The Price is Right

Capsule:  Media companies want to find the right price for their newest media products.  While deciding how much pricing energy should go into rebranding old media through a slew of market-opening new media products, content and distribution will focus on the profitable navigation of today's digital rights management architecture. Recognizing that new profits must also be built on the continued attractiveness of traditional brands, the media should resist losing track of the diminishing value of their traditional lines.  Is it time to reset pricing in old media with new media clearly in mind?


Seth Godin
Feed the Pig
CreditCards.com


Feed the Pig--the pro-savings messaging effort of The Ad Council and the American Institute of Certified Public Accountants (AICPA)--is tough to like, even in these financially troubled times. Feed the Pig is a public service marketing campaign designed to teach grown-ups and kids a healthy respect for savings over spending at a time when credit card defaults and restructuring continue at an unhealthy pace, following the desert storm of mortgage defaults and restructuring that led in the last New Year. 


Although the nation's consumers have successfully increased their savings rate for five consecutive quarters over the last two years, it's hard to imagine that Feed the Pig's talking Piggy Bank helped. Oh for the sophistication of that old media brand, Jim Henson's Muppets, and its wise creative.  The Muppets' creators knew that Miss Piggy, that most memorable of media pigs, had to be warm, humorous, gluttonous and narcissistic in equal measure in order to appeal to the pig in all of us.  In contrast, Feed the Pig's talking Piggy Bank, promoted heavily through Ad Council spots on Bloomberg News and company, is just scary, at a time when watching financial news is scary enough.


As we clear the smaller-than-anticipated debris of retail casualties from 2009's holiday season anticipating the 2010 effects, a slew of new products will be lining up to grab our wallets before we "feed the pig."  In the media world, new products will arrive in the wireless, mobile, portable media sphere, as well as in the alternative subscription media businesses selling movies, TV, newspapers and magazine content through rich media over broadband--and, by extension, wireless--distribution.  As good as video and rich media hooks into the cable-dominated broadband business can be over time, the most vibrant retail video is unprofitable for distribution companies at the outset because of the bandwidth it demands and the competitive pressure it puts on the value of traditional TV.


How can the most savvy media companies hedge against the tough competitive transitions they'll have to make moving their traditional product lines into preferred profit-making positions in a digital retail world?  Seth Godin, one of America's most popular digital marketing brands, suggests a possible starting place in his recent blog on dynamic pricing.


Godin reminds media marketers that they don't have to imagine their digital product lines as exact extensions of their historic predecessors.  With some creativity, Godin's idea--that digital products can be dynamically priced according to different physical and brand rules than the print, broadcast and cable products on which they're based--can break important new ground for content and distribution products debuting in 2010.


What if cable companies chose to base the pricing of their current TV packages, delivered to the living room in the same basic way since 1979, on customer tenure? If long-term customers paid less for their cable services than newer customers, could cable stem the expensive tide of competitive TV defection?  A price break for long-term customers makes great business sense.  Long-timers are stable, carry generally lower credit risks and have already developed an ingrained loyalty to traditional products.  They also may need and will likely appreciate a loyalty benefit as they age and see some aspects of their disposable income shrink.


Today's cable and print subscription pricing moves in the opposite direction.  Long term customers carry the major costs of the media business and receive regular rate increases on the products they appear to love most.  The economic forces of the last two years will likely change the intelligence of this approach. Budgetary constraints on home-owners as well as long-term renters will loosen the loyalty tethers between older customers and the best, most expensive media brands they buy.  The new tide will rush in in favor of a more economic consumer plan requested by the media's best customers, urged on by friends and media-savvy family.


What to do?  If preferred pricing is offered to all print and cable subscription customers with a tenure of three years or longer, based on loyalty discounts served up as immediate cash back rewards, what benefits can be built into our traditional media foundation? For starters, customers who have the means and the appreciation to afford the solid foundation services on which new digital products are being built will be locked into place by the largest media distributors who have the scale to afford this type of dynamic pricing.


In addition, the pricing of traditional products bought by new customers can float upwards within recession-reason in acknowledgement that the best and most profitable traditional customers have been protected.  Since it's most likely that new customers will be more focused on the digital facsimiles of traditional subscription products anyway--i.e., they were the most likely to leave the subscription business in favor of a la carte no matter how the pricing cookie crumbled--a true dynamic pricing schema can be put into place where the newer adopter will pay to play. Digital media savvy internet enthusiasts are the most likely to move off traditional brands because of their inclination towards paying less for content and their new willingness to pay more for windows, location-based services and media fusion from mashed up texting and voice to exciting new video and gaming combinations.


Print subscription businesses might follow a similar path, granting the greatest print pricing and content benefits to their long-term customers--and those prospects that profile like them--while creating a service-and-product-based pricing symphony with carefully crafted variation in the digital world.  Separating the revenue strategies between the old and the new will also lead to more productive business strategy.  Separating the costs of old and new media will lead to a clear understanding of which businesses produce a profit and which require a ground-breaking reset in order to start making sense.


Today, both old and new media have pricing that doesn't make sense when real costs are taken into account.  Often, new wireless and digital products are offered for free even though rate-less pricing encourages a perception of value-less products and services.  Traditional media carries high pricing for the customers most likely to enjoy their cable and print subscriptions as a way of subsidizing cheap acquisition promotions that generate expensive "new" customer growth.  What many of these promotional discounts, all dynamically priced, do produce is constant rate pressure on the packages most loyal customers buy inside today's unhealthy media business models.


In order to build healthy and growing content and distribution futures, the media might best be served by helping customers choose the right price and the right products to engender loyalty and, where loyalty stops being profitable, to promote profitable short-term satisfaction.  There's major money to be made in the immediate gratification business inside digital media.  The best and the brightest marketing and business strategists will find ways to turn it loose if they think about their business as multiple distinct businesses with independent pricing, product features and customer demographics.  


Remember a time when nobody thought customers would pay for television?  If you do, you're probably in the high loyalty demographic that should get a subscription TV price break.  While maintaining a healthy, symbiotic relationship with free tv, cable and satellite progressed their pricing models 20 years ago by recognizing that they had invented an entirely new business. 


Digital media is a 2010-series of new businesses waiting for the right customer experiences at the right prices to seed the future. If we get the prices right, we'll take an essential giant step toward sustainable digital media products that can drive content and distribution economics for generations to come.