Newspapers that rely on telemarketing to acquire new subscribers better get used to a never-ending busy signal.

Due to current and proposed privacy legislation, newspapers’ use of telemarketing and other direct-marketing tactics could disappear within the next few years.

This new regulatory constraint will severely impact subscription-based businesses that rely on telemarketing, including newspapers, magazines, cable and telecommunications companies. Newspapers in particular will be hard hit by these privacy restrictions.

Cold calling core tool

As we all know, most newspapers rely on unsolicited telemarketing to obtain new subscribers. Because most newspapers have a yearly churn rate exceeding 100 percent, publishers have to get four new orders for every existing subscriber merely to maintain their current subscription levels. Eliminating telemarketing will severely curtail the use of a primary subscriber retention weapon.

Consider the numbers: According to data we’ve accumulated analyzing numerous newspapers, only 40 percent of a publication’s subscriber base can be considered loyal. The majority, 60 percent, falls into the churn category; that is, they do not automatically renew their subscription without aggressive retention and reacquisition tactics — most often fueled by telemarketing.

All newspaper companies should be asking themselves: “Will we lose 60 percent of our subscriber base? What will the impact be on circulation and advertising revenue?”

Slow and uneven development

In the United States, privacy policy and law has developed slowly and unevenly. Recently, however, federal and state lawmakers have been more inclined to pass more stringent privacy legislation.

These laws are divided into two categories.

The first, data privacy legislation, prevents or restricts companies or organizations from collecting, storing, exchanging, selling or using a particular consumer’s data.

The second, contact privacy legislation, stops firms from contacting consumers without their expressed or implied consent.

Both sets of laws dramatically limit how a newspaper can attract new subscribers.

Data privacy

For years, direct marketers have been able to collect, purchase and use an abundant amount of information about a consumer. This data collection might be as simple as purchasing address information for every household in a particular market. Or it could be as advanced as purchasing individual-level demographic information, including age, gender, income, credit score or even the propensity for responding to a direct marketing offer.

The days are numbered for this type of data collection and usage. Legislation has already been adopted by several agencies and governments that severely curtail these practices and most industry experts agree that the noose will be further tightened.

The result? Marketers will only be able to collect and use data from consumers who have expressly provided their permission. And consumers don’t readily provide that permission.

Indications are clear that as consumers become aware of mechanisms that prevent telemarketers’ use of their personal data, they will use those tools.

The upshot: The newspaper industry will see an exponential decrease in the amount of consumer data available to direct marketers.

A potpourri of data privacy legislation has been percolating worldwide. Some examples:

• The European Union-United States (EU-US) Safe Harbor Agreement, in which major U.S. businesses have committed to meet EU data protection standards.

• The Financial Services Modernization Act (Gramm-Leach-Bliley Act), which requires financial institutions to send consumers yearly notices on how their personal financial data is used, has resulted in incremental changes and heightened awareness of issues.

• The Online Personal Privacy Act (S-2201), introduced into the Senate in 2002, would require Internet companies to obtain consumers’ consent via an opt-in mechanism before collecting personally identifiable sensitive information and require an opt-out mechanism to let consumers manage personally identifiable non-sensitive information. The bill builds on an earlier version crafted by the Senate in 2000 to align U.S. privacy policy with some of the norms adopted by the European Union governing online companies’ ability to collect personal information. This measure aims to create a national online privacy policy that would preempt individual state regulations.

Contact privacy

Companies that rely heavily on non-permission based, direct marketing tactics for getting their message out also will have to rethink that strategy. With current legislative efforts under way to regulate or prohibit non-opt-in marketing tactics, some marketing channels (including direct mail, e-mail marketing and telemarketing) will be severely curtailed or eliminated.

The Federal Trade Commission’s plan to curb unwanted telephone solicitations includes the implementation of a national do-not-call registry. (See Newspapers & Technology, February 2003.) This registry will replace industry-sponsored voluntary programs. All businesses engaged in telemarketing will be required to use the list and update their list of restricted numbers every three months.

Currently, 33 states have DNC legislation, with consumer participation topping 50 percent in many cases. That level of participation leads observers to believe that a national DNC program will sign up in excess of 60 million households — eliminating a substantial chunk of sales prospects.

While newspapers have been lobbying heavily that they should be exempt from DNC rules, few expect any legislative relief.

Moving forward

Yet all is not lost. Newspaper companies should be moving forward now on several initiatives to help alleviate the impact of privacy restrictions. Consider the following:

• Establish a task force to address the issues.

• Develop accurate segmentation and profiling schemas of your subscriber database to clearly identify and provide a numerical score related to the “loyalty” of both subscribers and prospects.

• Implement advanced opt-in marketing programs that will allow you to continue to collect consumer information and use that information for direct marketing. These opt-in tactics should be at multiple customer touchpoints and based on consumer triggers.

• Build a sophisticated marketing database and implement an advanced campaign management system to deliver your opt-in tactics.

Media companies will be forced to develop proprietary customer data and information sources instead of purchasing customer data and will need to rely on opt-in programs and other marketing tactics to interact with customers.

Begin that journey now. Do not wait until you lose 60 percent of your subscribers.

Scott A. Stawski is the client executive for the media and entertainment business unit at Inforte Corp., a customer and demand management consultancy that helps clients improve customer interactions, revenue forecasting and profitability. He can be reached at 312.540.0900 or via e-mail at scott.stawski@inforte.com.