Los Angeles Times Online – Balancing Ad Revenue vs. Subscription Cannibalization

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I have been a reader of the Los Angeles Times almost my entire literate life — It has great writers, awesome local coverage, and often digs deeper than the big news sites on local stories. However, I haven’t ever really paid for that subscription — When I lived with my parents (pre-career), I read their copy, and once I went off into the world, I read the online version. The L.A. Times helpfully provides RSS feeds, so someone like me can easily plug that into Google Reader and just get the articles I want — for me, this is perfect, and meets all my needs.

However, the L.A. Times, much like other papers, ends up on the losing end of this proposition.

    As more and more readers shift from print to online, fully-staffed publications like the Times are finding that they are not able to pay the bills with just ad revenue alone — they need the subscription fees (and the readership implied by that kind of financial commitment) for their bottom line

. So while the web, and Google, might love the local expertise that the L.A. Times brings to web users, the L.A. Times ends up losing out if they don’t make it back on ad revenue.

So their solution? Cookie-ing users and limiting the amount of free content the L.A. Times is willing to give away to frequent users. While this is annoying to people like me who have been essentially riding for free (though we have been seeing the display ads and rich media ads the Times loves to slather on their pages), it is an understandable move. But is it the right move, or a move of desperation?

On one hand, the tactic is good in that it still allows them to take advantage of a lot of web traffic, especially if one of their stories catches fire. They are able to compete with other papers for prestige regarding their coverage, and when their stories get picked up on the feed/crawl by Google, or featured on Drudge, that web traffic could possibly come almost unimpeded. Meanwhile, repeat users (people who go to the Times site specifically on a repeating basis) face a choice — pay a subscription fee, or go without.

And that’s where I think the strategy falls apart. I am probably the person in my family most on top of local news, especially local crime news, yet I balk at paying that fee. It’s just not worth it to me — I can still go to many other places, including feeds that re-print Times content (possibly owned by the Times themselves), and not have to pay. That’s just the way the web has always succeeded — free content, but lots of ads. The only part of the online industry to permanently buck this trend for any long period of time was the MMO community, but even they are going free-to-play, with optional payments being the new revenue stream. Adult had the best chance at the paid model and really has tried to make it work, but they also lost out to technology and how easy it is to steal and host content overseas illegally.

At the end of the day, you have to find an advertising model that works and pays the bills. I don’t know anyone who works at the Times, so I don’t know for sure, but my guess is that this is a move of desperation. The WSJ and Financial Times have been on a paid model for years, but those are niche, and luxury/prestige, publications. The L.A. Times does not have that kind of cache; With people like me getting turned back, habits are changing, and right now, I’m losing the L.A. Times habit.

So — you win the battle and lose the war. Maybe they have no real choice but to try this, but I think it depreciates their online assets and online readership by doing this, so in the event that they have to make more cuts or sell, the property is worth even less. It should be interesting to see what effect this tactic has over the next year and whether they can make it work.

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Local Advertising Predicted to Shift To Mobile, Away from Web by 2016

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Online Media Daily had an interesting, and dramatic, prediction today that Local advertising budgets will switch almost entirely to Mobile by 2016, withdrawing from the “normal” web (e.g. home PC’s). For reference — per the article, the current overall value of the local advertising world on mobile is $2 billion, but will increase to $24 billion by 2016.

This prediction isn’t as gutsy as it sounds, because the study cited in the article listed all manner of devices under “mobile,” including laptops, and with the expectation of wider adoption of tablets. While I don’t think this is a bad forecast, I question that tablets are or will truly be “mobile” devices. While I do think that tablets almost certainly will replace most laptops in upcoming years, especially for home use, I question whether a majority of them will be mobile-enabled, meaning, have a cellular data connection. There are still a lot of questions about the danger of cell phone use with regards to health, especially with children, and a lot of tablets run off of wifi. It’s also a lot cheaper to run a tablet strictly as wifi, so unless cellular data plans become free (as they have become with the Amazon Kindles), I don’t see a lot of users, especially when the tablet is for a child, activating the data plan that comes with their iPad, for instance. Maybe this becomes less problematic if Wifi hot spots continue to become ubiquitous, free, and more secure for users browsing on them.

Here’s the other thing — tablets don’t really access “mobile” web inventory. While smartphones usually access the mobile web version of a publisher’s site, in order to make viewing information comfortable for the user, the whole point of a tablet is the wider screen — that’s the real differentiator. My iPhone is essentially a laptop in my pocket — one of the main reasons I’m not excited about an iPad for mobile use is that I don’t need it! But at home, work, or school, a tablet becomes handy. And tablets view the normal version of a web site, which means that really, they are accessing the same content as someone on a home PC with a hard-wired connection to the web. So yanking a budget from the “normal web”, even for local, is counter-productive, even if you specify to the publisher that you want that inventory device-targeted to tablets. At the end of the day, why miss on a chance to get someone looking for a local listing?

I agree that ultimately, being able to access information on the move, and having advertising around that, is the wave of the future — I just don’t see regular web advertising going away, even for local. A lead is a lead is a lead, and most advertisers will let ROI determine what they want to cut down on. A home user that is doing research is just as valid a local lead, and maybe even more so in terms of overall spend or long-term relationship, than a spur-of-the-moment smartphone user looking for a quick bite to eat, who may never return. It’s all about the total revenue and ROI for the lead you pay for, and incremental revenue will always win the day in this argument.

Posted in Mobile Marketing, Paid Search, Tablet PCs | Tagged , , , , | Leave a comment

“Scan and Scram” — Mobile Making Waves in the Marketplace

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Kathryn Kogel at AdAge has a great column on something I had blogged about, but never had a term for — “Scan and Scram.”

Specifically, this refers to the practice of going into a retail establishment to physically examine a product, but then using your mobile device, usually enhanced by an app specifically for this purpose, to price-compare and buy elsewhere or online. I had expressed my own experiences about using this practice in my previous columns, but at least in those cases, I had actually made purchases at those locations, having confirmed I was getting the best price already. In my case, I was using the apps, like Amazon’s shopping app, to get product reviews to make sure I was buying the right product for my needs.

Per Kathryn’s article, the fear among retailers is that the mobile-enabled consumer is starting to use brick-and-mortar locations like a product showcase, but not actually making purchases from that location or even from that company. But is this really the case? Per the great (but slightly confusing) chart she has in her article, right now about 14% of folks who scan the bar code in-store with an app buy the product someplace else. She points out that the real number is probably significantly less (less than 10%), and that the sample this percentage applies to is probably biased because it was taken in New York. Her point here is that big cities like N.Y., L.A., and Chicago probably have more users who are savvy about shopping like this as opposed to areas with lower smart phone penetration rates. I’m sure that number of “scan and scram” users will grow as smart phone penetration passes the 50% mark overall and users become more aware of apps with this ability, but is this a bad thing?

I think a lot of retailers have been able to monopolize consumer information for quite a long time — when you were in the store, pre-smart phone, you were pretty much stuck with either having had to do your research ahead of time, or making a decision on the spot about whether the price was right. In many cases, the price was very wrong, and I’m sure that in some cases, that ended up with a very dissatisfied customer later on who decided to write off that particular establishment from that one example. Is that the shopping experience a retailer wants consumers to have, just to make a huge profit off of one item?

So yes — smart phones keep retailers honest, but they also keep retailers on their best behavior, which is a great customer-retention strategy in the long run. For all of the scanning you can do, you often, especially on high-dollar items or things you crave at the moment, are willing to sacrifice a few dollars to buy the item now, while you are in the store, and while you are “hot for it.” Deferring that pleasure for a savings of less than 5% of the total value, and then having to wait for it to be delivered (where it could be damaged in transit) is not always a very palatable alternative in today’s world. So I don’t think the retail location is going away any time soon, and Kathryn, to her credit, also came to the same conclusion in her column.

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