“We publish valuable news and information, which is worth payment,” a European newspaper editor told me, attempting to explain why his publication’s Web site began charging €14 ($15.11) per month for access.
The content is worth payment. But at what price?
In my previous column, I used standard economic theory to outline how the recording industry hasn’t understood how the introduction of MP3 encoding and downloading technologies fundamentally changed pricing of recorded music; and how that misunderstanding resulted in the very thing the music industry condemns — widespread consumer sharing of recordings online.
Let’s look at another online industry where consumer and content provider perspectives on pricing differ widely.
Consumer periodicals have had difficulties online. Most newspapers have operated Web sites for six or seven years, but very few profit. Most blame the recent ad recession, despite the fact amounts spent on online advertising during this recession never recessed. These publications weren’t in the black even when the Internet economy was booming. Consumer magazines are even more unsuccessful.
There are many reasons why online periodicals haven’t been profitable. The economics of online advertising are deceptively different from print. Most periodicals’ online business models are based on consumers retrieving, not being delivered, content. Consumers find wired personal computers (as opposed to paper) to be inconvenient devices on which to read. But for now, let’s focus on the elementary pricing problem.
Standard economic theory posits self-interest drives buyers to want goods and services at a low price. It drives sellers to offer these at a high price. Competition drives prices together to create a functioning market. Self-interest motivates. Competition regulates. There will always be some difference between the buyers’ and sellers’ desired price. In a functioning market that difference is minimal, or at least negotiable. Buyers and sellers agree on price. Sales result.
The result when the difference between the sellers’ and the buyers’ prices is too vast? A malfunctioning market. Like the online periodical market targeting consumers.
Like their music industry counterparts, periodical publishers view the Web as both cannibal and kitchen. Publishers worry placing content online will cannibalize their print sales, yet hope to use the Web to cook up profitable new ways to distribute content.
Like Bigfoot or the Loch Ness Monster, the cannibalization myth persists, despite evidence to the contrary. Surveys of American consumers routinely conclude newspaper sites don’t cannibalize print subscriptions. They actually increase single-copy sales. French studies confirm this.
Despite the myth (and unlike the recording industry) the periodical publishers began offering online content. For free. Virtually every magazine and daily paper in the world offer free online content.
Many publishers now want to charge for this content. They haven’t profited from online ad revenues or believe because consumers pay for print, they’d be willing to pay for that same content online.
In the early days of the Web, a few pioneering news publishers tried to charge for online content. The New York Times, San Jose Mercury News, and Los Angeles Times conducted various endeavors to charge for access. They abandoned the projects when it became clear most won’t pay the fees the publishers want (note emphasis).
Many consumer publishers wanting to charge cite The Wall Street Journal, Variety, and Consumer Reports as models. They forget WSJ and Variety are business-to-business (B2B), not consumer, publications. Consumer Reports accepts no advertising and must charge for access, online or off-.
These three possess the criteria most periodicals don’t to successfully charge online. As I wrote last November, there are prices consumers probably are willing to pay to access online magazines and newspapers. But not the prices publishers want. Therein lies the rub. The desired prices of buyers and sellers are too disparate. Hence, no functioning market.
Most periodical publishers want anywhere between $3 and $15 monthly. These amounts are equivalent to the prices for their print content. “If they’re willing to pay that amount for print, they should be willing to pay it online,” goes the reasoning.
Recent studies demonstrate the vast majority of consumers won’t pay $3 or more, even for complete site access. The median price those surveyed say they would pay for online newspaper access is $1 per month.
Because very few will pay what publishers want, most who charge access fees have converted no more than about 1 percent of their formerly free sites’ visitors into paying online subscribers.
Price difference makes the market malfunction. The good news for publishers is it isn’t malfunctioning as badly as the music market.
Supply and demand play a role. Web access provides many news sources, so it reduces the price consumers will pay for news. Surveyed consumers believe, “There are so many free sources of news and information available online, it doesn’t make sense to pay.” Many are wise to the publisher practice of repurposing Internet-distributed content to reduce distribution costs. (“The information is already there. They don’t have printing and distribution charges online.”)
Because the Internet provides access to a greater supply of periodical information, most for free, economic theory dictates publishers should drop prices to near what buyers will pay.
Instead, many publishers say the solution is for all online publishers to charge the price they want. Cut off the free supply. Consumers will be forced to pay those amounts. Others believe consumers must be “educated” into paying.
Unrealistic, wishful thinking. The economics of periodical publishing changed forever with online content distribution. Traditional pricing was based on paper print and distribution costs, usually subsidized by advertising. Web distribution eliminates printing costs and radically reduces the cost of distribution. It’s created a greater content supply. Publishers can like those facts or not. It’s reality.
There’s a huge potential market — but only if the price asked meets the price willing to be paid. Periodical publishers, catch up with the pricing curve.
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