ESTUDIO NEXT ISSUE MEDIA
0 likes552 views
The document discusses the potential for interactive periodicals to drive revenue growth for publishers. Key points: 1) Demand for interactive periodicals on tablets and other devices could generate over $3 billion in revenue for publishers by 2014, with $1.3 billion being truly incremental by attracting new subscribers and reducing churn. 2) Current print subscribers value the brands and are likely to renew subscriptions if interactive editions are offered at similar prices to print, without needing discounts. Bundles of print and digital editions could justify a 33% price premium. 3) Interactive editions could triple the acquisition rates of new subscribers who do not currently purchase print. Bundles are also attractive to new subscribers.
![About Oliver Wyman
With more than 2,500 professionals in over 40 cities around the globe, Oliver Wyman is an
international management consulting firm that combines deep industry knowledge with
specialized expertise in strategy, operations, risk management, organizational transformation,
and leadership development.
The firm helps clients optimize their businesses, improve their operations and risk profile,
and accelerate their organizational performance to seize the most attractive opportunities.
Oliver Wyman is part of Marsh & McLennan Companies [NYSE: MMC].
About the Authors
Martin Kon is a Partner of Oliver Wyman based in New York, and leader of the firm’s Global
Media & Entertainment activities. Sujata Gosalia is an Associate Partner of Oliver Wyman based
in New York, and Edouard Portelette is a Senior Associate of Oliver Wyman based in New York.
www.oliverwyman.com
Copyright © Oliver Wyman. All rights reserved.](https://image.slidesharecdn.com/nimresearch-100820032539-phpapp02/85/ESTUDIO-NEXT-ISSUE-MEDIA-16-320.jpg)
ESTUDIO NEXT ISSUE MEDIA
- 1. Media, Entertainment & Leisure A New Digital Future for Publishers? M Demand for Interactive any media categories, such as music, home video, books, and televi- Periodicals Could Drive sion, have been substantially impacted by the advent of digital dis- tribution, creating significant growth opportunities for some but painful $1.3b in Incremental value erosion for many others. Typically, we have seen value migrate from Revenues – Proper media incumbents to device makers and global internet players. Now, with Execution Is Key the growth of e-readers and tablets such as the Kindle and the iPad, will the magazine and newspaper publishing industry suffer the same fate? By To date, the availability of free content on the internet has diluted publish- Martin Kon ers’ ability to sell print products. That has contributed to print advertising Sujata Gosalia declines, and online advertising has not made up for the loss. Some indus- Edouard Portelette try observers foresee a continuing and inevitable slow decline in revenues, based on value migration to tech players, similar to the decline in other media sectors. However, others believe that the industry has a chance to renew subscription revenue growth through product and business model innovation, such as the development of interactive periodicals.1 This is the theory that this paper tests—that interest in interactive periodicals could present an exciting growth opportunity for publishers if executed cor- rectly. Oliver Wyman’s comprehensive Future Marketplace Simulation antici- pates the consumer marketplace for relevant device penetration, interactive periodical availability, and new subscription offers in late 2011. The results indicate that the right portfolio of print, interactive, and bundled offers will both increase revenue from existing subscribers and drive revenue from new subscribers. The industry could generate over $3b of revenue from interactive periodicals by 2014, with $1.3b of that being truly incremental after account- ing for potential cannibalization of some existing print revenues. 1 We refer to the emerging magazines and newspapers for tablet reading devices as interactive periodicals rather than digital periodicals, reflecting their advanced functionality compared to a mere pdf replica of the print versions.
- 2. This white paper, developed for Next Issue Media—the digital publish- ing consortium of Condé Nast, Hearst, Meredith, News Corporation, and Time, Inc.—presents findings and perspectives on how the publishing ecosystem might best utilize the opportunities presented by digital platforms. (See Exhibit 1.) Highlights include: n Consumers will pay for true interactive periodicals; consumers do not require discounts, but rather will pay similar prices for interactive subscriptions as for current print subscriptions; n Print/interactive bundles are attractive. Combining the comple- mentary value propositions of the two formats justifies a higher price than either print or interactive editions alone; n For current subscribers, the power of print remains strong; many subscribers stay with some form of print, either print only or in addition to interactive editions; n For new subscribers, the value of quality interactive content is compelling; new customers are willing to pay the same prices as existing print subscribers for subscriptions to interactive editions and to some degree print/interactive bundles; n Innovative offer designs and customer relationships that will be enabled by this new interactive periodical category, such as automatic renewal billing and “Netflix-like” flexible subscription models, can further drive industry revenues; n Interest in interactive publications spans magazine and newspaper categories; and n The demand for interactive publications spans gender and age groups. Exhibit 1: Next Issue Media Next Issue Media, the digital publishing consortium of Condé Nast, Hearst, Meredith, News Corpora- tion and Time, Inc., is establishing an end-to-end publishing platform to develop, market and deliver all forms of paid content – a vast array of magazines, newspapers, and more – to consumers via the digital device of their choice. The venture’s mission is to provide not only publishers, but advertisers, consum- ers and technology partners with an easy and economical entrée into the eReading channel. For more Recreated pms information, visit www.nextissuemedia.com. 2 A New Digital Future for Publishers?
- 3. Assessing Demand for Interactive Periodicals The internet has had a profound impact on media, allowing faster and easier delivery of content while challenging and redefining traditional media business models. The music, home entertainment, book, and television industries have all had to make significant changes to their business models and fundamentally transform their underlying operations and organizations. To date, however, paid digital distribution of magazines and newspapers has not gained a foothold. ‘PDF replicas’ of magazines have been available online for some time, and many publishers have offered paid digital editions of newspapers to the desktop. Neither tactic, however, has resulted in a large-scale shift of paid subscriptions from print to digital formats. In fact, the availability of free content via branded websites has had a negative impact on print circulation revenues. However, many think the periodical publishing industry is now on the cusp of a positive inflection point for several reasons: n First, color, touch-enabled, portable devices—which enable the unique experiences publishers want to create—are finally available and projected to grow significantly over the next few years, combin- ing high processor speeds, portability, and wifi/3G connectivity at mass-market prices. (See Exhibit 2.) Over the past few years, consumers have already shown a willingness to pay for application- specific, media-related devices (e.g., digital music players and e-readers), and the emerging class of media tablets and touch netbooks is off to a strong start, with Apple’s iPad looking to be the fastest-selling mobile device in history. Exhibit 2: Growth of touchscreen devices Projected US installed base for key device classes (M units, including overlap) 200 Touch-Smartphones Sales of color, touch- Touch- Tablets enabled, mobile devices 160 Smartphones Touch-Netbooks are projected to grow significantly over the next 120 131 Color Tablets few years, underpinning 109 consumer demand for 80 79 Touch- interactive magazine and Netbooks 40 55 newspaper content. 32 40 29 22 0 3 411 7 10 12 2010 2011 2012 2013 2014 Devices and interactive content create a virtuous cycle Color, touch-enabled, portable devices ignite excitement in content apps Interactive, exciting content drives interest in other compatible devices Source: IDC, Gartner, NIM / Oliver Wyman analysis. A New Digital Future for Publishers? 3
- 4. n Second, consumers are comfortable with digital content, access- ing it through a variety of devices, and have shown a willingness to pay for “on the go content,” as demonstrated by the meteoric rise of mobile telephony and the recent mobile app explosion. Consumers, especially the younger generations, readily accept paying for texts, applications, content, etc. directly on their mobile phone bills and/ or a running credit-card-linked account such as iTunes or Amazon. With over 165 million and 65 million accounts respectively, iTunes and Amazon have educated consumers to feel comfortable paying for quality products and services in the mobile world. n Third, many ecosystem players are working to make this a real- ity. Other media such as music, film, or books are produced in offline format once and then converted to a digital format for distribution, with a long life of potential value in catalogue. The publishing industry, on the other hand, has a much greater chal- lenge in quickly and efficiently creating interactive periodicals on an ongoing basis. Many important industry players are excited by the opportunities of emerging technology, and are very actively investing in enabling or indeed driving the changes in the sec- tor. Device players like Apple, HP, RIM, and Samsung; technology providers like Adobe and WoodWing; e-tailers like Amazon and Barnes & Noble—many ecosystem participants are looking to capi- talize on this opportunity and are investing aggressively to enable new interactive reading experiences that reflect and embrace the nature of periodical publishing. They can be valuable partners—or potential rivals—to magazine and newspaper publishers. Interactive Periodicals Interactive periodicals (see Exhibit 3) can combine the best of the print and online worlds: the immersive experience of today’s maga- zines, coupled with higher-quality enhanced content that integrates deeper photo galleries and videos, as well as exciting new ways to Exhibit 3: What is an interactive periodical? Interactive magazines and newspapers represent a truly different experience, offering more than just a PDF replica or web repurpos- ing of the print product. Interactive magazines and newspapers on touch-screen devices have the potential to: n Use video to create multimedia content. n Reflow text to optimize layout and navigation. n Use interactive features to engage the user in new ways. n Add enhanced content for a “print plus” experience. n Allow readers to personalize according to their interests. See http://www.nextissuemedia.com for a demonstration of an interactive magazine. 4 A New Digital Future for Publishers?
- 5. engage with content, e.g. clicking through to the web to access addi- tional information related to an article, clipping articles and saving issues to an online library, posting articles to social networking sites, and interacting with other readers. These new products have started to become available, but there remain a number of open questions about demand: n Will current subscribers pay for interactive periodicals, either in lieu of or in addition to print versions? n Will interactive periodicals attract new (non-print-subscribing) consumers? n Do interactive periodicals represent a mass-market opportunity or merely a niche proposition? n Will a shift to interactive periodicals generate incremental revenues or cannibalize current revenues? n What is the relationship between next-generation devices and inter- active publications? n Do interactive publications create opportunities for new business models? To answer these questions, Oliver Wyman, on behalf of Next Issue Media, conducted an in-depth study (with 1,800 respondents) into future con- sumer buying behavior and willingness to pay for interactive periodicals. This Future Marketplace Simulation demonstrated the likely formats and features of emerging interactive periodicals and simulated actual purchase/consumption decisions that consumers will be making in late 2011. The results were encouraging. (See page 13 for full details on methodology.) Interactive Periodicals Excite Current Subscribers Our Future Marketplace Simulation confirms that subscribers value their existing relationships with magazine and newspaper brands and indicates that interactive publications are a powerful way to extend these relationships. Our simulation indicates four clear sources of circulation revenue growth from a well thought-out introduction of interactive editions to subscribers: Increased conversion rates without discounting. Among device- owning subscribers,2 the availability of interactive editions in the marketplace at point of renewal, without discounting from the price 2 “Device owners” includes respondents who stated that they would own a media tablet, touchscreen smartphone, and/or netbook by holiday 2011. A New Digital Future for Publishers? 5
- 6. of the print editions, drives a 9 point increase in the overall sub- scription renewal rate compared to today’s print-only world, from a projected 55% industry average to 64%.3 For example, a magazine with an effective per-issue subscription price of $1.494 does not have to be discounted in the “digital realm” to drive consumer adoption; the revenue-optimizing price for the interactive edition could be $1.49 as well. (See Exhibit 4.) Furthermore, amongst self-proclaimed likely future tablet-owners, the renewal rate jumped to 76%. The rel- ative increase in renewal rates was similar for subscribers of maga- zines and newspapers. Print & interactive bundles justify a price premium. Unlike analog and digital versions of other media, the two formats of print and interactive are perceived as complementary by many periodical sub- scribers—30% of renewing subscribers chose a bundle of both the print edition and interactive edition, at a 33% premium to the stand- alone price of either. For example, a magazine with an effective per- issue subscription price of $1.495 for digital or interactive editions could charge $1.99 for a print/interactive bundle to realize the per- ceived value. (See Exhibit 4.) Exhibit 4: Subscriber retention rate in simulated marketplace with and without interactive offers 100% 80% 64% +9pts (+16%) 60% 55% Interactive only 21% @ $1.49 40% 19% Print + interactive @ $1.99 20% 24% Print only @ $1.49 0% Without interactive With interactive products products Automatic renewal decreases long-term churn. As with other digi- tal services, subscription renewals involving an interactive periodical component could be auto-renewed—billed to an account connected to a credit card (or check, PayPal, or wireless account), with the subscrip- tion continued until the subscriber elects to cancel. Eliminating the 3 Example subscription prices: print only - $1.49 per issue, interactive only - $1.49 per issue, print-interactive bundles - $1.99 per issue; monthly auto-pay payment method; assumes full awareness and availability. 4 Prices indicated in this article are for illustration purposes based on generic industry average; Next Issue Media expects individual publishers to determine their preferred pricing of their own titles. 5 Prices indicated in this article are for illustration purposes based on generic industry average; Next Issue Media expects individual publishers to determine their preferred pricing of their own titles. 6 A New Digital Future for Publishers?
- 7. traditional billing and renewal cycle would greatly reduce churn, from an average of 45% to 25% with the “auto-renewal” model that interac- tive periodicals would enable. Cross-sell opportunities increase. The interactive format enables effective marketing of additional subscription sales via recommen- dation engines and browsing features (i.e., cross-selling). This oppor- tunity to expand subscription relationships turned into additional sales for 17% of current subscribers. The combined impact of these four effects could increase circula- tion revenue by more than 50% relative to today’s print-only world amongst tablet-, smartphone- and netbook-owning subscribers. (See Exhibit 5.) Given the projections for device adoption and likely roll- out of interactive editions by publishers,6 we see latent consumer demand that could drive $2b in gross circulation and advertising rev- enue for the domestic US publishing industry by 2014, which yields a $332m incremental revenue opportunity after accounting for canni- balization of print revenues. At the same time, subscribers continue to see value in print products; with interactive periodicals in the marketplace, 67% of device-owning subscribers who renew choose to keep print as part of their subscription (either print-only or as part of a bundle), indicating the continued value of print as well as of cross-platform advertising opportunities. Exhibit 5: Device-owning existing subscribers Incremental circulation value from interactive magazines Amongst current subscribers, indexed to print-only baseline Future with Future with print, 200 print only interactive, or both 150 26 12 16 100 154 50 100 0 Baseline Increased More valuable Decreased Potential conversion offer mix churn from shift cumulative rates (bundles) to continuous value service Source: Consumer demand market simulation, NIM / Oliver Wyman analysis. Revenue based on illustrative subscription prices of: Print only - $1.49 per issue, Interactive only - $1.49 per issue, Print-Interactive bundles - $1.99 per issue; NIM expects individual publishers will determine prices for their titles. 6 Top 148 magazines and top 81 newspapers by circulation by 2014, representing 71% and 42% of total circulation, respectively. A New Digital Future for Publishers? 7
- 8. Consumer Demand for Print & Interactive Bundles Justify a Price Premium Many consumers have exited the print category over the past few years after shifting their media consumption online, and a whole generation of consumers has grown up “digitally,” never embrac- ing print as a medium. For the magazine and newspaper industry, acquiring these consumers is both essential and challenging. The Future Marketplace Simulation shows a substantial increase in acquisition success amongst non-subscribers when adding interac- tive periodicals to the offer portfolio. The simulation indicates three clear sources of incremental circulation revenue from offering a well-stocked storefront of interactive periodicals to device owners: Increased acquisition rates for paid subscriptions. The introduc- tion of interactive editions (at the same price as today’s print edi- tions) triples uptake rates among device-owning non-subscribers. In a print-only world, 5% of non-subscribers who are placed into an online “store” setting subscribe; the introduction of interactive editions and print/interactive bundles increases the take-up rate to 15%. (See Exhibit 6.) Print & interactive bundles justify a price premium. While not as popular as amongst current subscribers, print/interactive bundles (at the same 33% premium to the print-only or interactive-only alterna- tives, e.g. $1.99 for a print/interactive bundle of a periodical with a $1.49 per print or interactive issue subscription price)7 are still valued by 17% of previous non-subscribers choosing to subscribe to a brand. (See Exhibit 6.) Non-subscribers prefer interactive periodicals but may be (re) introduced to the complementary value proposition of print. Exhibit 6: Interactive magazines also excite new subscribers Non-subscriber acquisition rate in simulated marketplace with and without interactive offers 25% 20% 15% 15% Interactive only @ $1.49 +10pts (+200%) 10% 9% Print + interactive 5% @ $1.99 5% 3% Print only 3% @ $1.49 0% Without interactive With interactive products products 7 Prices indicated in this article are for illustration purposes based on generic industry average; Next Issue Media expects individual publishers to determine their preferred pricing of their own titles. 8 A New Digital Future for Publishers?
- 9. Auto renewal lowers churn. As with renewing subscribers, new subscribers to interactive periodicals and print/interactive bundles will enter into an ongoing relationship with publishers, with their subscriptions billed to their credit card or other accounts, reducing “friction” and churn. The combined impact of these three effects could drive more than 200% incremental circulation revenue from new acquisitions amongst the population of device-owning non-print-subscribers, relative to today’s print-only world. (See Exhibit 7.) Given the projec- tions for device-adoption and likely roll-out of interactive editions by publishers,8 we see latent consumer demand that could drive $966m in incremental circulation and advertising revenue for the periodical publishing industry by 2014 from current non-subscribers. Not only is this almost three times the incremental revenue expected from exist- ing subscribers, but much of this revenue is currently inaccessible to the industry; amongst all previously non-subscribing consumers choosing to (re)enter the category, 64% choose a digital-only offer. Exhibit 7: Device-owning non-subscribers Incremental circulation value from interactive magazines Amongst non-subscribers, indexed to print-only baseline Future with Future with print, 400 print only interactive, or both 350 17 300 250 200 200 150 317 100 50 100 0 Baseline Increased More valuable Potential conversion offer mix cumulative rates (bundles) value Source: Consumer demand market simulation, NIM / Oliver Wyman analysis. Revenue based on illustrative subscription prices of: Print only - $1.49 per issue, Interactive only - $1.49 per issue, Print-Interactive bundles - $1.99 per issue; NIM expects individual publishers will determine prices for their titles. Demand for Interactive Periodicals Is Widespread The excitement demonstrated for interactive periodicals in the Oliver Wyman simulation is very broad—shared by both men and women, and fairly well distributed amongst age groups. The stron- gest appeal is for younger age groups, but all groups show a net increase in circulation revenue from the introduction of interactive periodicals. (See Exhibit 8.) 8 Top 148 magazines and top 81 newspapers by circulation by 2014, representing 71% and 42% of total circulation, respectively. A New Digital Future for Publishers? 9
- 10. Exhibit 8: Adoption rate (with interactive periodicals) vs. baseline (print only) by demographics Incremental circulation value from interactive magazines by demographics Amongst subscribers, indexed to print-only baseline Future Future with print, 200 with interactive, or both print only 150 100 188 164 169 149 150 144 125 112 50 100 0 Print Men Women 18-24 25-34 35-44 45-54 55-64 65+ baseline Source: Consumer demand market simulation, NIM / Oliver Wyman analysis. Moreover, consumers’ enthusiasm spans all magazine and newspa- pers categories. News, Sports and Celebrity/Entertainment lead the way, but are closely followed by Culture, Women’s Fashion, and oth- ers. (See Exhibit 9.) Exhibit 9: Circulation value (with interactive periodicals) vs. baseline (print only) by publication category Incremental circulation value from interactive magazines by category Amongst subscribers, indexed to print-only baseline Future Future with print, 200 with interactive, or both print only 150 100 162 162 160 155 155 149 136 50 100 0 Print News Sports Celebrity/ Culture Women’s Men’s Women’s baseline entertainment fashion, lifestyle, service/ health, auto, Parenting lifestyle tech Source: Consumer demand market simulation, NIM / Oliver Wyman analysis. 10 A New Digital Future for Publishers?
- 11. How to Realize the Opportunity for New Growth Interactive publications clearly present a substantial opportunity for publishers to generate additional circulation revenue and to strengthen their brands amongst both existing and new customers. However, in order to realize this opportunity, publishers will need to execute on a number of levels: n Develop truly new products. Interactive publications must offer a compelling value proposition. More than just a digital replica of the print version, these new products can be feature-rich, contain enhanced content (including video), use innovative yet intuitive navigation, and offer opportunities for personalization. n Offer a large library of interactive titles. Making the widest possible assortment of titles available in an interactive format at a single destination ensures that current consumers will be able to access the publications they know and love and that new consumers are more likely to find a publication that interests them. n Create awareness with sampling opportunities. After seeing demon- strations of interactive publications, consumers reported that they would be about twice as likely to purchase them as they had been before. Effective marketing is critical to generate interest and to drive early adoption. n Develop innovative offers. Consumers responded positively to flexible subscription models similar to Netflix’s offer design—they were able to choose any three titles from a wide assortment and could then rotate each month if desired. As in other media and commu- nications sectors, the introduction of these ‘flat-rate’-type models could further increase industry revenue per subscriber, but offers would need to encompass a broad cross-publisher assortment and thus require careful orchestration and collaboration between industry players. n Partner with other Publishers for Cross-Selling Opportunities. Similarly, the success of cross-sell opportunities assumes that consumers can be exposed to all relevant publications regardless of publisher. To ensure cross-selling success, publishers will need to partner with other publishers and potentially share some customer information. n Partner with OEMs. Interactive publications would benefit enor- mously from effective positioning on media tablets, smartphones, and netbooks, and future revenues are directly linked to the pen- etration of these devices. However, device manufacturers should themselves be interested in promoting interactive periodicals: The Future Marketplace Simulation indicated that the presence of an integrated and prominently featured digital newsstand on devices A New Digital Future for Publishers? 11
- 12. manufactured by mainstream brands (Apple, Amazon, Dell, HP, and Samsung), drives a sales increase of 6-8% across a broad range of likely price-points compared with identical devices without any integrated digital newsstand. If device-makers and publishers can find business models that are fair for both parties, with respect to financial terms as well as customer data, both will benefit. n Define future advertising standards and metrics. Interactive periodicals offer exciting opportunities for advertising, combining both the immersive nature of magazine and newspaper reading with the interactive, targeting, and measurement capabilities of the digital realm. Publishers will need to carefully manage the transition of audience measurement to these new formats rather than default to the pure pay-per-click web advertising model that has not proved sustainable for periodicals. n Create new advertising products. A common digital platform would enable myriad new revenue opportunities not possible today, such as national ad placement across networks of local or regional publications, syndicated ad placement for smaller titles, and intel- ligent audience targeting based on behavioral data across many publications. These new formats and products will require new thinking around industry standards, shared technical platforms, and collaboration across the industry. n Transform organizations and workflows. While one-off applications can be custom-made, publishing interactive periodicals in a scal- able and replicable manner will require rethinking of workflows and organizations. Publishers will also need to redesign and align digital and physical production processes to cost-effectively pro- duce both formats. The impact on systems, processes, and capabil- ity requirements must not be underestimated. $1.3 Billion in Incremental Revenues Both subscribers and non-subscribers exhibit significant demand for interactive periodicals. The combination of a robust product that is clearly differentiated from print, increased conversion/acquisi- tion rates, a more valuable offer mix, and lower churn from a shift to continuous service could yield over $3b of circulation and adver- tising revenue for the domestic US industry by 2014. Even after accounting for cannibalization of print, this would yield $1.3b of incremental industry revenues. With more aggressive tablet penetra- tion, quicker or wider roll-out of interactive titles, and deployment of more advanced advertising capabilities, this could be even greater. Taking advantage of the opportunity will require significant effort and collaboration across the ecosystem. This paper does not address the impact on advertising, internal workflows, organizational struc- 12 A New Digital Future for Publishers?
- 13. ture and capabilities, or competition from new interactive-only publishers, but it is clear that entire organizations and the overall publishing business model will need to come under review. A suc- cessful transformation will profoundly alter the way magazines and newspapers are viewed and consumed, and enable the publishing industry to profitably embrace the shift to a digital world. *** Future Marketplace Simulation Methodology In this study, Oliver Wyman applied its Future Marketplace Simulation platform, a proprietary suite of customer insight and financial analysis methodologies, to quantify future demand and optimize offer design for maximum value creation. Working with clients to identify key strategic hypotheses about future competition, we create a future buying simulation that measures the impact of potential market moves on consumer purchase/subscription behav- ior and connects demand insights directly to future market financial projections. At the heart of this approach is a simulation exercise that presents consumers with “real world” purchase and usage occasions and asks them to make trade-off decisions similar to the ones they might actually be making in the future. Respondents are exposed to multimedia demonstrations of potential future products and range of features to give them the same level of information and context as they would be expected to have in the anticipated future marketplace, and thus make informed simulated decisions. Respondents see eight to 12 versions of possible future marketplaces with systematically varied combinations of a wide range of offer fea- tures and levels from various competitors/options, in a format that replicates the actual purchase context in which consumers may find themselves in the future. By analyzing the trade-offs made by hundreds or thousands of respondents, the impact of each offer feature can be quantified to determine which combinations of features drive greatest demand. These raw demand insights are then combined with real-world mar- ket, cost, and financial data to develop an accurate and flexible model of how various possible consumer-facing moves will impact the industry, as well as the performance of individual ecosystem players. The Future Marketplace Simulation used for this Next Issue Media study was designed as follows: A New Digital Future for Publishers? 13
- 14. n Recruited ~1,800 respondents representing a wide cross-section of the US population across magazine and newspaper subscrip- tion and reading habits, device ownership and intention, online behaviors, geographies, and demographic groups; n Captured highly detailed data on respondents’ current magazine and newspaper subscription and readership via a “wizard”-style online interview (including unit volume of print and digital sub- scriptions, single-issue purchases, and engagement with content); n Exposed respondents to video demonstrations of future interac- tive publications, as well as detailed step-by-step explanations of the features offered by these publications, to condition them to the expected/potential marketplace of the future; n Simulated future magazine and newspaper offers, where key variables were systematically changed to understand impact on demand: breadth of titles, number of devices on which titles were available, format (including video and interactive features), amount of content, payment method, price points, and promotions; n Closely replicated real renewal offers for the actual periodi- cals that each individual respondent currently subscribes to, to understand the impact on renewal behavior of the introduction of interactive editions; n Closely replicated a potential online kiosk with a wide array of print and interactive periodicals, to understand the buying behav- ior of non-subscribers; n Allowed respondents to select between traditional and flexible sub- scriptions and to choose print, interactive, or print/interactive bun- dles in each in order to determine relative preferences for each offer type in a manner similar to how they may choose in the future. Exhibit 10: Future Marketplace Simulation Each screen shows 2 offers and a “None” option Offer 1: Buy a regular subscription 1 Information acceleration Offer 2: “Flex sub” (flexible subscription): Pay a flat fee to get any 3 magazines and/or newspapers each month. Replace titles or cancel any time at no additional cost! (like Netflix) None: If you don’t like either of the offers, select the “No thanks” column. Offer 1 Offer 2 None Features of Introduce respondents to possible your digital Depending on the offer you receive, you will be able to read your publications publication and on one of these devices (your choice) or on all of them. The formatting will payment be optimized to each device class. method Available devices Once you’ve Touchscreen chosen Laptop Netbook Media tablet smartphone future offers and key features to consider between the regular and flex subs, pick a format. Any one device of For example: your1a choice 1b 1c 2a 2b 2c No All of your devices For example: + + + 2 Realistic purchase event simulation Propose 8-12 different future products and have respondents select preferred offers 3 Interactive strategy model Simulate market demand, consumer spending, and profitability of any future offer design 14 A New Digital Future for Publishers?
- 15. Using this approach, we built a strategic marketplace model that allows “what-if” configuration of hundreds of thousands of potential scenarios for future offers in the market, in order to quantify: n Total volume of magazine and newspaper subscriptions n Adoption rates of interactive publications n Cannibalization of traditional print subscriptions through interactive take-up n Churn rates of subscribers n Relative impact of feature enhancements and commercial terms n Net impact on consumer spend, publisher revenue, and contribution-adjusted revenue accounting for fulfillment costs of various distribution channels. To make projections, our “pure” measurement of demand was cali- brated to the real-world marketplace. This included normalization to actual historical subscription/pur- chase rates and imposition of assumed constraints that will remain in the market, ranging from projected adoption of required devices to imperfect consumer awareness to the anticipated roll-out of interactive editions of magazines and newspapers available in this format. The result is as accurate a picture of the size and shape of future consumer demand as possible. A New Digital Future for Publishers? 15
- 16. About Oliver Wyman With more than 2,500 professionals in over 40 cities around the globe, Oliver Wyman is an international management consulting firm that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, organizational transformation, and leadership development. The firm helps clients optimize their businesses, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is part of Marsh & McLennan Companies [NYSE: MMC]. About the Authors Martin Kon is a Partner of Oliver Wyman based in New York, and leader of the firm’s Global Media & Entertainment activities. Sujata Gosalia is an Associate Partner of Oliver Wyman based in New York, and Edouard Portelette is a Senior Associate of Oliver Wyman based in New York. www.oliverwyman.com Copyright © Oliver Wyman. All rights reserved.