Research update: "Is Online News like Ramen Noodles"?

Is Online News like Ramen Noodles? How Users Perceive Online Content as Inferior Goods
H. Iris Chyi, Ph.D.
Assistant Professor
School of Journalism
The University of Texas at Austin
Research presentation sponsored by Senior Fellows, the honors program of the College of Communication, University of Texas at Austin, April 20, 2011

Let me share
Mysteries in the online-print relationship
Development of the “online news is an inferior good” hypothesis
3 empirical tests
Industry implications
Perception of online content in other categories

Current state of the newspaper industry
Declines in print circulation
Most U.S. newspapers are transitioning from print to online
but found online usage difficult to monetize.

Consider the following:
Cannibalization effect of online free offerings on print readership has not been overwhelming.
The size of major local newspapers’ online readership in the local market was 23% of their print readership (Chyi & Lewis, 2009).

Note: Figures represent 7-day print/online readership within DMA, Scarborough Research (2007).

The subscription model (or the paywall) is not working in most cases.

Question for you
Imagine that you are provided with a newspaper in both print and Web formats with the same content and at the same price. Which would you prefer?
Print: 70%
Web: 30%

Side by side comparison
Online media are perceived as
less preferred (Chyi & Lasorsa, 2002; Chyi & Chang, 2009),
less useful (De Waal, Schoenbach, & Lauf, 2005),
less satisfying, less likeable, and less enjoyable than offline media (Online Publishers Association, 2008).

Mysteries
Many people are still paying for print newspapers. But few are willing to pay anything for online news. Why?
Print readership > online readership. Why?
Why do readers perceive online and print newspapers differently?

Online news is an inferior good.
-- Chyi (2002); Chyi & Yang (2009); Chyi & Yang (2010).

Outrageous response
What do you mean by “inferior”?
How can online news be “inferior”?
“Such interpretations are at best ambiguous, doubtful, debatable, uncertain, questionable, imprecise, and vague.” – JMCQ reviewer

My response
Is the inferior good theory the best explanation? We don’t know, but the relationship between online and print news products would be very difficult to interpret otherwise.
When competing arguments are lacking, this study provides one plausible explanation based on empirical data.

Economic definition
Inferior goods
When income increases, the demand for an inferior good decreases, other things being equal.
vs. “normal goods”
Measure: income elasticity of demand

Implied but also true
Inferior goods are less appealing alternatives of normal goods.
Ramen Noodles cannot possibly be an inferior good if there are no substitutes available at all.

First test: 2004 Pew Data

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.

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.

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.

Findings
Online news is an inferior good among users.
The print newspaper is a normal good.
Online and print newspapers co-exist not as two normal goods but as

a combination of an inferior good and a normal good.

Second test: 2008 Pew dataWith more recent data and a modified definition of “online news”

Method
Secondary data analysis of the 2008 Biennial Media Consumption Survey conducted by the Pew Research Center for the People and the Press
Random-sample telephone survey
Sample size: 3,615
Response rate: 22%

Online news consumption
Among all respondents, 26% said they got news online (excluding newspaper sites) through the Internet yesterday.

Aside from newspaper web sites, about how much time did you spend reading news online yesterday?

Online news is an inferior good among users
Partial correlation analysis identified
a negative relationship between income and online news consumption (coefficient = -.084, p<.001) and
a positive relationship between income and newspaper use (coefficient = .055, p<.001) controlling for gender, age, education, and news interest.
Both hypotheses are reconfirmed.

Third test: 2010 survey of 767 Internet users

Newspaper
Imagine that you are provided with a newspaper in both print and Web formats with the same content and at the same price. Which would you prefer?
Print: 70%
Web: 30%

In what format(s) do you access your local newspaper(s) regularly? Which is your favorite format?

Paying intent

Print > Web or apps
Internet users indicated that they are more likely to pay for the print edition and they are willing to pay significantly more for print as opposed to the Web edition and apps.

So I believe online news is an inferior good.

Is this the end of the world?
Inferior goods are
Convenient
Useful
Profitable

But Ramen noodles are not perceived as good as steak, and should not be marketed as such.
Pricing of online content.
However, simply because few are willing to pay does not mean you shouldn’t charge for it (to protect the print edition).

But, why is online news an inferior good?
Unpleasant experience of reading texts online?
Problems associated with news site design?
Simply because it is free?
Consumers perceive products with a higher price tag as more enjoyable (Plassmann, O’Doherty, Shiv, & Rangel, 2009 ).

If online news is “inferior,” how do you explain the adoption?
People use inferior goods when normal goods are not as readily available/affordable.
Because it is “good enough.”

The Good Enough Revolution: When Cheap and Simple is Just Fine
By Robert Capps (2009)
http://www.wired.com/gadgets/miscellaneous/magazine/17-09/ff_goodenough

Disruptive technology (Christensen, 1997)
Def.: An innovation that improves a product in ways that the market does not expect, typically by lowering price or designing for a different set of consumers (wikipedia).
Doesn’t need to be as good as the mainstream product but redefines “quality.”

Beyond online news
How about online content in other categories?

Magazine
Imagine that you are provided with a magazine in both print format and Web format (i.e., you may read it on a website) with the same content and at the same price. Which would you prefer?
Print: 78.1%
Web: 21.9%

Movie
Imagine that you are provided with a movie in both DVD format and online format (i.e., you may watch it on a website) with the same content and at the same price. Which would you prefer?
DVD: 84.1%
Online: 15.9%

Book
Imagine that you are provided with a book in both print format and electronic format (i.e., you may read it on e-readers such as Amazon Kindle and Barnes & Noble Nook or on a computer or mobile device) with the same content and at the same price. Which would you prefer?
Print: 79.9%
Electronic: 20.1%

Music
Imagine that you are provided with music in both MP3 download and CD formats with the same content and at the same price. Which would you prefer? 1) MP3 2) CD
MP3: 34.2%
CD: 65.8%

Music consumption
Source: Pew Internet & American Life Project (2007)

Reflection
People give up “quality” in exchange for convenience.
Robert Capps: “We now favor flexibility over high fidelity, convenience over features, quick and dirty over slow and polished.”
In fact, people still prefer “high-quality” products, on the other-things-being-equal basis.

The price of being digital:
Living in the age of inferiority

Research update: "Is Online News like Ramen Noodles"?

by Iris Chyi

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