RESEARCH & RESOURCES

Changing Publishing Industry Drives Need for New Analytics

Changes are occurring in the publishing industry as digital distribution platforms grow in importance and print distribution declines. In this two-part series, we examine and describe the new business environment and how data analytics can help.

By Matt Lindsay, Ph.D., President, Mather Economics

The digital transformation of the publishing industry is creating new opportunities for publishers to use data and analytics to drive strategy. In this two-part discussion, we discuss how evolving business conditions require new data-driven decisions on the part of publishers and several recent innovations that support the new digital publishing business model. This article will provide context and background about the challenges facing publishers. The second article, available next week, will describe how innovative publishers are using data and analytics to grow digital revenue.

Publishers are finding that their digital transformation is causing a shift in revenue sources from advertising to audience payments for two reasons, both the result of the Internet’s emergence: the proliferation of advertising opportunities outside the print medium provided by newspapers and the expansion of the market reach of publishers. Revenue of several leading publishers is over half of total revenue, and this will continue as their revenue moves from print to digital products.

This shift in revenue sources for publishers has profound implications for the way journalism companies manage their business, and it will require a new set of capabilities for news publications to succeed. Specifically, publishers will need to understand their customers, segment them based on their preferences and price elasticity, and target them for acquisition, up-sell, and retention offers. Because advertising will still be a significant source of revenue, they can use their data about their audience to sell targeted impressions to advertisers or to platform firms as we will discuss later.

Analytics about its audience will take on a greater importance for publishers. The transition will likely resemble the evolution of other industries that have experienced significant disruption from new technologies or regulatory changes, specifically airlines and hotels, which now generate almost all of their profits from yield-management strategies driven by customer analytics.

Understanding digital audiences requires enterprises to process and analyze enormous amounts of data to develop actionable insights. A vast number of tools that have been developed, but many require large capital investments or specialized technical skills. These technologies and tools will become less expensive over time, but the ability to use these data and tools to increase revenue and operating margins will likely remain expensive and be hard to cultivate internally for midsize and small publishers.

Two approaches for applying customer insights to improve a publisher’s financial performance is to target subscription and retention offers to specific customers based on their interests and to package content into products and bundles that appeal to specific customer segments. Targeted pricing can improve top-line revenue while minimizing customer churn. Product development can improve conversion rates from acquisition offers and provide additional pricing differentiation across the customer base.

As publishers begin to understand their individual customers, whether paying customers or anonymous visitors, we recommend they start with the end in mind. Understand what decisions will be affected by the analysis, what analysis will be completed, and what data is necessary to answer the specific questions addressed. That process will enable publishers to focus on getting the right data from the outset, which should save time and money.

Just as the Internet enables targeted advertising using data about individuals’ content consumption and online behavior, it also expands the reach of publishers outside their traditional markets, which were defined historically by their print circulation footprint. Publishers now can monetize audiences far from their direct market because the marginal cost of reaching these remote audiences via digital distribution channels is close to zero. Although the probability of converting digital readers to subscribers likely decreases if they are not in the core market, the volume of vast number of readers that can be reached means a small conversion rate can still produce material numbers of subscribers, which is why sharing their content on social platforms is compelling to publishers.

The advertising market has dramatically changed as publishers transition to digital platforms. Digital advertising is a data-driven activity with advertisers seeking greater targeting and measurable benefits from their marketing investment, which is leading them in ever-greater numbers to focus on digital advertising channels at the expense of print.

At the same time, the market for digital advertising inventory is dominated by a few platform firms with enormous audiences: Facebook, Google, Apple, and Twitter. These platform firms are courting publishers for access to their content, and the advertising revenue shares offered publishers are now reaching 70 percent for advertising sold by the platforms. If the publisher sells the advertising, it keeps 100 percent of the revenue. The risk publishers face is that they will cannibalize their digital subscriptions by providing readers free access to their content through the platforms. The opportunity they hope to realize is to use the access to readers provided by the platforms to sell digital subscriptions.

Publishers will soon need to assign individual content items to social platforms that are effective in building a relationship between the reader and the brand so digital subscription relationships can be sold. Publishers will also need to identify content that should be distributed only to their paying premium subscribers to keep them engaged with their products. Once the content is on the social platforms, they will need to track what happens to that content to make sure it is consistent with their brand image and reputation.

A Look Ahead

In this article, we have described the changes occurring in the publishing industry as digital distribution platforms grow in importance and print distribution declines. In Part 2, available here, we discuss the innovations in applied analytics enabled by data technologies that are showing potential for increasing digital revenue and audiences. We believe that the industry will ultimately succeed in finding a hybrid business model that balances print and digital products while maximizing both audience and advertising revenue.

Matt Lindsay, president of Mather Economics, has more than 20 years of experience developing pricing strategies and predictive models that enable clients to improve performance and drive revenue. In consulting roles over the past 15 years, he has shared this expertise and developed pricing strategies and predictive models for such clients as the Intercontinental Exchange, Gannett, The Home Depot, Dow Jones, and The New York Times. Prior to joining Mather Economics, Mather worked with the Corporate Economics Group to leverage information on price elasticity and marginal network costs to improve profitability by customer for United Parcel Service. You may reach him at matt@mathereconomics.com .

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