Is freemium the silver bullet for the media industry, or an insult to your loyal customers?

In a conversation I had  with a  CEO of a media company recently. I was struck by the admission that they were still  experimenting with  numerous business models, with no clear idea as to which one was going to have the most impact.  I think the  media industry is still in search of the silver bullet, but in truth it will be a blended business model.

One business model that has gathered momentum over the last few years is  ” Freemium ” and indeed, within the newspaper industry, one of the best freemium examples is the New York Times which  seems to be  showing signs of success, although it is still too early to tell. There is an excellent analysis here and data from the end of 2012 suggested digital subs would generate $91m  according to Douglas Arthur, an analyst with Evercore Partners.  The paywall, by his estimate, will account for 12 percent of total subscription sales, which will top $768.3 million this year.

So why is Freemium successful, and why is it successful now?

In the old world, putting advertising to one side, with  less media rationed through a number of paid for channels, there  were  real content  revenues from high cost media products. Everyone paid the same. It didn’t at a granular level  take into account user engagement or experience, one would just measure whether total sales went up or down. – Some people would  love the products some people would “like it” and some people wouldn’t  get as much as they anticipated out of the services.

With freemium, you avoid that up-front barrier of forcing customers to pay for a product they may or may not want again  and in fact embrace the mass audience. You can then of course differentiate your pricing depending on whether they want more. The danger  is you penalise your  engaged, loyal customers by charging them more, because they will pay it.  A lot of organisations do.

Of course innovators challenge this:

Companies such as Zappos.com  put their existing customers at the heart of what they do.

Radiohead asked you how much you would pay for the album.

An  increasing number of crowd sourced ventures, allow you to  decide what to  commit up front –  how much something is worth.

My favourite is from the smart guys at Songkick.  With Detour if there is a band you want to come to town, you pledge an amount you are willing to pay and then rally around like-minded fans to join you in getting that band to play nearby.

Media organisations still have an opportunity to embrace their most loyal audiences and put them at the heart of what they do.  At The Guardian, we identified that there  were “Guardian advocates” who saw the brand as much more than a newspaper and valued the brand in a way  that meant they would pay for much more than the physical product. We looked at ways at providing value by association, opportunities for audiences to buy into the ethos of The Guardian and increase  their engagement. This consisted of the usual brand extensions such as  holidays, events and books and more innovative ideas such as  The Open Weekend .  The idea for increased engagement always started with the  loyal subscription base and most active contributors though.

For me this is the ideal, but still  not put into practice.  Provide real value to your most loyal customers, whilst ensuring your brand is “open to all”.  For media companies I still believe this will come from a variety of revenue channels and a blend of business models.

 


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