Newspapers should charge premium prices to fund digital side, study recommends

Information should be free, but newspapers should charge more for it.

Information should be free, but newspapers should charge more for it.

One of the great disruptions seen in the Internet era has been the massive proliferation of free information sources, something that has hit hard at the fortunes of the newspaper industry. However, the best approach for newspapers may be to charge more for their content, versus going the other direction.

Simon-Kucher & Partners, a marketing and strategy consulting firm that specializes in pricing, just issued the results of a study which finds that consumers aren't sensitive to price increases in newspapers, and the struggling industry would be better off attempting to increase its margins.

In fact, documented price increases have grown circulation revenue for print newspapers, according to Simon-Kucher. In their words, "consumers are very unlikely to react to print newspaper price increases, putting them in the same category as lifestyle drugs and albums from cult rock bands."

While raising print prices may shrink an already anemic readership base, it may "also be their best hope of staying afloat," the study urges. One factor is that it's likely the remaining customers have a high degree of loyalty. Plus, Simon-Kucher adds, "print advertising is becoming a smaller and smaller piece of newspapers’ revenue puzzle." The New York Times Company, for instance, now generates more revenue from circulation than from advertising -- the New York Times Company Q2 2012 results show circulation revenue of $233 million and advertising revenue of $220 million.

Some notable examples (selected examples from 2009, with revenue realization in 2010 and reporting in 2011) from the study include:

  • Washington Post – Newsstand price from $1.50 to $2, circulation revenue +10%
  • Dallas Morning News – Newsstand price from $0.75 to $1, circulation revenue +11%
  • Boston Globe – Newsstand price from $0.75 to $1, circulation revenue +9%

The Simon-Kucher hits close to a key element of the evolution of newspapers: that on the Web, they are overlapping television networks in many ways.  In fact, in some cases, they are virtually indistinguishable from network websites. The USA Today site carries video, and the CBS News site carries readable text. Newspapers, with their brand, have the potential to take a leadership role in converged media.

In fact, subscription revenue provides the funding to advance into the converged media space, Simon-Kucher points out. "Raising prices generates the profits that can help companies invest in changing their business model, which is essential for a company’s future success," the report states.  In the newspaper industry, the consultancy recommends plowing all money into the digital side of the business, including tablet apps and digital advertising solutions. “The print business isn’t your legacy; it’s your bank,” the report's authors state.

Andre Weber, a Partner in Simon-Kucher’s New York office, elaborates on the upside to be had from raising prices: “The New York Times has implemented three separate price increases in the last four years, doubling the newsstand price from $1.25 to $2.50. Price increases, along with innovative subscription models like the Weekender and online paywall, have helped them turn around their news division, increasing operating profit almost 13% year-over-year in the second quarter.”

(Photo: Joe McKendrick.)

This post was originally published on Smartplanet.com