Newspaper self-cannibalization datapoint of the day

By Felix Salmon
July 30, 2009
Walter Hussman, the publisher of the Arkansas Democrat-Gazette, adds an interesting datapoint to the question of self-cannibalization in the newspaper industry:

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Walter Hussman, the publisher of the Arkansas Democrat-Gazette, adds an interesting datapoint to the question of self-cannibalization in the newspaper industry:

Hussman, an early pioneer in newspaper paid online content and frequent speaker on the topic, said his newspaper now has about 3,400 online subscribers who pay $5.95 per month for access to everything on the Web site. Non-subscribers still get a significant portion of online news – including some blogs, multimedia, AP and others – but not everything.

Hussman said the paid content online generates just one-tenth of 1 percent (0.1 percent) of the newspaper’s total revenue. But the newspaper has been very successful in keeping print circulation up in part because the newspaper is not giving all its content away for free. The Democrat-Gazette’s daily circulation is up 3,000 to more than 176,000 over the past 10 years, while other newspapers in the Southeast are down (some significantly). Sunday circulation for the Democrat-Gazette is down just 1 percent in 10 years.

A USC-Annenberg study this spring (the Annual Internet Survey by the Center for the Digital Future) reported 22 percent of survey respondents said they stopped their subscription to a printed newspaper or magazine because they could access the same content while online.

My general opinion on the subject of self-cannibalization is that you first need to get past the natural hubris of newspaper publishers. Yes, there is a degree to which print and online versions of a newspaper compete with each other. But there’s an even greater degree to which a print newspaper competes for its readers’ attention with the entire rest of the internet. If you put your website behind a subscription firewall, there’s no shortage of other content which your readers will happily consume for free.

That said, Hussman has a point: in terms of reader psychology, newspaper subscribers lose a free excuse for not renewing if you create an online firewall. If the paper is available online for free, they can say “I’ll just read it online” — even if they don’t. But if they have to pay for it online, they realize that in order to read the content they’re going to have to pay for it somehow, and if they’re paying a subscription fee anyway, they might as well get the paper delivered to their door, like they’re used to.

I’m interested in Hussman’s online subcription level, too, or $5.95 per month: it’s higher than I would have guessed. The obvious model to use is the magazine subscription model: sell subscriptions at $10 or $12 per year — the minimum possible level at which advertisers really value your readership, on the grounds that you make much more from advertising than you do from subscriptions. Advertisers will pay a premium to reach paying subscribers, but they don’t much care how much those subscribers are paying. So you make the subscription price as low as you can, in order to maximize the number of subscribers and therefore the amount of money you can get from advertisers.

What’s more, the effect of a subscription firewall on print circulation is effectively binary: it’s the existence of the firewall which matters, not the price level at which it’s set.

So what’s the reason for charging $71 a year rather than $10, if online subscriptions account for only 0.1% of your total revenue? I suspect that there’s an anchoring effect at work: a print subscription is $17 a month, or $204 a year, and the online subscription has been set at 35% of that figure.

In any case, if a newspaper is both increasingly reliant on paper subscription revenues and is seeing its paper subscriber numbers decline, there might indeed be a colorable case for implementing a subscription firewall in front of the online content. That doesn’t apply to big papers like the WSJ, FT, and NYT which are not seeing their print subscription numbers fall, and which aspire to being global news sources. But it does apply to smaller, regional papers, where the economics of newspaper publishing are particularly gruesome.

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Comments
5 comments so far

Hard copy content for the newspaper industry sounds like travel agent/corporate travel manager support for the business travel market a decade ago. The internet changed everything (and whacked a lot of the airline industry’s pricing power in the process)

Posted by bdbd | Report as abusive

But one need look at the entire P&L. Too much of the discussion is about single revenue lines, not the bottom line.

So you maintain print circulation but also maintain print cost, which amounts to at least 60% of the cost structure of papers (plus a considerable portion of edit staff). The Boston Globe as constituted was losing $85 million a year. Sure, there was more revenue there. But there was also more cost. Why maintain that? The aim should be to look at what is most profitable (not what is biggest). If that can be done with charging, wunderbar. But the question has to be how to make the most money.

The fee for an online subscription can’t be too low or you will cannabilize your printed product. So what? Here’s what.

Advertising in the printed newspaper serves the local advertiser much better than web advertising. (Why is all the discussion about “news content,” when the local advertiser is the biggest consumer of newspaper services?)

If a newspaper drives all of its readers to online editions, it will lose the audience in its print edition that is vital to the success of local businesses.

Internet advertising has been around now for 15 years or so. Guess what. It’s not as good as newspaper advertising. And as it becomes more of a nuisance, it will get worse.

Internet advertising is a bother and a distraction, a lot like radio and TV advertising. The audience for any single website is a minute fractoidal slice of the market. And an advertiser’s spot might show up for every sixth or eighth or 10th surfer whose browser points to that page.

Good newspaper advertising works great. Local business people know that. In fact, the advertising is one of the big reasons people buy newspapers.

People in a town can be surfing any of 500 million websites. People in that same town read one or two of the same newspapers. If you were a local business person, where would you put your advertisement?

Newspapers that are intentionally driving their readers to their web editions are shooting themselves in the foot (like that’s never happened before). Yes, you can cut expenses by eliminating newsprint and delivery, but doing that reduces the value of the product to nothing to its biggest consumers — local advertisers.

The correct business model is to have the print edition and the online edition be two totally separate products rather than imitations of one another.

Posted by Kent Ford | Report as abusive

In the UK, because distribution costs are much lower for a given audience reach, print subscriptions tend to be treated as profit centres in themselves, and so are priced much higher than in the US. Even if they don’t make a profit absent advertising, they tend to be sold at cost, rather than a huge discount. It costs me less to get Harper’s shipped from the US every month than it does to have, say, the London Review of Books delivered by post a couple of miles to my flat. I’ve been wondering for some time what the consequences are for the online world of these two radically different subscription models. For a UK paper or magazine, replacing a print subscription with a cheap online subscription is a less attractive than in the US, unless it allows you to phase out print altogether.

Posted by Ginger Yellow | Report as abusive

in all the debate about newspaper subscriptions, I never seen anyone mention The Economist and its amazing ability to still generate subscriptions even though absolutely everything is offered free online-except their audio edition. The audio edition (awesome British voices reading all the articles) is fantastic but it costs $9 if you don’t have a subscription or its free with magazine subscription.
I was working internationally where I couldn’t receive mail, but I kept my Economist subscription (and sent it to my brother) just so I could enjoy the audio edition. Perhaps more newspapers need to change the forms they deliver news.

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