This week’s Media Briefing looks at the pros and cons of publishers using monthly vs. annual subscriptions to improve retention rates.
Monthly vs. annual
Publishers’ ability to retain paying subscribers is becoming a bit more of a challenge as churn rates gradually increase. But not all cohorts of readers are at the same level of risk for letting their subscriptions lapse.
While the average churn rate for publishers increased from 3-4% in 2021 to 4-5% in 2022, the retention rates are typically between 25-30% better for annual plans than monthly plans, according to Justin Eisenband, managing director of the Telecom, Media & Technology industry group at FTI Consulting,
Therefore, publishers looking to better secure their recurring revenue businesses should prioritize their annual subscription offerings to readers by upselling existing monthly subscribers or marketing the annual subscription to non-subscribed readers.
“The more focus you have on annual subscriptions, the better your churn rate is going to be,” Eisenband stated. And while this may be the case for the publisher clients that Eisenband oversees, including from The Wall Street Journal, Dotdash Meredith, Gannett and Hearst, other publishers, like Salon, have reported an opposite phenomenon in their subscription businesses.
Charging $100 per year for a subscription, Salon’s annual subscribers will often forget about the purchase made a year ago and will write to Justin Wohl, Salon’s chief revenue officer, to ask for a cancellation and refund.
“[A] higher percentage of people [will] say, ‘Hey, what is this charge,’ when it comes once and it’s a big number, versus getting [charged] $10 a month and [becoming] familiar with seeing it on their bill,” said Wohl.
Here is a case for and against monthly and annual subscriptions in a publishers’ retention strategy.
- Retention rates are higher on average.
- On average, at the end of their first year of subscribing, only 46% of monthly subscribers are left while 74% of annual subscribers remain, according to the Piano Benchmarks Report from 2021.
- The reason being: While monthly subscribers have 12 opportunities to cancel their subscription or experience a lapse in payment per year, annual subscribers only have one.
- Looking specifically at consumer news publications, Eisenband said that annual subscribers have a retention rate of around 65-80% after their first 52-weeks of subscribing, where monthly subscribers retain closer to 50-60%.
- Business subscriptions only have to be expensed once per year.
- One of the reasons why Bloomberg Media is prioritizing annual subscriptions this year is because it’s substantially easier for readers who expense their subscriptions with their companies.
- “When you look at our user base, a good portion of our users are using us in a business context, [and] I think that annual subscriptions seem to make a lot of sense. You don’t have to expense it monthly, for example,” said Julia Beizer, chief digital officer at Bloomberg Media.
- More opportunities for discount marketing.
- A subscription business is just as much centered on revenue as any other part of a publishers’ business, so discounting the subscription cost on a monthly basis to attract more subscribers can have a more drastic impact to the bottom line versus discounting an annual subscription price.
- “Creating incentives for people to pick annual could [include playing up] the pricing differential between annual and monthly. If you price annual at a bigger-than-typical discount, the annual is still worth way more than the monthly because of the higher retention rates,” said Michael Silberman, Piano’s evp of strategy and social. [Editor’s note: Piano is a contracted vendor with Digiday.]
- A discount of 30-40% off an annual subscription versus the typical 15% discount (approximately the price of getting 12 months for the cost of 10 months in a monthly subscription), has helped with increasing new acquisitions of this model, Silberman said, though he did not provide exact data to back this up.
- Measuring churn is going to take longer.
- “It’s harder to see those patterns [in retention and growth] because it takes way longer for those patterns to play out,” said Silberman. However, it’s been a significant trend amongst many publishers on the Piano platform to try to sell more long-term subscriptions over the past year, in an attempt to boost overall retention, he added. More data is likely to come on the results of this trend throughout this next year.
- Large, recurring payments could catch readers by surprise – especially in an economic downturn.
- “People forget that they bought an annual [subscription] and so 12 months later when their credit card statement shows another $100 got billed to them for their subscription renewal, the message [I receive is], ‘what the heck, I didn’t agree to this,’” said Wohl.
- Passive churn, like cancelations through credit card failures, could ultimately be higher, however.
- “That can be a little bit challenging with credit card failures [or passive churn], because when you do an annual charge, you’re asking people to pay more upfront,” added Eisenband.
- Charging a several hundred dollar fee has a higher risk of maxing out a credit card than a much lower monthly cost.
- For some publishers, retention rates are higher for monthly subscriptions vs. annual.
- Salon has a 50% higher churn rate on annual subscriptions when they come up for renewal compared to its monthly churn rate, said Wohl. The company’s average churn rate for the past 12 months was 2.18%.
- Lower price points are going to appeal to a certain demographic of readers.
- While annual subscriptions could potentially offer higher discount rates, some customers are simply not going to be able to shell out hundreds of dollars for a subscription, especially during an economic downturn.
- Eisenband said that there is a good deal of churn coming from “share of wallet issues. I’ve noticed a slight uptick in the non-payment due to credit card failure, which could still be economically based [if] their credit cards don’t go through.”
- More opportunity for passive churn
- While annual subscriptions have a risk for passive churn regarding price point, monthly subscriptions have a higher possibility overall of running into a canceled or maxed-out credit card.
- “That is actually where we’re seeing [a] rise in churn,” said Beizer. “It’s primarily on the involuntary side and so one of the real benefits of annual is that we only hit that credit card once and then we hit it again in 12 months. Whereas if you’re on a monthly plan, we have 12 times for that credit card to fail.”
- Less time to turn into a daily habit for a new subscriber
- Retention will often come down to how frequently a reader comes to the website they’re paying for and whether or not they’ve built the habit of returning to a site daily or weekly. The timeframe in which a publisher has to develop and nurture that habit in a reader is much shorter for a monthly subscriber than it is for an annual subscriber.
- “The annual plan really does allow us to have this long period where we get to continually sell the value and engage that user with our product to become part of that daily habit,” said Beizer.
What we’ve heard
“[Our advertising revenue is] pretty in line with what our expectations were for Q1, maybe a little soft, but [within] a couple point range as opposed to double digits. Programmatic did get off to a pretty slow [start]. It always gets off to a slow start in January, [but] from a CPM perspective, this year got off to an even slower start than usual. But the last week/week and a half, the CPMs have started to take off pretty quickly. We should be expecting a relatively normal February and March from a programmatic perspective if the current trends hold.”
– Anonymous media executive
Media employees take on newsletters, podcasts and other personal projects post-layoffs
Week after week, publishers keep announcing more layoffs, leaving hundreds of media employees jobless. In a similar pattern to what we saw in 2020, those employees are developing their own personal projects as a back-up plan.
While the sting of these layoffs are still fresh, some media workers are pivoting to newsletters, podcasts and self-owned businesses to get them through this dark time.
One journalist, who asked to remain anonymous, announced they were fired in a tweet in January and directed their thousands of Twitter followers to their Substack newsletter. Within a week, that tweet led to 100 new Substack subscribers, the journalist said.
As of last week, Substack had seen a 38% increase in new publications created in January, compared to December 2022. “Increased volatility in the media industry” is one of the reasons for this spike, a Substack spokesperson said.
Nate Wilcox, a former editorial manager at Vox Media, was also let go in January. He’s crowdfunding to keep his twice-weekly, music history podcast (which brings in advertising revenue) going without the financial support of his full-time salary. So far, he’s raised $5,000 out of his $6,000 goal, which he estimated will be enough to produce 100 more episodes. Wilcox was previously a political consultant, so he’s also looking into providing training on the side.
Phoebe Gavin was the former executive director of talent and development at Vox Media. After getting laid off, she decided to go all-in on her career coaching side business, which was originally a mentoring program she founded in 2018. Gavin is hoping to earn the equivalent of her former full-time salary.
Gavin said she encourages her journalist clients to experiment with side hustles. “There is a lot of room for journalists to create their own brand that they have control over, and to have reader-supported journalism,” she said. “That can create a cushion for you…[and] a viable source of income.” — Sara Guaglione
Numbers to know
10%: The amount that Snapchat forecasted its ad revenue could drop by during the first three months of 2023.
274: The number of people who were laid off from Dotdash Meredith last week, representing 7% of total staff.
43%: The percentage of 71 publishers who told Digiday+ Research that they agree that their companies’ advertising revenue will grow this year — a significant drop-off from the 75% who said so in 2022.
What we’ve covered
The programmatic open marketplace is faltering, but publishers see a bright spot in private programmatic deals:
- Three mid-size to large-size national publishers told Digiday that their RPMs (revenue earned per 1,000 page views) are down between 20-55% for their programmatic open marketplace businesses.
- There is still hope held by several media execs that programmatic direct deals can make up for the shortfalls on the direct sales and open programmatic ends of the business.
Learn more about the state of publishers’ programmatic businesses here.
Why TheSoul Publishing’s Victor Potrel isn’t overthinking how YouTube Shorts will share ad revenue with creators and publishers:
- The media company behind 5-Minute Crafts is among the short-form video makers welcoming the capital infusion from YouTube Shorts as the platform turns on its revenue share program this month.
- Excited as TheSoul Publishing may be, the company isn’t about to overhaul its strategy to capitalize the YouTube Shorts revenue-sharing program.
Listen to the conversation with Potrel on the latest episode of the Digiday Podcast here.
Podcast ad buyers have yet to see a slowdown:
- Podcast ad buyers have yet to see notable budget cuts from their clients — though the time of podcasts as the shiny new medium may be coming to an end.
- Four podcast ad buyers told Digiday their clients’ budgets are not getting slashed. Instead, they are continuing to see an increase in brands’ podcast ad spend.
Read more about the state of podcast advertising spend here.
Atlas Obscura wants to be profitable before raising funds in a tricky media market:
- Atlas Obscura wants to turn a profit this year before it raises another funding round, at a time when publishers are facing lower valuations and pickier investors as deal activity slows.
- Webster said the company is on track for profitability by the second half of 2023, and that part of Q4 2022 was profitable.
Learn more about Atlas Obscura’s path to profitability here.
Publishers report Q1 ad revenue is pacing 10-25% behind forecasts:
- The first quarter is off to a rocky start for publishers’ advertising businesses, with January pacing between 10% to 25% off three publishers’ projected targets.
- “This quarter has been extremely slow. The first two weeks were crickets and it was silent. It was a little bit unsettling,” said a media executive.
Read more about the state of publishers’ Q1 ad businesses here.
What we’re reading
Bloomberg Media is rebranding its “Quicktake” streaming channel to “Bloomberg Originals,” according to a report by The Wall Street Journal, in an effort to better represent the longer-form content it plans to create for the platform.
In 2020, Insider boasted a new D.C.-based team that was tasked with reporting impactful scoops, but three years later, the bureau has all but collapsed, according to The Daily Beast.
BDG will be suspending operations at Gawker, just two years after reviving the site, and lay off its current employees, according to a note to staff from the company’s CEO Bryan Goldberg that was shared with and subsequently tweeted by Semafor reporter Max Tani. First quarter had been “surprisingly difficult,” Goldberg said in the note, leading to the decision to lay off 8% of total full-time staffers.
Substack’s new pledge feature gives readers the opportunity to submit their credit card information to Substack writers who are not currently charging for their products, reported Axios. The idea is that seeing the number of pledges will encourage the writers to start charging for their content.
Video news organization The News Movement, created by former BBC and News Corp. execs, wants to establish its brand in the U.S. and is using its acquisition of social video publisher The Recount to do so, reported Semafor. While The Recount was able to secure millions of views, it failed to figure out a revenue model, but The News Movement is hoping to remedy those errors and kickstart a successful media brand on TikTok.