Marko Karppinen

I make digital magazines profitable at Richie.
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Magazine subscriptions are too cheap, yet feel too expensive

Imagine a cable TV company demanding $1032 upfront to set you up with HBO and ESPN for the year. Or AT&T expecting a check for $960 to activate 12 months of service to your smartphone (phone not included). Or a broadband connection? A steep but somewhat manageable $488.1

That’s life in a world where services are sold by prepaid annual subscription. Seems kind of expensive, right? That’s why very few businesses choose to price their offerings this way.

Magazine subscriptions are a notable exception. There are a couple of reasons for this, like the general desire to dampen seasonality and the usefulness of a predictable circulation in the capital-intensive business of printing and distributing physical issues of a magazine.

Aside from all that, though, most magazine subscriptions are simply too cheap to be billed for more often than annually.

The average annual subscription cost of a U.S. magazine available at newsstands was $24.87 in 2011.2 If that cost was billed for each month, the charge would be $2.07. Given the transaction costs involved, that’s simply not worth charging by conventional means.

But if you could charge monthly, it is almost certain that you could charge more. Here’s what David Ball, then the vice president for consumer marketing at Meredith, said to the New York Times in 20093:

“It’s amazing how price-sensitive people are. Honestly, we’ve tested raising [the subscription price] 50 cents and we see a drop-off — sometimes startlingly high.”

Making the sticker price 1/12th of the current annual cost would help with this price sensitivity. When comparing the cost of magazine subscriptions to other communications bills, monthly charges would seem to make a huge difference. Like this:

When the bill comes…

Circulation data shows that families started canceling magazine subscriptions in 2008. Based on that timing, it seems that this was mostly to cut frivolous spending amidst the financial crisis. An annual bill for a magazine only comes once a year, but when it does, it is evaluated in the context of the other bills on the table at that time. A smaller sticker price would simply lead to fewer cost-based cancellations4.

iTunes to the rescue

Cost-effective monthly subscription pricing is one of the key features of Apple’s Newsstand. A typical magazine subscription will translate to the iTunes price points of either $1.99 or $2.99 a month. That’s right within App Store impulse purchase territory (not to mention the half-a-latte territory).

iTunes subscriptions can now also have a free trial period. For example, you can offer one month free and start charging $2.99 from the second month on.

In public, publishers’ reactions to Newsstand have always been dominated by talk of Apple’s 30% revenue cut and the company’s refusal to hand subscriber data over to publishers. But if you look at the specific things Apple has solved — discoverability, ease of purchase, monthly billing — the prescription starts to look appropriate for the disease.

After all, 70% of something is a lot more than a 100% of nothing.

  1. Average U.S. Pay-TV bill in 2011, Internet and phone service excluded, according to NPD. Average AT&T smartphone bill, estimate by AP. Average U.S. broadband bill as surveyed by FCC. 

  2. This is not the standard figure. I took the MPA circulation and revenue figures for 2011 and filtered out the magazines not available on newsstands. Titles like the member magazines for AAA, AARP and NRA bring the average subscription price down artificially (to $21.48). 

  3. "In Switch, Magazines Think About Raising Prices", The New York Times, April 12, 2009 

  4. The psychology of this can turn upside down if the relative prices are much different. Here in Finland, for example, a subscription to a weekly magazine can cost more than a smartphone plan or pay-TV (why that’s the case is a good topic for another day). In this case, an apples-to-apples comparison might not be in the magazine’s interest. 

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