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Oliver Reichenstein’s “Business Class: Freemium for News?” has kicked off a lot of discussion around new ways to approach monetizing online news by adopting the airline’s business model. The analogy is that airplanes take everyone to the same place, yet some people are willing to pay much more for a better experience. In much the same way, newspapers could have “economy class” and “business class” versions of the website. To explore this idea more, I’ve run some basic numbers behind feasibility and offered some suggestions for accomplishing it.
First, our baseline. From McClatchy’s public financials and its Quantcast analytics, some quick division reveals that the average unique visitor is worth about $12/year in digital advertising revenue. Of course, not all unique visitors are worth the same. In fact, 1 percent of its Miami Herald visitors, the news addicts most likely to subscribe, constitute close to a whopping 10 percent of all visits to the Miami newspaper. Therefore, each of these news addicts is worth $120/year in digital advertising revenue.
If you do the math (i.e. back out from the weighted average of $12/year/user), 99 percent of users (call this the paper’s “economy class” customers) are worth $11/year/user to the Herald, while the remaining 1 percent of users (call this “business class”) is worth $120/year/user. For similar newspapers to improve their online revenue, those are the numbers they would need to beat.
Can it be done?
$120/year/user represents the minimum price point for charging diehard readers. The New York Times is charging non-print subscribers roughly $195/year for basic regular digital access and $455/year for digital access on any web-enabled device. Competing local newspapers will likely have to price themselves lower than NYTimes.com’s lowest tier, but that still leaves a difference of $75/year to experiment within. The pricing doesn’t necessarily have to be so high if more than 1 percent of users could be relied on to convert to business class or if those diehard readers account for less than 10 percent of traffic. In short, it seems possible as long as the users are getting enough value. So newspapers need to deliver more value, and get paid for it by their most avid readers.
So what might hardcore readers want in exchange?
— Enhanced Readability: Newspapers can learn from the popularity of iPad apps like Instapaper that strip out a lot of the design elements meant purely for marketing more content. Also, they should reduce the number of ads shown to these paying customers to perhaps a single logo or sponsorship message, which would generate incremental ad revenue on top of the subscription fee. These changes will improve the engagement with the article and benefit those who value a clean experience.
— Superior Design: A quick glance at any major newspaper website makes it clear that clean, efficient design has been compromised to create more ad inventory and content promotion. For consumers willing to pay for a cleaner experience, design should reign supreme. These paying users can also get higher resolution photos, which contribute to the aesthetics. Newspapers can also make versions of their news optimized for mobile devices available only to business class customers.
— Human Touch : One of the biggest costs to newspapers is paying its staff of writers. Newspapers should change this cost into a benefit for paying customers by giving them access to human-made recommendations for what is the most relevant and interesting news. The content suggestions and annotations by editors could be for internal and external content. Writers and editors should also be open to answering questions about articles and interacting with these paying readers. This could all happen privately on Twitter, Tumblr or on the publisher’s website.
— Social Status : Elite-class readers could get recognition through a special privileges like a vanity URL shortener (bostonselect.com/HY135). They could also get their social media accounts highlighted in a special section on what locals are reading and caring about – a local leaderboard for news. In advance of new articles, elite readers could be invited to send their opinions in on topics so that they get featured as the local reaction to the news. By involving the most loyal user base, newspapers can draw in more of the community since these users can be counted on to promote the media even more if they are involved.
Many people will never want to pay for online news because there are so many free sources, including social media for hyperlocal news, and they don’t read enough news regularly to want to pay for it. To improve monetization of these users, two things can be done:
— Better Ads: Newspapers need to improve the ad quality to get higher CPMs and engagement by focusing on better design, placement and relevancy. Reducing the number of ad units per page is one route to driving up CPMs. Deploying emerging ad formats that are larger and more conducive to branding or displaying useful information could be a great start. Specifically, offering localization of display ads can help capture Big Box retail ad dollars by providing those advertisers with a unique combination of local audience, local context, and local information on product availability, reviews, etc. Localized ads will improve the overall experience for non-paying users.
— Registration: To sell higher priced ads and deliver more relevant ones, newspaper websites should require registration after the second or third visit to avoid alienating passer-by users. This registration doesn’t have to be much more than having users connect their Facebook account or filling out name, gender and ZIP code. The basic demographic data can enable far better ad-targeting and surprisingly few sites require registration to read multiple articles.
Providing free news online will continue to be a necessity, but newspapers need to start improving and differentiating experiences on their websites to capture the different economic value of users. Adding a business class is just the first step in getting newspapers to take off online.