Is Online News an Inferior Good? (Original)

Is online news an inferior good? Examining the Economic Nature of Online News among Users H. Iris Chyi, Ph.D. Meng-chieh Yang School of Journalism The University of Texas at Austin

From print to online
Most U.S. newspapers are transitioning from print to online.
But, problems in the current model deserve attention.

Consider the following:
Cannibalization of online free offerings on print readerships insignificant
Subscription model not working for online news
Online news is not perceived as equally desirable as print papers – other things (price, content) being equal.

TimesSelect
September 2007: The New York Times on the Web dropped its fee-based program TimesSelect.
Jeff Jarvis : “TimesSelect is dead...With it goes any hope of charging for content online. Content is now and forever free.”

Questions
Why must online content be free while news in print still requires a fee?
Why do readers respond to online and print newspapers differently?

Despite substantial usage, the Internet seems to be an innately unappealing news medium.

Is online news an inferior good?
Inferior goods
When income increases, the demand for an inferior good decreases, other things being equal.
Measure: income elasticity of demand

Hypotheses
As income increases, the consumption of online news decreases, other things being equal.
H 1 : When income increases, online news use decreases, after controlling for demographics (gender, age, education) and news interest. H 2 : When income increases, online news use decreases, after controlling for demographics (gender, age, education), news interest, and other news media use (newspaper, TV news, and radio news).

Methodology
Secondary data analysis of the 2004 Biennial Media Consumption Survey conducted by the Pew Research Center for the People and the Press
Random-sample telephone survey
Sample size: 3,000
Response rate: 34%

Measurement
Online news use
About how much time did you spend reading news online yesterday?
Income
Last year, that is in 2003, what was your total family income from all sources, before taxes?
News interest
How much do you enjoy keeping up with the news – a lot, some, not much, or not at all?

Data analysis
Ordinal logistic regression
Weighting
The weighted sample is representative of the national population.
Weighted according to Census Bureau’s 2003 Annual Social and Economic Supplement (ASEC).

Online News Use
Among all respondents (weighted N=5,398), 23.7% of respondents got news online through the Internet yesterday.
Half of these online news users are asked the following question:

Ordinal Regression: Predictors of Online News Use Note . * p < .05. ** p <.01. *** p <.001. Estimated coefficient (SE) Predictors Model 1 Model 2 Income -.082* (.039) -.126** (.040) Gender (being female) -.111 (.154) -.017 (.159) Age -.005 (.005) -.010 (.005) Education .209*** (.054) .208*** (.054) News interest .324** (.109) .288* (.112) Newspaper use .073 (.057) TV news use .037 (.046) Radio news use .226*** (.051) Weighted N 543.2 541.1 Model  2 (5, 543.2) = 23.9 p < .001  2 (8, 541.1) = 46.8 p < .001 R 2 (Cox and Snell) .04 .08

Ordinal Regression: Predictors of Newspaper Use Note . * p < .05. ** p <.01. *** p <.001. The dependent variable (newspaper use) incorporates those who did not spend time reading a newspaper yesterday in the analysis (time spent = 0) because most people may access a newspaper if they choose to use it. Estimated coefficient (SE) Predictors Model 1 Model 2 Income .165 *** (.023) .161*** (.023) Gender (being female) -.565*** (.087) -.579*** (.088) Age .035*** (.003) .033*** (.003) Education .074* (.030) .082** (.030) News interest .582*** (.068) .536*** (.071) TV news use .068* (.027) Radio news use -.005 (.028) weighted N 2268.7 2247.8 Model  2 (5, 2268.7) = 454.3 p < .001  2 (7, 2247.8) = 452.2 p < .001 R 2 (Cox and Snell) .18 .18

Summary
Both hypotheses are supported.
Online news is an inferior good among users.
Online and print newspapers co-exist not as two normal goods but as a combination of an inferior good and a normal good.

Why?
Plausible explanations
Unpleasant experience of reading texts online?
Problems associated with news site design?
Because it is free?
Consumers perceive products with a higher price tag as more enjoyable (Plassmann, O’Doherty, Shiv, & Rangel, 2009 ).

Not the end of the world
People use inferior goods when normal goods are not as readily available/affordable.
In other words, people use inferior goods when they need to.
Inferior goods
Convenient
Useful
Profitable
But Ramen noodles are not perceived as good as steak, and should not be marketed as such.

Business implications
Don’t give up on the print edition too soon.
In Hong Kong, newspapers are doing well, even among young readers. Re-examine the nature of news products from consumers’ perspective.
The free paper model is working in Europe.

Business implications
What works for print may not work for online.
One should not expect users to pay a comparable price for news sites as they would for a print newspaper.
Two papers that went online-only lost traffic and profits.
A Finnish financial daily (Thurman & Myllylahti , 2009)
The Seattle Post-Intelligencer
Print still provides some important reputational and marketing benefits to online activities (Picard, 2009).

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Is Online News an Inferior Good? (Original)

by Iris Chyi on Aug 16, 2009

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