Thread by @trengriffin

A lot has been written about challenges facing journalism this week, but not so much about the business challenges. The formula an owner of a media outlet faces can be represented in a formula: abovethecrowd.com/2012/09/04/the… Each variable in the formula can make or break the business.

Among the critical variables for a media business is "customer acquisition cost." The higher that cost is, the greater the risk that (1) customer churn can result in stranded capital and (2) the business runs out of cash since the CAC is paid up front and revenue often is later.

The cost of acquiring a customer varies based on many factors, but to keep math simple assume it is $100 *on average* for newspapers/mags with significant variability by sales channel. If you look at many industries you can start to guess what CAC is or will be for a new product.

After people read their fourth Vanity Fair article in a month, they subscribe for $19.99 a year for either digital-only or print plus digital. (Video and slideshows will be exempt from the paywall. If CAC is $100 (my guess) that's a tough business given the other variables.

No the publication can't just create great content and wait for vitality to deliver enough customers. A purely viral marketing strategy is no marketing strategy if the media business is more than a newsletter selling into niche market and wants to achieve scale.

A business like this will have a "growth team" responsible for making each variable in the formula more favorable. They manage offers like: searchable archives, subscriber-only newsletters and even giving subscribers access to its writers and editors." digiday.com/media/vanity-f…

Each freemium style offer (eg, the four free Vanity Fair article a month) has real cost. The first cost is what looks like COGS but is actually CAC. The second cost is cannibalization produced by people who do not convert since the four free articles is all they want each month.

A modern growth team is using data science to continually monitor the mix of factors that drive the business to achieve positive RIOC. If a business doesn't have this analytical capability, they are similar to a pilot flying an airplane in dense fog without instruments.

I meant to write ROIC above, so there is a typo. Return on invested capital.

Also, it's my birthday today. I don't look forward to them like I used to since I face increased churn and end of useful life with each passing one.