Paid Content Report by: Mike Jenner


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While the adoption of paid online models by daily U.S. newspapers captured the attention of the industry and the public, non-daily papers have quietly but steadily introduced paid content models of their own.
Forty-two percent of non-daily newspapers now charge users for digital content, according to an extensive survey of publishers sponsored by the Southern Newspapers Publishers Association and the Missouri School of Journalism.

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Paid Content Report by: Mike Jenner

  1. 1. Paid content comes of age A once-scorned strategy becomes a movement
  2. 2. From failed strategy to fadto full-fledged movementJ ust two years after being dismissed as a hasn’t made up for print failed strategy, paid online content models shortfalls or even offset have become a full-blown movement. stalled growth in digital While pundits and the public watched to ad revenue. But askingsee how the New York Times’ model would readers to pay representsbe received, the rest of the industry wasn’t an important contributionwaiting. at time when newspapers Frustrated by sluggish digital revenues, needed it most.small dailies moved decisively, often creating Aside from thetheir own models and solutions. Weeklies have financial contributionalso moved into charging for digital content. — viewed by many Interviews with daily publishers in the publishers as “found money” — charging forspring of 2011 revealed that four in 10 required online content movement makes an importantpayment for some online content. And a statement: News content has true value. Thesurvey of weekly publishers at the end of the days of newspapers “giving it away” areyear showed that non-daily papers weren’t numbered.far behind: when e-edition subscriptions werecombined with web pay models, more than 40 —Mike Jennerpercent were charging for digital news content. Professor and Houston Harte Chair The revenue generated by these pay models Missouri School of Journalism Contents Weeklies begin charging for digital content Page 3 Small dailies lead way in move to paid content Page 6 Debunking the arguments against charging Page 9 Advice for those considering pay models Page 10 Limits on consumers’ willingness to pay Page 11 Economic modeling’s lessons for newspapers Page 132
  3. 3. Weeklies move stronglyinto paid online contentBy Mike JennerUniversity of Missouri Key findings from the study While the adoption of paid online models by u A brighter future: 72 percent of weeklydaily U.S. newspapers captured the attention of publishers are optimistic about the future ofthe industry and the public, non-daily papers newspapershave quietly but steadily introduced paid content u Print will endure: Two-thirds don’tmodels of their own. envision a time when they will no longer pro- Forty-two percent of non-daily newspapers duce a print edition. u Weeklies charging online: 42 percent arenow charge users for digital content, according now charging for online access; in line withto an extensive survey of publishers sponsored dailies (43 percent).by the Southern Newspapers Publishers Asso- u Mobile and tablets: Less than one in 10 haveciation and the Missouri School of Journalism. a mobile phone app; just 7 percent have a tabletOne quarter of those who don’t charge plan to app.launch a paid program in the next 12 months; u Revenue streams shifting: Although 80 per-another 48 percent say they may begin charging cent of weeklies now garner less than 10 percentafter that. of revenue from digital sources, in three years 41 A similar study earlier last year showed that percent of publishers say43 percent of U.S. dailies had begun charging digital will be greater than 10 percent.for some or all-online content, with smaller dai- u Multi-tasking sales staffs: The advertising staffs of 7 of 10 weeklies sell both print andlies leading the way. Among non-dailies, circu- digital products.lation size did not play a significant role. u More training needed: 63 percent of The non-daily papers — nearly all of them publishers say more digital training would helpweekly or twice-weekly community papers — their representatives achieve growth in digital adwere undaunted by technical challenges: Nearly sales.three-quarters (74 percent) implemented theirpay-for-content mechanisms themselves, whilethe remainder joined a syndicate or vendor-cre- often adding material such as blogs, slideshowsated network. and video. But many weeklies have been loath More than 400 leaders of non-daily papers in to post all local content online for free. In part tothe National Newspaper Association’s database protect print editions, 26 percent of all weekliesparticipated in in-depth telephone interviews have taken the opposite approach, offering October. The study, which had an 85 percent An equal proportion offers a replica edition; 48response rate, was conducted by the Center for percent offer more than their print edition.Advanced Social Research, the research division Nearly half — 47 percent — of the weekliesof the Reynolds Journalism Institute at the Mis- bundle free access to their web editions withsouri School of Journalism. print subscriptions. One quarter offer a metered Until the widespread advent of paid content approach.models, most dailies put the entire local contents In all, 36 percent of non-daily publishers be-of their print edition on their websites for free, lieve revenue from their paid content models 3
  4. 4. will account for up to 20 percent of digital rev- 4 out of 10 non-dailyenue; 15 percent believe it will represent morethan 20 percent. About half thought it would newspapers now charge usershave a negligible effect. for some online content While most publishers expect their paid contentmodel to have no effect on print circulation, 7 per-cent think it will increase circulation and 24 per-cent think it will slow or stop circulation declines. Yes    42%   E-editions, or PDF replicas of the print edi-tion that can be emailed to customers, play animportant role in the digital portfolio of week- No    58%  lies. One in six — 17 percent —offer e-editions;all are charging for them. Ninety-five percent of weeklies with more than5,000 circulation have websites, compared to 77percent of those with less than 5,000 circulation. Size of circulation did not play a significant role in how publishers answered the question.Positive attitudes Economic challenges and changes in adver-tiser and consumer habits haven’t shaken the of their papers’ revenue streams from print tofaith of most weekly publishers. Nearly three in digital. At present, 80 percent say less than 10four — 72 percent — express optimism about percent of their revenue is attributable to digital.the future of the industry. Another 21 percent are In three years, only 41 percent believe digitalneutral; only 7 percent say they were not opti- will make up less than 10 percent of total rev-mistic. enue. Like their daily counterparts, publishers of Forty-two percent believe their digital streamnon-dailies envision a strong shift in the makeup will range between 10 and 24 percent in three Revenuestream: Digital Revenue Stream: Digital 70%   61%   Current   60%   3  Years  Later   50%   40%   30%   25%   19%   19%   20%   16%   12%   12%   11%   7%   10%   3%   3%   4%   4%   1%   1%   2%   0%   0  -­‐  4%   5  -­‐  9%   10  -­‐   15  -­‐   20  -­‐   25  -­‐   30  -­‐   35  -­‐   40%  +   14%   19%   24%   29%   34%   39%  4
  5. 5. Less than 1 out of 10 have a of the decisions to implement paid content and mobile platforms and products. mobile phone app Thirty-six percent of weekly publishers say their market is not saturated with broadband internet coverage. Another 33 percent say their Yes      7%   markets are saturated; another 31 percent are neutral. Publishers have a split view of competition No      93%   in their markets. Exactly half say they don’t face competition for local news coverage. One quarter say they’re in a competitive news envi- ronment and the remainder are neutral. But the perception of competition for adver-In the next 12 months, 28% of those that don’t have tising is a different story: 47 percent of pub-a mobile phone app plan to create one. lishers say they’re in competitive advertising markets. One quarter say their markets are not competitive for advertising; another 28 percentyears; at present only 18 percent say digital rev- are neutral.enue falls in that range. And 17 percent of pub-lishers envision digital revenue in three years Digital sales, ad production and trainingexceeding 25 percent of total revenue — only 2 In nearly 4 of 5 weeklies, sales representa-percent say they’re in that range today. tives sell a full portfolio of print and digital All the redistribution of revenue will come at products. One-fifth of the newspapers have atthe expense of print, publishers say. They see least one sales staffer who specializes in one orlittle change in the relative contribution of other the other. In nearly half the organizations — 43revenue components, including outside printing percent — sales reps also are responsible for adand niche products. creation and production. Circulation size was not a significant factor.Mobile and tablet efforts However, only one-third of publishers of Weeklies trail dailies in development of mo- newspapers in which sales staffs sell both printbile phone and tablet products. While 28 per- and digital believe their representatives can sellcent of non-daily publishers said they offered a digital products as well as print. More than two-mobile-optimized website, less than 1 in 10 — 7 thirds — 68 percent — believe specific trainingpercent — now have a native app for any kind in selling digital products would make a signifi-of mobile phone. And only 3 percent offer a cant difference in sales results.tablet app of any kind. Publishers also feel journalists need more Of those organizations that don’t now have ongoing training in digital news coverage anda mobile phone app, 28 percent plan to create production. Forty-seven percent say their news-one in the coming 12 months, and 37 percent rooms need ongoing training. And 44 percentof them plan to charge for it. In the coming 12 cite the need for ongoing training in digital admonths, 26 percent of those newspapers without production.a tablet app plan to create one; 56 percent ofthem plan to charge for it. Mike Jenner is a professor and Houston Harte Chair of the Missouri School of Journal- External forces at play ism. He may be contacted at jennerm@missouri. The absence of ubiquitou s broadband internet edu. Ken Fleming, Ph.D., is director of RJI’saccess across weekly markets and the competi- Center for Advanced Social Research. He maytion for readers and advertisers are behind some be contacted at 5
  6. 6. Small papers lead the wayin charging for online contentBy Mike Jenner 14 percent agreed with the statement, “I don’tUniversity of Missouri believe we’ll ever be able to get customers toW pay for online content.” hile large dailies have been slow to That confidence is reflected in the plans of embrace the concept of charging publishers who have not implemented paid for online news content, smaller subscription models.newspapers have quietly led the way in Of the papers that don’t now charge, 35introducing paid subscription models in the percent have plans to do so; another 50 percentUnited States. may begin charging at some point. Only 15 Nearly half the publishers of small dailies percent of publishers said they had no plans tocontacted in a recent University of Missouri charge.survey have begun charging for online content. Newspapers continue to reel from the The survey was based on a random sample of economy and from an exodus of advertisersall 1,390 U.S. dailies, and 301 interviews were who are seeking cheaper and more targetedconducted April 1-18 by the Missouri School alternatives. And while online readership ofof Journalism’s Center for Advanced Social news continues to grow, print revenues continueResearch. The response rate was 78 percent. to decline. Publishers say they are looking Underlying the move to begin charging both for revenue and to establish value for theis a strong belief that audiences will pay to content their staffs produce.consume quality news content. Two-thirds of While publishers of papers that are chargingthe publishers believe customers will pay. Only welcome the new revenue coming from Revenue stream: Print Portion of revenue expected from print 30   2011   25   2014   20   15   10   5   0   0-­‐29%   30-­‐39%   40-­‐49%   50-­‐59%   60-­‐69%   70-­‐79%   80-­‐89%   90-­‐100%  6
  7. 7. Revenue stream: Digital Portion of revenue expected from digital products 30   2011   25   2014   20   15   10   5   0   0-­‐4%   5-­‐9%   10-­‐14%   15-­‐19%   20-­‐24%   25-­‐29%   30-­‐34%   35-­‐39%   40%  digital circulation, most have modest expecta- Tablet appstions about the amount pay models are likely togenerate. In the coming 12 months, one-third Overall fewer than 2 in 10 papers have a tablet appbelieve the revenue from their pay models willcount for up to 20 percent of their companies’ 61%digital revenue. Only one in 10 expect revenue 39% of newspapers with 39%from content to make up more than 20 percent circulation of 25K or moreof their digital revenue. Half expect a negligible have a tablet appcontribution to the bottom line. Although most see no impact on print 9% of newspapers whose circulation 91% 9%circulation, a few do. Six in 10 see no effect; is below 25K have a tablet appone in three believe their pay model will slow orstop circulation decreases, and 4 percent thinkprint circulation might actually increase. While smaller papers have been leading thecharge to online pay models, larger papers have Mobile phone appsbeen most active in creating mobile phone andtablet apps. Mobile app activity correlates with newspaper size Sixty-two percent of newspapers withcirculation of 25,000 or more have a mobilephone app, while 21 percent of newspapers 62% of newspapers with 38% 62%below 25,000 have a mobile app. The numbers circulation of 25K or morewere lower for tablet apps: 39 percent of papers have a mobile phone appabove 25,000 circulation offered tablet appswhile only 9 percent of smaller papers did. 79% Publishers seem eager to enter the space, 21% of newspapers whose circulation 21%however. is below 25K have a mobile app In the next 12 months, 59 percent of 7
  8. 8. newspapers that don’t offera mobile phone app plan to Paid content modelsintroduce one, and 35 percentof those newspapers plan to Smaller papers are adapting more quicklycharge. Less than 20 percent of 54%newspapers overall offer a 46% of newspapers under 46%tablet app. 25K circulation charging In the coming year, 48percent of newspapers that for some online contentdon’t offer a tablet app planto offer one, and 45 percent 76%of those newspapers plan to 24% of newspapers whose circulationcharge for it. 24% Publishers were also asked is above 25K charge for some contentabout their revenue mixand how they expect it tochange. After years of talkabout the need to bolsterthe proportion of digital How do newspapers charge?revenue to offset decliningprint revenue, publishers arefinally expecting a shift inthe mix. They were asked to Metered 15estimate the proportion ofrevenue represented by print, All users must pay 30digital and “other” (nichepublications, outside printing,etc.), and to project how the Online users pay; subscribers have free access 54mix would change in threeyears. 0 15 30 45 60 The overwhelming majorityacknowledged that digitalrevenue was still a smallcontributor at their properties. digital revenue to represent mobile phone app in the field.Fully 85 percent said digital more than 25 percent of alldollars represent no more than revenues. Overall, changes to A former newspaper editor,15 percent of their companies’ the “other” revenue category Professor Mike Jenner holdsrevenue, and 80 percent said did not see significant change. the Houston Harte Chairprint revenue still comprises In analyzing the data, at the Missouri School of70 percent or more of overall we looked for relationships Journalism. His position isrevenue. between these trends. One funded by an endowment given In three years, 60 percent interesting relationship stood to the journalism school by theof publishers expect digital out: family of Houston Harte, anrevenue to represent more than Publishers who expect the alumnus and the founder of the15 percent of their papers’ most dramatic shift in the Harte-Hanks media corpany.overall revenue stream, with revenue mix from print to The focus of the Harte Chair isnearly one quarter expecting digital also happen to have a innovation.8
  9. 9. Five reasons not to charge —and why they don’t add upBy Andy Waters a print subscriber. Since we made the leap onColumbia Daily Tribune Dec. 1, subscription revenue from our website N — — has exceeded ot long ago I asked our expectations and we haven’t lost a penny of a group of local advertising revenue. leaders how many Why didn’t we do this years ago, and why of them had customers who don’t more publishers do it now? Here’s a list paid them for a product or of the top five reasons, along with some lessons service. Nearly every hand learned along the way. went up. u Page views will drop. Yes, but so what? Then I asked how many Most newspapers have far more pageviews online thought it would be a good than they can possibly sell to advertisers. In our idea to start a website case, we were selling about 40 percent of our and give their product or available inventory. The other 60 percent wasservice away for free. Everyone started laughing. meaningless to us because it wasn’t contributing It seems like everyone gets that joke — significantly to revenue. Once we realized thatexcept the newspaper industry. our metered approach would keep us from For years, newspapers built their Web strategy losing anything close to 60 percent of our onlinearound the idea that if we offered free news traffic, the decision to charge was a, we’d attract huge audiences and have Since launch, our pageviews are down aboutsomething valuable to sell to advertisers. After 15 30 percent, but unique visitors have remainedyears, we’ve attracted the huge audiences, but the relatively steady. Non-subscribers are reachinghuge advertising dollars haven’t materialized. their limit and coming back the next month. Meanwhile, wise readers have figured out We’re still the largest news site in our to go online to get for free what they’d u Nobody will pay for news online.otherwise have to pay for in print, and some Hogwash. The high-quality journalism producedhave made the perfectly reasonable decision to in America today is being done at just that. That’s great for readers — at least People value what we do, and they’re willingthose who don’t mind reading news online — to pay for it. After eight months, we now havebut it’s a disaster for publishers. Why would we roughly 8,000 people paying us for access to ouractively encourage readers to dump the print website, far more than we expected. If any localedition, which has a solid business model of newspaper publishers believe they don’t havesubscription and advertising revenue, and start anything to sell, they’ve got problems beyondreading for free online, where the most we can whether to charge for online access.hope for is enough advertising revenue to cover u The technology is too difficult. Difficult,10-20 percent of our costs? yes. Insurmountable, no. The technology is That question bothered us at the Tribune for getting more accessible as online subscriptionsyears before we began charging for access to catch on. We worked with our Web contentour website at the end of 2010. We now have a management system provider to developmetered site that allows visitors 10 free views the system we wanted, then spent monthsper month before asking them to pay $8 a month integrating it with our print subscriber databasefor online-only access or $1 a month if they’re so we could seamlessly offer bundled 9
  10. 10. subscriptions. More CMS providers are offeringthis technology. Solutions like Press+ and Pay model adviceGoogle One Pass are designed to be platform- u  Consider a metered model. You get theagnostic add-ons. best of both worlds — subscription revenue and u Advertisers won’t like it. If that’s true, they minimal traffic loss. Visitor counts will drop lesshave a funny way of showing it. Our online ad than pageviews, and visitors are more important.revenue is up so far this year. Online subscriptions Allowing a set number of free views per monthare a non-issue for local advertisers. We’re is a great way to let customers sample yourprepared to tell any advertiser who asks that we product before they buy. Sure, you’re givingnow offer a more engaged audience that is more away some content, but it’s to fly-by visitorsvaluable to them. So far nobody has asked. who would never subscribe anyway. Focus on ­ It will upset our loyal readers and build ill uwill toward the paper. We were prepared for the loyal readers who value the news the most andworst the day we launched. The extra customer don’t worry about the rest.service reps we brought in for the occasion ended u  Forget pageviews. Most news websites haveup twiddling their thumbs. Most of our customers far more pageviews than they need. How manyget why we’re doing this — so we can afford to do they need? Enough to serve the local adskeep doing quality journalism as some readers they sell. Any more is good for bragging rights,move online. Sure, we had some upset readers but not much else. National ad networks arewhen we announced our plans. Most were habitual paying less than $1 per thousand impressionsviolators of our commenting policy upset with us for remnant space. Try making payroll in thefor requiring a subscription to comment on our newsroom at that rate. Better idea: See hownews stories. Commenting on our site has dropped, many pageviews you actually need to servebut so have complaints about inappropriate all your local advertising and set your metercomments and the staff time necessary to react to accordingly.them. The most common feedback I’ve heard since u  Don’t neglect print – you could lose awe launched has come from readers thanking me bundle. The technology to charge for contentfor cleaning up the story comments. online is relatively simple. The hard part is Those are just five things that give publishers integrating the online subscription data withpause when contemplating paid online content. your print customer database, which is necessaryThere are others. Sound familiar? to sell and keep track of bundled print/online subscriptions. Make this critical element part of Andy Waters is the president and general the planning process from the start.manager of the Columbia Daily Tribune and u  Have a bulk subscription plan. WhatTribune Publishing Co., a newspaper and will you tell businesses and institutions thatcommercial printing company in Columbia, ask about discounted rates for multiple onlineMo. Reach him at subscriptions? They will ask. How will bulkor (573) 815-1706. subscribers get access? Have a plan before you go public with your online subscription strategy. u  Make obituaries paid content. Obituaries Tell us your story are among the most popular content on any If you’ve implemented a paid content model, news website, so why would you give that we’d like to hear what you’ve learned. Tell us away? Newspapers charge readers to read obits about your experience and what worked — and in print. Do the same online. If you have a maybe what didn’t work so well. Send an email metered site, non-subscribing relatives still can to Mike Jenner at, or read for free. call (573) 884-2270. — Andy Waters10
  11. 11. Online news customers andtheir willingness to payBy Iris Chyi had high interest in news, and who were alreadyUniversity of Texas actively using print, online and TV for news. P Respondents were also asked to assume that rior to a couple their favorite newspaper was no longer free, in of years ago, print or online. Under that condition, how much only a handful would they be willing to pay for print, web, and of newspapers were apps? While 30 percent were unwilling to pay charging online — it was for a print newspaper, 60 percent said they would considered to be a failure. pay nothing for online news, and three-quarters Nearly 80 percent of said they wouldn’t pay anything for news apps. U.S. newspaper sites were Using the amounts respondents said they would generating revenue from be willing to pay, the study computed a mean online advertising, but only price for each platform: $7.70 per month for 3 percent were charging for print, $3.10 for web and $1.50 for apps.access. And 71 percent of users said they’d go to Finally, respondents were presented with sixother online sites that were free. specific models of newspaper content payment, But ongoing declines in print revenue coupled including micropayments, a metered approach,with the inability to show significant growth free access bundled with print, a subscriptionin online ad revenue have driven newspapers with a free tablet, revisit the notion of charging for access to The data show that willingness to pay for anyonline content. of the models is extremely low. Against this background, we conducted a study These results are important for severalattempting to determine the predictors of paying reasons. First, they can be used to provideintent across platforms (print, web, mobile, estimates for the potential to increase onlinetablet). The results are based on a survey of 767 revenues. (see Mantrala and Thorson, 2011).randomly sampled online U.S. adults in August They are also important because theyof 2010 (about four months after the iPad was demonstrate that people are willing to paylaunched). The final analysis involved weighting for print news at a much higher price than forthe sample to ensure it was representative of the online or web news. This shows that consumersU.S. internet population. consider online news to be what economists The first question was “how likely is it that call an “inferior good.” These results imply thatyou would pay for info on three platforms — consumers perceive online news to be more likeprint, web, and apps?” Thirty-three percent ramen noodles, while print news is like a nicewere “likely” or “very likely” to pay for print; 13 dinner at an expensive restaurant.percent for online content, and 8 percent for apps. In the lexicon of an economist, the term Those most likely to pay for print were those “inferior good” has a specific definition: Aswho had a high news interest, who already paid income increases, demand for inferior goodsfor print, and who did not use online news. Those decreases. For normal goods, when incomemost likely to pay for online were those who were increases, demand increases.young, male, had high interest in news, and werealready active online news users. Those most likely Iris Chyi is a new media researcher and assistantto pay for apps were those who were young, male, professor at the University of Texas at Austin. 11
  12. 12. Payment models studied 1. Free hardware with contract 4. Day pass: $0.99/day in allfor content: A free iPad with a 2-year ELECTRONIC formats. (1.8)subscription at $30/month (i.e. $720 for 5. Customized content: A “build your2 years) that covers all content in all own, mix and match” subscription menu thatELECTRONIC formats. (1.6) covers all ELECTRONIC formats. Content 2. Micropayment: “Buy the article once, is self selected by topic (e.g., sports+localno strings attached” at $0.19 per article in all news, etc.). Price: $0.99 per content topic perELECTRONIC formats. (1.6) month. (1.8) 3. Tiered (or metered) system: First 6. Free online access for print10 articles free per week. $0.99 for each subscribers: Montly subscription that coversadditional article in all ELECTRONIC all PRINT and ELECTRONIC formats. Price:formats. (1.8) $33 per month. (2.0)Key findingsWhen we looked at which packages differ- but not 5 (customized content).ent groups of people preferred we found somestriking differences. Here are the most salient u  Not surprisingly, people who use a lot of on-ones: line news liked all the packages except 1 (where they’d get a free iPad—they probably alreadyu  There were no differences in what men and have one) and 6, because they don’t want printwomen chose except a strong preference by and therefore don’t want to pay for it.women for print users getting everything else free. u  Heavy TV news users were also not sur-u  There were no differences in how people prising in their preferences — the day pass,with differing levels of education preferred the probably because they don’t plan to use onlinesix different packages. newspaper very often — and customized top- ics — where some topics like sports might beu  There were no differences in how people interesting enough to them to motivate them towith differing levels of income preferred the seek the depth that newspapers provide.six different packages, except that people whomade more money tended to prefer that print u  The most interesting finding was that theusers get everything else free. people who expressed high interest in news responded positively to ALL the packages.u  People who use a lot of print news liked This clearly indicates that heavy news users arepackage 1 (free hardware with contract for con- much more able to overcome the negatives oftent) and 6 (free access for print subscribers), having to pay for content.12
  13. 13. Economic modeling offerslessons in pricing modelsBy Murali Mantrala, Esther Thorson, Alex than investments in advertising or other areasPrewett and Elina Tang of the operation.University of Missouri Newsroom investment directly influences I print circulation, which generates circulation ndustries around the revenue but also creates a positive feedback world make use of loop affecting advertising revenue. There economic modeling also is a positive feedback loop between print to determine investment, circulation and online readers. This feedback product and pricing loop is intuitively obvious: the more people strategies. Newspapers read the print product, the more people will be could profit from such reading the online version. an approach, particularly when determining Six simple assumptions need to be added. whether to charge for 1. The print paid (or paying?) subscriber online content. Rather base is relatively stable. (Slow downwardthan relying on “best practices” or experiments trend in circulation does not challenge thisby other newspapers, economic modelers assumption.)identify the basics of investment and revenue 2. Print advertising revenue is relativelyflow, use relevant data where it is available, stable. Although revenues have plunged overand then build models that help businesses the past 3 years, they’ve hit a point wheredetermine analytic answers to questions they’re whether to charge for online content. 3. Print paid subscribers will get access toMarketing modeler Murali Mantrala, the Sam the online version for little or no additionalWalton professor of marketing in Trulaske cost.College of Business, University of Missouri, 4. Online readers are a mix of printand Esther Thorson, Journalism Associate subscribers and non-paying online-onlyDean and Director of Research at Reynolds readers.Journalism Institute, along with two doctoral 5. Online ad revenues are connected to thestudents, teamed up to provide an example of number of online readers.such a model. The model is described briefly 6. Online-only readers are price-sensitive tohere. It could be adapted to any individual cost. In other words, many are likely to refusenewspaper situation to help with business to pay and go elsewhere.decision making. Given the price sensitivity of online-only We start first with a little background about readers we can infer in our model that thehow newspaper investments generate revenues higher the price of online content access, thefrom print and line advertising, and from print greater the decrease in online-only readers willsubscriptions. (See research articles listed in be.footnote.) It should be kept in mind that paying The most important investment a newspaper customers, unlike free online-only newscompany makes is in its newsroom. Those readers, are more valuable to the site, and todollars drive revenues much more strongly the advertiser because of their investment in 13
  14. 14. the product. Readers who are paying to consume online survey of 767 U.S. adults in August ofnews on a site are more likely to read more of 2010 (about four months after the iPad wasthe content, remain on the site longer, and be launched) she asked how likely people weremore likely to respond to the ads. to pay for information on three platforms: In general, online profits are going to be print, web and apps. She estimated thata direct function of the gain in profits from 60% of a newspaper’s audience will be lostcharging the online-only readers who are willing when you increase your online-only chargeto pay for access to online news minus any ad from zero. (This is a somewhat larger fall-revenues lost because of online traffic declines. off than reported by Tartakhoff (2009)). OfThen, the newspaper can have a net gain in course, people’s answer to this question mayrevenues at some online price that is positive not perfectly predict what they really do,rather than zero as long as the total number of and more sophisticated “willingness-to-pay”online-only readers when online is free divided measurements may be needed. However, weby the proportion of online readers lost per unit can use these data as a beginning estimate ofincrease in the price is greater than the online ad how many online-only readers a newspaperrate. will lose if it establishes payments for online Thus to apply the model we need to know, content.first, what to expect in terms of the loss of Chyi’s data also showed, however, that theonline-only readers when they have to pay for remaining online readers are actually quiteonline news rather than getting it free. One inelastic to online price. In the less elastic rangeway to answer this is to ask current customers (beyond 60%) there is a rough estimate of “b” ofwhat they would be willing to pay. Iris Chyi about 2.5, that is, there is an average decline of(2011) did just this. In a random sample about 6.25% of the remaining online reader base14
  15. 15. with every unit increase in online price. When these numbers are plugged into theequations shown in above, we can predict optimalpricing. That optimal pricing depends on: 1. total original number of ‘free’ online-onlyreaders 2. estimated loss of online-only readers perunit increase in online price 3. expected online ad rate after the change. Applying this model to the Chyi data, andusing an estimated online ad rate of $1.5per viewer using data from Evans (2009), 3. Online ad rates are relatively low (as isthe optimal online price to charge is about usually the case)$5.47 per month. It should be noted that the These conditions are likely to be met forArkansas Democrat-Gazette charges $5.95 many newspapers. Hence, we believe it wouldper month for complete online content access be worthwhile for most newspapers who(Parrott, 2010). currently do not charge for accessing online news to seriously consider and investigate Conclusions moving to an online pay model. Charging for access to online content can It should be noted that this analysis does notyield a gain over current “free” online models consider the economic benefit of “protectingrevenues when: the print edition.” Many newspapers report 1. The number of online news readers that there is an increase in print circulationcurrently attracted by “free’ online news is large when charging for online content is introduced. 2. Fall-off of readers due to charging for Adding this benefit will only increase theonline news is bounded and remaining online- revenue gain resulting from charging for onlineonly readers are much more price inelastic; content. References Esther Thorson (2011),” The Journalism Institute. Footnote: These findings Bricks that Build the Clicks: Evans, David S. (2009). Theare developed in the following Newsroom Investments and Online Advertising Industry:scholarly publications: Online Advertising Performance” Economics, Evolution and Sridhar, Shrihari, Murali International Journal of Media Privacy, Journal of EconomicK. Mantrala, Prasad A. Management• Perspectives. Volume 23, #3,Naik, and Esther Thorson, •Mantrala, Murali K., Prasad Summer, 37-60.(2009) “Dynamic Marketing A. Naik, Shrihari Sridhar, and Parrott, Scott (2010, April 29).Investment Strategies for Esther Thorson (2007), “Uphill To pay or not to pay for onlinePlatform Firms” MSI Working or Downhill? Locating the Firm content. Project on the Future ofPaper [09-121] on a Profit Function.” Journal of Journalism, University of Alabama •Sridhar, Shrihari, Murali Marketing, 71(2), 26-44. College of Communications andK. Mantrala, Prasad Naik, Chyi, Iris (2011). Paying for Information Science.and Esther Thorson (in press). what? How Much? And why Tartakoff, J. (2009, SeptemberDynamic Marketing Investment not? Predictors of paying intent 2). Taking the plunge: HowStrategies for Platform Firms. for multiplatform newspaper newspaper sites that charge areJournal of Marketing Research. content. Presentation at Paid faring. Online article accessed •Yihui(Elina) Tang , Shrihari Content Models for the Future, Mach 17, 2010, viaSridhar, Murali K. Mantrala, and April 26,2011, Reynolds 15
  16. 16. Mike JennerHouston Harte Chair in JournalismPhone: 573-884-2270Email: jennerm@missouri.eduKen FlemingDirector, Center for Advanced Social ResearchPhone: 573-884-6563Email: flemingk@missouri.eduAndy WatersPresident and general manager, Columbia Daily TribunePhone: 573-815-1706Email: awaters@columbiatribune.comMurali MantralaSam M. Walton Distinguished Professor of MarketingPhone: (573) 884-2734Email: mantralam@missouri.eduIris ChyiNew media researcher, University of Texas at AustinEmail: