Comes With

Capsule:  In tough times, margin compromises are necessary in the interest of future growth.  In retail and advertising, a new multi-product-and-brand-mash is taking shape as compatible businesses search for competitive advantage.  "Two-fer" product and pricing combinations from different business units and different companies are being tested in the marketplace--including streaming movies from CinemaNow inside Best Buy's consumer electronics and Newsday.com inside a Cablevision Optimum Online subscription.  Which of these new arrangements and their progeny will power the media forward?
(http://paidcontent.org/article/419-most-of-cablevisions-newsday.com-goes-exclusive-for-print-optimum-onlin/; http://www.cinemanow.com/ )


Cablevision's bundling of its Newsday daily newspaper and Newsday.com online content as part of a two-fer product combination with its award-winning Optimum Online broadband service opens the media mind to a lot of possibilities for alternative distribution.

Newspapers can be global, but are generally local first.  Cable and telco distribution systems are national in scale, regional in approach and local in their franchised service relationships.  The local-to-local blend of a broadband and newspaper online combination may have great appeal, properly marketed and priced. 

The core elements to keep in mind in pricing and packaging are those that contribute to the health and growth of each of the bundled products.  Unless the rationale behind a "two-fer" is to prop up an ailing product by effectively giving it away with a stronger brand, bundled products succeed based on their individual strengths.  Customers are drawn to an ingenious combination--as opposed to a cheap combination, which will always be outperformed by the next "free" offer.  The best bundles create a new value logic in their combined customer experience that's better than the individual products on their own.  Think of cable, telco and satellite packages--including the cable Triple Play--versus a la carte distribution.

Bringing journalism online into a paid format with broadband distribution makes sense, mostly because newspapers will have to survive some rough subscription sledding if they go it alone.  No matter how intelligent the new forms of paid online content from newspapers and magazines will be, their marketing mojo will come from the internet, which means their main marketing engines will be Google et al.  It's probably naive to leave paid subscription marketing for publications as august as The New York Times, The FT and The Wall Street Journal, as well as The New Yorker and the rest of the best in the magazine crowd, to online search.  Since internet marketing is essentially search optimization, with expensive support from all the usual advertising suspects, it will likely be tougher to sell scale in internet subscriptions than it is to sell print.

The ability of journalism online to flourish without big marketing and sales budgets is questionable.  Outside of what can be leveraged through the editorial strength of each brand, the marketing strength of most newspapers has depended on the cross-hatched local and regional advertising relationships it has struck with its most important customers.  Retail and classified advertisers want you to know that they're featured inside the daily newspaper and their marketing collaboration increases newspaper sales. 

The traditional distribution infrastructure around newspapers is another agent of promotional strength.  The newsstand, the news truck, the newspaper delivery guy and the print newspaper itself all brand and sell.  Take these distribution elements away--as faulty and uneconomic as they may be--and newspapers online are left in the cold and crowded world of internet search and too much choice.  Building up big online marketing and sales budgets when the traditional newspaper infrastructure and its cash needs are still on the stage is asking for profit risk.

Enter the cable guys and their big distribution brethren, skilled in marketing and selling subscriptions as a regular process akin to breathing.  Since many newspapers and magazines use video on their sites, an online, print and TV combination of each brand can be marketed as a cable brand enhancement adding value for some to their monthly broadband and TV service.  As long as something is being charged and independently billed for each of the products inside, this type of cross-media bundle could be successful, making it easier for customers of both products to enjoy the brands they love.  And the value of each component will be clear as long as you can buy your newspaper one of at least two ways: as an online and print brand, or as the enhanced online and print version that comes with cable.

The Cablevision Newsday combination has a few unique walls built around it, the most obvious of which is common ownership.  Because Optimum Online and Newsday.com are products of the same company, they're being bundled in the most aggressive way possible--as a single product for customers of either Optimum Online or the print version of Newsday.  Newsday.com will command a $5 weekly subscription fee for those who want to go it alone. 

From the standpoint of competitive strength, this new online bundle may turn into a strategic stand-out for its brands.  From the standpoint of growth beyond its local market walls, Newsday.com will sacrifice the development of new and some mobile audiences as a trade-off for promotion through the cable promotions factory.  Given that Newsday is already behind a local market wall since its exclusive Long Island market is actually an island--no less an island dominantly served by Cablevision with its family of Optimum products--there's likely little growth risk.  But for newspapers without this structure and with online ambitions that include significant growth through both new advertising revenue and new subscriptions, a more basic version of brand bundling will be preferred.

At the same time, staggering retail giant Best Buy has announced a bundle-to-be between many of its consumer electronics devices that are powered by internet connections and CinemaNow internet movies and TV.  Best Buy is appropriating the identity of a media distributor by announcing its "cloud movie" service, to be powered by Sonic Solutions, CinemaNow's owner.  The core concepts Best Buy will sell include "openness and flexibility" as all of the internet content purchased to play on one cloud movie device will be available for streaming on every cloud movie device a customer buys from the retail cloud people.  Best Buy is already talking cloud distribution talk, referring to "completing the ecosystem" of internet powered digital entertainment.

Pricing on Best Buy's cloud movies has yet to be announced, but it's fair to guess that if this service and retail combination stands a chance in the heavens of success, it will carve out visible profit margins for each of its business partners.  The most likely low-risk partnership will see Best Buy sell CinemaNow with a short-term promotional offer that moves to full price quickly. The retailer's substantial contribution will be marketing, selling and educating the consumer on internet streamed product that can be enjoyed as soon as the customer gets home.

As the economy continues to challenge consumers and advertisers, low-risk marketing and distribution partnerships will be an attractive new growth strategy for online TV, movie and print brands.  Each new bundle will include a new margin contribution required from the online business to pay for being part of a new media infrastructure. 

At the same time, the rates for even wireless phone service are being driven down by internet technology substitution, as evidenced by monthly ARPU drops in brands as strong as Verizon.  Why pay for wireless minutes when low-cost and free internet calling can contain your monthly budget?  Could it be, once again, that the internet's vast product superiority and cost efficiency is forcing a wholesale haircut on the media? 

Our current economic challenges are suggesting a renaissance of the traditional distribution businesses, now expanded to include new online products from in-house and out-of-house in their multifaceted bundles. Of course, big distribution for online products will require elevated online prices to pay their marketing fare.  Otherwise, even the most attractive online content may find itself all dressed up with no place to go.