Commentary

How Local Newspapers Can Boost Digital Reader Revenue

The New York Timeshas been an exemplary model of a newspaper that has worked to offset declining advertising revenue with gains in subscriptions -- especially digital.

A key question is whether local newspapers can mimic that strategy on a smaller scale than The Times, which has a national and global reach far beyond its namesake city.

Other city newspapers may not have the same scale, but that doesn't mean they should abandon their efforts to develop sustainable publishing businesses that withstand the threats from digital rivals like internet search and social media.

I believe this after reading the personal account of Ryan Nakashima, product manager of digital subscriptions at Bay Area News Group. Last week, he published a blog on Medium about his company's development of a premium subscription service.

His company, which is indirectly owned by hedge fund Alden Global Capital, has been working on the service with funding from the Google News Initiative. The search giant last year awarded $5.8 million in grants for dozens of projects that "inject new ideas into the news industry," and this year asked more organizations to apply for its second round of innovation funding.

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The lesson here isn't that publishers need a grant from Google support digital innovation. Instead, Nakashima provides interesting insights about the company's effort to develop digital services for subscribers. Those services include ad-free website access, news recommendations based on location, VIP treatment at live events and giving digital subscribers a way to show "privileged" status in comment sections.

Without repeating everything Nakashia covers, I recommend publishers read his blog for the insights about pricing strategies that increase reader revenue. For example, his team ran tests to decide the best price for an ad-free digital subscription, and determined that charging an extra $4 a month -- or 28% to 33% above the standard price -- maximized revenue and helped to boost engagement.

About one-fifth of new subscribers sign up for the more expensive ad-free service, he said. If the same portion of its entire digital subscriber base paid 33% more for a subscription, reader revenue would climb 7%, Nakashima estimated. The company plans to begin preventing subscribers from using third-party ad blockers, a move that may boost the incentive to pay for ad-free service.

The lost ad revenue from premium subscribers is way below the increase in revenue, he said. "And we’ve already recouped the small amount we spent on development.”

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