminated as part of a yearly budgeting process. The newspaper knew it would still have book reviews from syndicated services, which cost less than those produced by freelancers and tend to focus on books with more popularity among readers. Plus, the regional book reviews were not a big generator of revenue — especially digital advertising revenue.
“They don’t get much traffic online,” DeSisto said.
The Press-Herald was making exactly the kind of data-driven decision that newspaper companies are constantly urged to make in the digital era. The cost of producing the reviews was disproportionate to the value they delivered.
Until, that is, Stephen King intervened and helped the paper generate what will likely amount to more than $50,000 in new revenue while highlighting an important lesson for publishers: News organizations can make smarter decisions by thinking about their content in terms of the long-term value it can drive from digital subscribers.
In a story that has since gone viral and been reported in a number of news outlets, King, the author and Maine native, urged the Press-Herald to reverse it decision on Twitter, drawing tens of thousands of likes, comments and retweets.
The paper responded with an offer: If 100 new readers signed up for digital subscriptions, the Press-Herald would keep its local book reviews.
King encouraged his followers to subscribe, and within 48 hours the Press-Herald more than doubled its goal and generated a feel-good story. The regional book reviews were saved.
It’s easy to take the obvious lessons from this saga: celebrity endorsements are still effective; a lot of people still read and care about books; and people in Maine will do pretty much anything if Stephen King is the one asking.
But I’m a digital subscription marketer, and when I heard the story, I thought immediately about the economics behind it. In particular, it made me think about how publishers can make smart content decisions by looking at reader demand through subscription metrics such as Customer Lifetime Value.
Customer Lifetime Value, or CLV, is a calculation of the total revenue driven by one customer who signs up for your service over the entirety of the time they have a business relationship with you. For subscription businesses, it’s a particularly important metric because revenue from customers is by definition doled out over time.
For example, if a publisher knows that the average subscriber will pay $9.99/month for 24 months before canceling, they know that for every new subscription they sell, they’ll generate $239.76 in revenue on average.
This is a valuable metric for determining the return on investment of marketing spending — if it costs me an average of $25 to get a new subscriber through marketing efforts, but the average lifetime value for a subscriber is $239.76, I can better justify allocating funds to marketing the subscription product. This is especially true for digital subscriptions, which cost very little to deliver once your technology infrastructure is in place. (Printed publications, by comparison, cost money to print and deliver for each new subscriber, cutting into the margins significantly.)
To date, CLV has primarily been used by publishers for marketing purposes. But as the Press-Herald book review saga illustrates, this kind of metric can also be valuable to publishers in making decisions about what kind of coverage to produce — and what to stop producing.
Let’s look at the Press-Herald’s decision in the context of CLV. For a digital-only subscription, the Press-Herald charges $11.99 every four weeks, which falls at just about the median level for metro and regional newspapers according to The Lenfest Institute’s benchmarks:
CLV is a function of both price and retention, so let’s assume that the Press-Herald’s Monthly Retention Rate is about the median on this benchmarking chart as well. That would mean that about 94 percent of Press-Herald digital subscribers maintain their subscription each month:
Using a simplistic CLV calculation* (Average Monthly Revenue Per User / Average Monthly Churn Rate), that would put the Press-Herald’s CLV at about $213 per customer. (This is derived by dividing an estimated monthly revenue per user of $11.99 / an average monthly churn rate of 5.6%, or .056, which both fall at the median among publishers.) DeSisto confirmed that the Press-Herald’s internal CLV metric is similar to this estimate.
That means that reaching the goal of 100 new subscribers would generate more than $20,000 in new revenue for the Press-Herald. According to DeSisto, the Press-Herald more than doubled that target, gaining 275 new subscribers, which would put projected revenue generated in the realm of $58,850 or more. Book reviews are primarily written by freelancers; even factoring in generous freelance fees, that boost alone would be enough to justify continuing to produce the reviews for some time.
The Press-Herald’s story underscores one of the greatest benefits of the industry’s shift from digital advertising to digital reader revenue: Reader revenue models align publishers’ financial incentives with what readers actually want. In an advertising-only universe, it’s unlikely that regional book reviews could ever be a winner digitally. It’s the kind of niche content category that can drive high interest from a small number of readers, but will never drive a particularly high volume of page views or ad impressions.
With a reader revenue model, though, publishers can follow reader demand. Even though the number of readers may be small, if they’re willing to pay for the reporting, then it can still be worthwhile to publish.
“Our editor, Cliff Schechtman, says to me repeatedly, ‘Every feature has a constituency,’” said DeSisto. “We didn’t realize how passionate the local community was about these reviews. It was heartening to see so many people support the return of local book reviews by subscribing to the Portland Press-Herald.”
She continued: “The whole experience was a great reminder of the importance of listening to your customers.”
As this shift toward reader revenue continues, I expect more publishers will begin to view their editorial and staffing decisions in this way — focusing on what’s most valuable to readers, rather than simply what generates the most clicks. The result will be higher-quality, more engaging coverage, and better journalism — and a more sustainable industry to produce it.
* This simple, straightforward CLV formula serves our purposes for this article, but if you’re using CLV for more advanced marketing decisions, there are a number of more sophisticated ways to calculate CLV that might better meet your needs as a marketer.