Ouch, inflation! At a level, we have not seen in decades, inflation affects both media companies and their customers. Consumers cancel subscriptions, and media companies respond to inflation by increasing prices. But how sensitive is the media market to price increases? Will inflation lead to further loss of subscribers? And how do you develop an intelligent strategy to deal with it all?
As inflation increases, everything becomes more expensive. But some commodities are more sensitive to price increases than others. As you know, consumers will typically move their assets to focus on the necessities of life and will choose not to spend money on things that are perceived as being optional or considered to be luxurious items.
So, as the price of a commodity goes up, consumption may go down, according to the price elasticity of the commodity in question. Some commodities such as gasoline are inelastic, meaning that consumers will buy gas regardless of how prices go up. On the other hand, products such as cars or household appliances are highly price-elastic, because you can always wait to buy until a strong incentive (typically in the form of a hefty discount) comes along.
So, the big question is: How price-elastic is the consumption of news content and subscriptions?
Mather Economics has investigated this and is constantly monitoring the trends to advise media companies on the best pricing strategy. And looking back over a period of two years, and using data from hundreds of websites worldwide, they conclude that price elasticity for media consumption has stayed at the same level or even showed signs of decreasing.
“This makes sense,” Matt Lindsay, President of Mather Economics told us. “Consumers may be more willing to accept price changes of news subscriptions since relative prices will remain consistent. In other words, if you raise the subscription price in a period of inflation, the relative cost will stay at the same level.”
That does not mean that news companies do not experience churn – loss of subscribers – in periods of inflation. They will, and it is happening right now, as inflation goes up and signs of news fatigue have settled in the post-Covid era.
Is digital media too cheap?
“We get asked one particular question a lot,” Lindsay says, “And that is: How should a media company respond to inflation? Well, there is good news and bad news. The good news is that price elasticity goes down in times of inflation, so consumers are less sensitive to price increases. The bad news is that churn goes up, as people must make trade-off decisions. So, our message is: Don’t be afraid of churn, don’t be afraid of raising your prices, but have strategies to deal with churn – to reduce the number of subscribers you are likely to lose.”
“What we see is that pricing-related churn decreases in high-inflation periods. But the surprising thing is that price elasticity for digital media is dropping much more than the price elasticity for print media,” Arvid Tchivzhel, Mather Economics’ MD of Digital Services, points out.
“The explanation is really quite simple, though,” he said. “Digital media are too cheap, basically. Print is still a much more mature product than digital, and print will be around for a long time to come. And it is in print that publishers get most of their revenue, so the price of digital is lagging – most publishers focus on digital volume, not digital revenue. We believe publishers strongly need to develop dynamic pricing strategies that will essentially keep them in business.”
So how do you win back subscribers?
“Our advice would be to identify high-risk customers that are likely to cancel their subscriptions and to develop a pricing strategy to win them back,” Lindsay explains. “And this should be done through digital engagement – by proactively messaging your customers and giving them incentives such as gifts or promotions to stay or to return as subscribers. When churn is high, you should turn to these basic things, but it is equally important not to overreact. We’ve seen it backfire, especially when disengagement is in fact not so high. Then, people will respond negatively to overly zealous campaigning.”
“We believe the picture is mixed, and it is a complex issue,” Tchivzhel continues. “But we know that best practices do exist, and we know that media companies should be looking at the long-term perspective and develop sound strategies to reduce their sensitivity to inflation. The time to act is now.”
Mather Economics has written a report that goes into more detail about the effects of inflation on subscriptions – and on how publishers could embrace dynamic pricing models in times of rising prices. You can find it here: