The Mythology v- reality of UK broadsheet digital pricing

Transcription

1 Media sector The Mythology v- reality of UK broadsheet digital pricing Cecilia Mourain, Consultant Mark Billige, Managing Partner

2 86% of UK broadsheet readers believe it is fair to pay for online content against only 14% who refuse to pay The print edition of The Wall Street Journal (WSJ), the largest US daily newspaper in circulation, at its height, reached two million households. Today, the various digital editions of WSJ have over 30 million visitors a month. Without a successful monetisation strategy, this 1,400 percent increase in readership would have translated into a less than proportional increase in revenue. The WSJ thrived by erecting a movable paywall, giving the editorial team the flexibility to decide what goes in front and what goes behind the paywall. And thus derives half of its digital revenue from advertising and half from its one million paying subscribers who generate about $65 million (approx. 40 million) a year. This shows that commercial success isn t about trying to make every reader pay. It s about extracting subscription value from the fraction of readers who want full access to the breadth and depth of content coverage. Until today 1, the debate in the UK too often revolved around the dichotomy - to charge or not to charge. The Times charges online readers, The Guardian doesn t. The Telegraph however launched a New York Times-style metered system in November 2012 targeting non-uk users who will be charged 1.99 a month to visit the site after 20 free page views. It s too soon to judge whether The Telegraph s metered paywall will generate more revenue than The Times watertight version. However, this move strengthens our belief that the All for Free, and free for All online model cannot be sustainable. All [news] is not free to produce, nor does it have zero value for customers. This is the case of premium coverage, in-depth analysis, exclusive interviews, and commentaries which cannot easily be imitated. This should be reflected in the price with differentiation between for free and for fee content. Furthermore, not All are unwilling to pay for content. In fact, 86 percent of UK broadsheet readers believe it s fair to pay for online content against only 14 percent who refuse to pay. Different segments call for different strategies. Payers vs. non-payers should constitute the first segmentation. 1. November 1st,

3 Failing to monetise digital content for relevant audiences - represents a huge opportunity cost for newspapers, increases their dependence on a declining advertising revenue stream, and creates the risk of cannibalising an already weak print offering. Simon-Kucher & Partners, a marketing and strategy consulting firm specialising in pricing, reflected on six myths underpinning certain broadsheets choice not to charge for news content available on their website. Insights were derived from a Simon-Kucher study on digital broadsheet pricing investigating how broadsheet readers value digital newspapers, and their willingness to pay for them. National Readership Survey (NRS) and Audit Bureau of Circulation (ABC) data were also used to analyse and illustrate changes in readership and circulation figures in recent years. MYTH 1: Most news readers are unwilling to pay for content False. In Simon-Kucher s survey, 86 percent of broadsheet readers thought it fair to pay something for a digital subscription. The price respondents perceived as normal 2 for a digital subscription was per month. Moreover, 41 percent of respondents said they currently subscribe to either a magazine or a newspaper. Among them, 54 percent subscribe to at least one paper (print and/or digital) spending on average per month. Non-subscribers however also revealed a certain wallet for news, purchasing on average 7.4 newspapers per month at newsstands at a monthly average spend of Two key facts allow us to refute the belief that a majority of news readers are unwilling to pay for content in a world where everything seems to be available for free on the Internet: 1. An overwhelming majority of respondents (86 percent) thought it was fair to pay for a newspaper digital subscription. 2. The normal perceived price can be defined as the point at which as many respondents felt the digital subscription was expensive as felt it was fair 3

4 2. Nearly half (42 percent) of respondents including broadsheet subscribers and regular newsstand buyers already spend more than 8.00 per month on newspaper content. MYTH 2: Readers value online content less than print Partially true. The study by Simon-Kucher found that with both digital and print publications priced at 1.00 per day (cover price of four national broadsheets in August 2011), 56 percent of participants thought value for money was lower online than in print. Customers have a cost-plus approach to the value of products/services when it comes to digital options. Indeed, 46 percent of respondents who felt value for money is lower online than in print justified their answer by saying that it costs newspapers less to produce digital content. It should therefore be cheaper. Readers have been repeatedly told that digital content is cheaper to produce than newsprint, therefore digital is assigned less value. Fig. 1: Value for money online vs. print at a price of 1/day The second most common reason (31 percent) for assigning lower value to online than print was a preference for the look and feel of a newspaper. Readers can however recognise that value and quality exist in digital content. In the study, respondents were asked their opinion on what constitutes a fair, expensive, or prohibitively expensive price for digital newspapers. Using two rounds of reasoning, readers were 4

5 led to reflect on the expertise in content creation, and the fact that newspapers can no longer rely solely on advertising revenue to subsidise the cost of producing quality news. The results confirmed that not only are readers sensitive to the value aspect, but they could also be educated to pay more. Fig. 2: Price that 50 percent of respondents found too expensive for a monthly digital subscription The communication had significant impact on the price point considered prohibitively expensive, i.e. the price level at which 50 percent of participants would refrain from subscribing. Indeed, in round one of questioning, 50 percent of all participants thought per month too expensive. In round two, this was pushed back to per month. This increases the pricing range for newspaper and closes the gap with print prices. MYTH 3: The only way to compete with free web information is to be cheap False. Competition from free information providers cannot be ignored; particularly in the UK where the BBC represents a relatively high quality free (license-funded) alternative. By remaining free, can online newspapers compete with free information sources? No. Such a business 5

6 model would require other revenue streams (i.e. print circulation, print and digital advertising) to be sufficiently robust to justify giving away digital content. However, we know that print circulation is in decline (see Myth 4) and advertising revenue is shrinking (see Myth 6). Hence, newspapers simply cannot afford to remain free online. So, by being cheap rather than free, can online newspapers compete with free information sources? Again, no. The revenue generated from a cheap paywall would be insufficient to compensate the inevitable loss in volume resulting from a shift from free to fee. We know from The Law of Demand that price and demand are inversely related: the more expensive a product becomes, the lower its demand. However, the relationship is not linear. Thus, the drop in volume between 0.00 and 0.01 will be significantly higher than between 0.01 and 0.02 or indeed any subsequent interval along the line. The main challenge is therefore not in getting payers to pay more, but to engage those unused to paying into a billing relationship. Once the initial hurdle of setting up a payment method or subscription is overcome, we see that demand is relatively inelastic. Thus, by definition, paywalls should have a reasonably high price. MYTH 4: Print readership is in decline due to price increases; we should therefore avoid doing the same with online pricing False. According to a report by the House of Lords on The State of the media, the average daily circulation of the UK s top ten national daily newspapers decreased by 22 percent between 1995 and Higher cover prices are not necessarily to blame as can be seen by The Guardian newspaper s 20 pence cover price increase in September Volume dropped by 4.4 percent in October, yet, analysis by Simon-Kucher shows circulation revenue increased by 20 percent that same month. Cover price increase is a smart strategy for broadsheet newspapers (distinct from tabloids) to improve circulation revenue. 3. House of Lords 2008, chap 2, article

7 Based on price elasticity calculations, The Guardian s price elasticity is only This means that for a 5 percent increase in price, demand would only drop by 1.25 percent (i.e. the drop in volume is proportionally smaller than the increase in price). Demand can therefore be interpreted as inelastic. In terms of trend impact, lifestyle change is in fact a main driver in falling newspaper readership. People remain interested in news but have less time for newspapers 4. Digital readership will be essential to survival. The Internet is now the top news source for the under-30s 5, implying that newspapers must therefore rely on a successful digital strategy to maintain readership and revenue levels. MYTH 5: The advantages of penetrating new markets are higher than the risk of cannibalisation Broadsheet Cover Price The Times 1.20 The Guardian 1.20 The Telegraph The Independent False. 7-day print subscription 6/week (incl. digital access) 7.20/week (incl. digital access) 7/week (incl. digital access) 5/week (incl. digital access) At the time of writing, The Guardian, The Telegraph and The Independent have a cover price of 1.20; a seven day print subscription costing between 5.00 and 7.20, and offer ipad apps costing 9.99 per month (see Figure.3). Yet their websites are free to all UK readers. By providing these free websites, newspapers take the risk of cannibalising their own customer base: from occasional readers who purchase print copies at the newsstand, to tablet owners, who might simply shift to the newspaper s website instead of buying the app. Web subscription 2 per week Free Free iphone app 3.99/six months, 4.99/annual 1.99/month, 20/annual ipad app 4/week (incl. full website access & mobile app) 9.99/month (free for 6 or 7 day print subscribers) 9.99/month, 99/annual Free Free 9.99/month Fig. 3: Overview of UK s main national broadsheet prices at September 2012 for UK readers 4. House of Lords, chap 2, article Finkelstein

8 This doesn t seem to make commercial sense - unless we believe that free online newspapers attract more new readers than cannibalise existing buyers. Ultimately, there are two ways newspapers can benefit from new readers. First is to grow market share and increase brand awareness. Second is to increase revenue. According to the NRS Print and Digital Data (PADD) statistics published in April 2012, The Times is the most popular national broadsheet in print with 5.52 million print readers a month. However, The Guardian records the highest number of readers overall (print + website) thanks to an online audience that exceeds the print equivalent (see Figure 4). TheGuardian.co.uk is free and attracts 6.5 million website readers - of which 4.9 million are website only readers and thus more than doubles its reader base (+120 percent). This proves quality free newspaper websites can succeed in growing market share. However, due to the lack of publicly available data, we are unable to say whether The Guardian s 4.9 million website only readers are new readers or former print buyers. But, when comparing print circulation of The Times and The Guardian down 12 percent and 23 percent respectively during that same period we cannot help but think that the 74 percent difference between the two is due to cannibalisation: i.e. the fall in The Guardian s print circulation was accentuated by having a free website. Furthermore, it is unclear whether The Guardian s 6.5 million online readers generate more revenue, through advertising only, than The Times 295,000 online readers who pay between 2.00 and 4.00 per week (depending on the package). Source NRS Print and Digital Data Survey (PADD) April 2012 Title(s) Print readership (000s) Website readership (000s) Print+ website total readership (net, 000s) Incremental readership generated by website (000s) Incremental readership generated by website (%) Simon-Kucher calcuation Overall market share (print+ website) Market share (print only) The Times 5, , % 19.9% 32.0% The Guardian 4,076 6,410 8,949 4, % 31.0% 24.0% The Daily Telegraph 4,466 5,392 8,821 4, % 30.6% 26.0% The Independent 3,123 2,583 5,317 2, % 18.4% 18.0% Fig. 4: UK monthly readership figures (print and website) for April

9 MYTH 6: Advertising revenue alone will be sufficient to allow newspapers to survive False. Traditionally, newspapers depended on advertising to attract the lion s share of revenue. But UK newspapers online and print advertising revenues are currently weak (i.e. down 21 percent since ). For example, in 1998 a typical broadsheet derived 70 percent of its revenue from advertising and 30 percent from cover sales. By 2008, this ratio shifted to 60 percent from advertising and 40 percent from cover sales 7. And the migration of advertising from newspapers continues, forcing them to re-invent their business models accordingly. This problem is accentuated by online advertising providing less than 20 percent of newspaper s advertising revenue 8. The sales value of an individual web page is lower than that of a printed page. Amid numerous alternatives and lack of space restriction, the Internet offers cheaper advertising opportunities. Estimates from various sources suggest that the drop in advertising value derived from moving from print to digital can be as high as 75 percent. This means that for every pound received from a print reader, the equivalent from a digital subscriber is only 25 pence. Online advertising alone cannot compensate for the decline in print advertising revenue. Nor can newspapers expect to rely on advertising revenue alone. CONCLUSION With the myths debunked and the reality clarified, it s clear why newspaper websites shouldn t be free. A watertight paywall similar to that erected by The Times is not necessarily the only way forward as paywalls exist in many forms. However, the key is to focus on the right audience. In the midst of the 2009 recession, Panera Bread maintained prices - marketing $16.99 lobster rolls - while competitors offered huge discounts such as $5 meals. Ron Shaich, Panera Chief Executive, explains: "Most of the world 6. Fitzgerald, House of Lords 2008, chap 2, article The Economist 2011, pp

10 seems to be focused on the Americans who are unemployed. We re focused on the 90 percent that are still employed. We encourage newspapers to do the same by focusing on the 86 percent of their readership who believe it s fair to pay for online content, instead of only focusing on the 14 percent who refuse to pay. The survey research was conducted in August This involved an online questionnaire answered by over 600 respondents. About the authors Mark Billige is Managing Partner of the UK practice at Simon-Kucher & Partners in London. Mark has more than ten years experience in the field of pricing and smart profit growth strategies. mark.billige@simon-kucher.com Cecilia Mourain is a Consultant at Simon-Kucher & Partners, London with the firm s media and telecommunications practice. cecilia.mourain@simon-kucher.com Other article by the same authors: Volume down, but revenue up; a winning newspaper strategy? (Mark Billige, Jonathan Baillie, Cecilia Mourain, The Drum, Oct. 28, 2011) London office: 233 High Holborn, WC1V 7DN, London, United Kingdom Tel london@simon-kucher.com Internet