Paid Content Report by: Mike Jenner

Paid contentA once-scorned strategy becomes a movement

comes of age

Just two years after being dismissed as a failed strategy, paid online content models have become a full-blown movement.

While pundits and the public watched to see how the New York Times’ model would be received, the rest of the industry wasn’t waiting.

Frustrated by sluggish digital revenues, small dailies moved decisively, often creating their own models and solutions. Weeklies have also moved into charging for digital content.

Interviews with daily publishers in the spring of 2011 revealed that four in 10 required payment for some online content. And a survey of weekly publishers at the end of the year showed that non-daily papers weren’t far behind: when e-edition subscriptions were combined with web pay models, more than 40 percent were charging for digital news content.

The revenue generated by these pay models

hasn’t made up for print shortfalls or even offset stalled growth in digital ad revenue. But asking readers to pay represents an important contribution at time when newspapers needed it most.

Aside from the financial contribution — viewed by many publishers as “found money” — charging for online content movement makes an important statement: News content has true value. The days of newspapers “giving it away” are numbered.

—Mike JennerProfessor and Houston Harte ChairMissouri School of Journalism

From failed strategy to fad to full-fledged movement

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 13

Contents

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By Mike JennerUniversity of Missouri

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 Asso-ciation and the Missouri School of Journalism. One quarter of those who don’t charge plan to launch a paid program in the next 12 months; another 48 percent say they may begin charging after that.

A similar study earlier last year showed that 43 percent of U.S. dailies had begun charging for some or all-online content, with smaller dai-lies leading the way. Among non-dailies, circu-lation size did not play a significant role.

The non-daily papers — nearly all of them weekly or twice-weekly community papers — were undaunted by technical challenges: Nearly three-quarters (74 percent) implemented their pay-for-content mechanisms themselves, while the remainder joined a syndicate or vendor-cre-ated network.

More than 400 leaders of non-daily papers in the National Newspaper Association’s database participated in in-depth telephone interviews in October. The study, which had an 85 percent response rate, was conducted by the Center for Advanced Social Research, the research division of the Reynolds Journalism Institute at the Mis-souri School of Journalism.

Until the widespread advent of paid content models, most dailies put the entire local contents of their print edition on their websites for free,

often adding material such as blogs, slideshows and video. But many weeklies have been loath to post all local content online for free. In part to protect print editions, 26 percent of all weeklies have taken the opposite approach, offering less. An equal proportion offers a replica edition; 48 percent offer more than their print edition.

Nearly half — 47 percent — of the weeklies bundle free access to their web editions with print subscriptions. One quarter offer a metered approach.

In all, 36 percent of non-daily publishers be-lieve revenue from their paid content models

Weeklies move strongly into paid online content

Key findings from the studyu A brighter future: 72 percent of weekly publishers are optimistic about the future of newspapersu Print will endure: Two-thirds don’t envision a time when they will no longer pro-duce a print edition.u Weeklies charging online: 42 percent are now charging for online access; in line with dailies (43 percent).u Mobile and tablets: Less than one in 10 have a mobile phone app; just 7 percent have a tablet app. u Revenue streams shifting: Although 80 per-cent of weeklies now garner less than 10 percent of revenue from digital sources, in three years 41 percent of publishers say digital will be greater than 10 percent. u Multi-tasking sales staffs: The advertising staffs of 7 of 10 weeklies sell both print and digital products.u More training needed: 63 percent of publishers say more digital training would help their representatives achieve growth in digital ad sales.

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4

Revenue Stream: Digital

0%

10%

20%

30%

40%

50%

60%

70%

0 -‐ 4% 5 -‐ 9% 10 -‐ 14%

15 -‐ 19%

20 -‐ 24%

25 -‐ 29%

30 -‐ 34%

35 -‐ 39%

40% +

61%

19% 12%

3% 3% 1% 1%

25%

16% 19%

12% 11% 7%

4% 2% 4%

Current 3 Years Later

Revenue stream: Digital

will account for up to 20 percent of digital rev-enue; 15 percent believe it will represent more than 20 percent. About half thought it would have a negligible effect.

While most publishers expect their paid content model 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.

E-editions, or PDF replicas of the print edi-tion that can be emailed to customers, play an important role in the digital portfolio of week-lies. One in six — 17 percent —offer e-editions; all are charging for them.

Ninety-five percent of weeklies with more than 5,000 circulation have websites, compared to 77 percent of those with less than 5,000 circulation.

Positive attitudesEconomic challenges and changes in adver-

tiser and consumer habits haven’t shaken the faith of most weekly publishers. Nearly three in four — 72 percent — express optimism about the future of the industry. Another 21 percent are neutral; only 7 percent say they were not opti-mistic.

Like their daily counterparts, publishers of non-dailies envision a strong shift in the makeup

of their papers’ revenue streams from print to digital. At present, 80 percent say less than 10 percent of their revenue is attributable to digital. In three years, only 41 percent believe digital will make up less than 10 percent of total rev-enue.

Forty-two percent believe their digital stream will range between 10 and 24 percent in three

4 out of 10 non-daily newspapers now charge users

for some online content

Size of circulation did not play a significant role in how publishers answered the question.

No 58%

Yes 42%

years; at present only 18 percent say digital rev-enue falls in that range. And 17 percent of pub-lishers envision digital revenue in three years exceeding 25 percent of total revenue — only 2 percent say they’re in that range today.

All the redistribution of revenue will come at the expense of print, publishers say. They see little change in the relative contribution of other revenue components, including outside printing and niche products.

Mobile and tablet effortsWeeklies trail dailies in development of mo-

bile phone and tablet products. While 28 per-cent of non-daily publishers said they offered a mobile-optimized website, less than 1 in 10 — 7 percent — now have a native app for any kind of mobile phone. And only 3 percent offer a tablet app of any kind.

Of those organizations that don’t now have a mobile phone app, 28 percent plan to create one in the coming 12 months, and 37 percent of them plan to charge for it. In the coming 12 months, 26 percent of those newspapers without a tablet app plan to create one; 56 percent of them plan to charge for it.

External forces at playThe absence of ubiquitou s broadband internet

access across weekly markets and the competi-tion for readers and advertisers are behind some

of the decisions to implement paid content and mobile platforms and products.

Thirty-six percent of weekly publishers say their market is not saturated with broadband internet coverage. Another 33 percent say their markets are saturated; another 31 percent are neutral.

Publishers have a split view of competition 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-tising is a different story: 47 percent of pub-lishers say they’re in competitive advertising markets. One quarter say their markets are not competitive for advertising; another 28 percent are neutral.

Digital sales, ad production and trainingIn nearly 4 of 5 weeklies, sales representa-

tives sell a full portfolio of print and digital products. One-fifth of the newspapers have at least one sales staffer who specializes in one or the other. In nearly half the organizations — 43 percent — sales reps also are responsible for ad creation and production. Circulation size was not a significant factor.

However, only one-third of publishers of newspapers in which sales staffs sell both print and digital believe their representatives can sell digital products as well as print. More than two-thirds — 68 percent — believe specific training in selling digital products would make a signifi-cant difference in sales results.

Publishers also feel journalists need more ongoing training in digital news coverage and production. Forty-seven percent say their news-rooms need ongoing training. And 44 percent cite the need for ongoing training in digital ad production.

Mike Jenner is a professor and Houston Harte Chair of the Missouri School of Journal-ism. He may be contacted at [email protected]. Ken Fleming, Ph.D., is director of RJI’s Center for Advanced Social Research. He may be contacted at [email protected].

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Less than 1 out of 10 have a mobile phone app

In the next 12 months, 28% of those that don’t have a mobile phone app plan to create one.

No 93%

Yes 7%

By Mike JennerUniversity of Missouri

While large dailies have been slow to embrace the concept of charging for online news content, smaller

newspapers have quietly led the way in introducing paid subscription models in the United States.

Nearly half the publishers of small dailies contacted in a recent University of Missouri survey have begun charging for online content.

The survey was based on a random sample of all 1,390 U.S. dailies, and 301 interviews were conducted April 1-18 by the Missouri School of Journalism’s Center for Advanced Social Research. The response rate was 78 percent.

Underlying the move to begin charging is a strong belief that audiences will pay to consume quality news content. Two-thirds of the publishers believe customers will pay. Only

14 percent agreed with the statement, “I don’t believe we’ll ever be able to get customers to pay for online content.”

That confidence is reflected in the plans of publishers who have not implemented paid subscription models.

Of the papers that don’t now charge, 35 percent have plans to do so; another 50 percent may begin charging at some point. Only 15 percent of publishers said they had no plans to charge.

Newspapers continue to reel from the economy and from an exodus of advertisers who are seeking cheaper and more targeted alternatives. And while online readership of news continues to grow, print revenues continue to decline. Publishers say they are looking both for revenue and to establish value for the content their staffs produce.

While publishers of papers that are charging welcome the new revenue coming from

Small papers lead the way in charging for online content

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Revenue stream: PrintPortion of revenue expected from print

0

5

10

15

20

25

30

0-‐29% 30-‐39% 40-‐49% 50-‐59% 60-‐69% 70-‐79% 80-‐89% 90-‐100%

2011 2014

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digital circulation, most have modest expecta-tions about the amount pay models are likely to generate. In the coming 12 months, one-third believe the revenue from their pay models will count for up to 20 percent of their companies’ digital revenue. Only one in 10 expect revenue from content to make up more than 20 percent of their digital revenue. Half expect a negligible contribution to the bottom line.

Although most see no impact on print circulation, a few do. Six in 10 see no effect; one in three believe their pay model will slow or stop circulation decreases, and 4 percent think print circulation might actually increase.

While smaller papers have been leading the charge to online pay models, larger papers have been most active in creating mobile phone and tablet apps.

Sixty-two percent of newspapers with circulation of 25,000 or more have a mobile phone app, while 21 percent of newspapers below 25,000 have a mobile app. The numbers were lower for tablet apps: 39 percent of papers above 25,000 circulation offered tablet apps while only 9 percent of smaller papers did.

Publishers seem eager to enter the space, however.

In the next 12 months, 59 percent of

0

5

10

15

20

25

30

0-‐4% 5-‐9% 10-‐14% 15-‐19% 20-‐24% 25-‐29% 30-‐34% 35-‐39% 40%

2011 2014

Revenue stream: DigitalPortion of revenue expected from digital products

39% of newspapers with circulation of 25K or more have a tablet app

Overall fewer than 2 in 10 papers have a tablet app

39%

61%

9%91%9% of newspapers whose circulation

is below 25K have a tablet app

Tablet apps

62% of newspapers with circulation of 25K or more have a mobile phone app

Mobile app activity correlates with newspaper size

62% 38%


is below 25K have a mobile app

Mobile phone apps

newspapers that don’t offer a mobile phone app plan to introduce one, and 35 percent of those newspapers plan to charge.

Less than 20 percent of newspapers overall offer a tablet app.

In the coming year, 48 percent of newspapers that don’t offer a tablet app plan to offer one, and 45 percent of those newspapers plan to charge for it.

Publishers were also asked about their revenue mix and how they expect it to change. After years of talk about the need to bolster the proportion of digital revenue to offset declining print revenue, publishers are finally expecting a shift in the mix. They were asked to estimate the proportion of revenue represented by print, digital and “other” (niche publications, outside printing, etc.), and to project how the mix would change in three years.

The overwhelming majority acknowledged that digital revenue was still a small contributor at their properties. Fully 85 percent said digital dollars represent no more than 15 percent of their companies’ revenue, and 80 percent said print revenue still comprises 70 percent or more of overall revenue.

In three years, 60 percent of publishers expect digital revenue to represent more than 15 percent of their papers’ overall revenue stream, with nearly one quarter expecting

digital revenue to represent more than 25 percent of all revenues. Overall, changes to the “other” revenue category did not see significant change.

In analyzing the data, we looked for relationships between these trends. One interesting relationship stood out:

Publishers who expect the most dramatic shift in the revenue mix from print to digital also happen to have a

mobile phone app in the field.

A former newspaper editor, Professor Mike Jenner holds the Houston Harte Chair at the Missouri School of Journalism. His position is funded by an endowment given to the journalism school by the family of Houston Harte, an alumnus and the founder of the Harte-Hanks media corpany. The focus of the Harte Chair is innovation.

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Paid content models

How do newspapers charge?

46% of newspapers under 25K circulation charging for some online content

Smaller papers are adapting more quickly

46%54%


is above 25K charge for some content

Metered

All users must pay

Online users pay; subscribers have free access

0 15 30 45 60

54

30

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By Andy WatersColumbia Daily Tribune

Not long ago I asked a group of local leaders how many

of them had customers who paid them for a product or service. Nearly every hand went up.

Then I asked how many thought it would be a good idea to start a website and give their product or

service away for free. Everyone started laughing. It seems like everyone gets that joke —

except the newspaper industry. For years, newspapers built their Web strategy

around the idea that if we offered free news online, we’d attract huge audiences and have something valuable to sell to advertisers. After 15 years, we’ve attracted the huge audiences, but the huge advertising dollars haven’t materialized.

Meanwhile, wise readers have figured out how to go online to get for free what they’d otherwise have to pay for in print, and some have made the perfectly reasonable decision to do just that. That’s great for readers — at least those who don’t mind reading news online — but it’s a disaster for publishers. Why would we actively encourage readers to dump the print edition, which has a solid business model of subscription and advertising revenue, and start reading for free online, where the most we can hope for is enough advertising revenue to cover 10-20 percent of our costs?

That question bothered us at the Tribune for years before we began charging for access to our website at the end of 2010. We now have a metered site that allows visitors 10 free views per month before asking them to pay $8 a month for online-only access or $1 a month if they’re

a print subscriber. Since we made the leap on Dec. 1, subscription revenue from our website — www.columbiatribune.com — has exceeded our expectations and we haven’t lost a penny of advertising revenue.

Why didn’t we do this years ago, and why don’t more publishers do it now? Here’s a list of the top five reasons, along with some lessons learned along the way.

u Page views will drop. Yes, but so what? Most newspapers have far more pageviews online than they can possibly sell to advertisers. In our case, we were selling about 40 percent of our available inventory. The other 60 percent was meaningless to us because it wasn’t contributing significantly to revenue. Once we realized that our metered approach would keep us from losing anything close to 60 percent of our online traffic, the decision to charge was a no-brainer. Since launch, our pageviews are down about 30 percent, but unique visitors have remained relatively steady. Non-subscribers are reaching their limit and coming back the next month. We’re still the largest news site in our market.

u Nobody will pay for news online. Hogwash. The high-quality journalism produced in America today is being done at newspapers. People value what we do, and they’re willing to pay for it. After eight months, we now have roughly 8,000 people paying us for access to our website, far more than we expected. If any local newspaper publishers believe they don’t have anything to sell, they’ve got problems beyond whether to charge for online access.

u The technology is too difficult. Difficult, yes. Insurmountable, no. The technology is getting more accessible as online subscriptions catch on. We worked with our Web content management system provider to develop the system we wanted, then spent months integrating it with our print subscriber database so we could seamlessly offer bundled

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Five reasons not to charge — and why they don’t add up

subscriptions. More CMS providers are offering this technology. Solutions like Press+ and Google One Pass are designed to be platform-agnostic add-ons.

u Advertisers won’t like it. If that’s true, they have a funny way of showing it. Our online ad revenue is up so far this year. Online subscriptions are a non-issue for local advertisers. We’re prepared to tell any advertiser who asks that we now offer a more engaged audience that is more valuable to them. So far nobody has asked.

u It will upset our loyal readers and build ill will toward the paper. We were prepared for the worst the day we launched. The extra customer service reps we brought in for the occasion ended up twiddling their thumbs. Most of our customers get why we’re doing this — so we can afford to keep doing quality journalism as some readers move online. Sure, we had some upset readers when we announced our plans. Most were habitual violators of our commenting policy upset with us for requiring a subscription to comment on our news stories. Commenting on our site has dropped, but so have complaints about inappropriate comments and the staff time necessary to react to them. The most common feedback I’ve heard since we launched has come from readers thanking me for cleaning up the story comments.

Those are just five things that give publishers pause when contemplating paid online content. There are others. Sound familiar?

Andy Waters is the president and general manager of the Columbia Daily Tribune and Tribune Publishing Co., a newspaper and commercial printing company in Columbia, Mo. Reach him at [email protected] or (573) 815-1706.

Pay model adviceu Consider a metered model. You get the best of both worlds — subscription revenue and minimal traffic loss. Visitor counts will drop less than pageviews, and visitors are more important. Allowing a set number of free views per month is a great way to let customers sample your product before they buy. Sure, you’re giving away some content, but it’s to fly-by visitors who would never subscribe anyway. Focus on loyal readers who value the news the most and don’t worry about the rest.u Forget pageviews. Most news websites have far more pageviews than they need. How many do they need? Enough to serve the local ads they sell. Any more is good for bragging rights, but not much else. National ad networks are paying less than $1 per thousand impressions for remnant space. Try making payroll in the newsroom at that rate. Better idea: See how many pageviews you actually need to serve all your local advertising and set your meter accordingly.u Don’t neglect print – you could lose a bundle. The technology to charge for content online is relatively simple. The hard part is integrating the online subscription data with your print customer database, which is necessary to sell and keep track of bundled print/online subscriptions. Make this critical element part of the planning process from the start. u Have a bulk subscription plan. What will you tell businesses and institutions that ask about discounted rates for multiple online subscriptions? They will ask. How will bulk subscribers get access? Have a plan before you go public with your online subscription strategy. u Make obituaries paid content. Obituaries are among the most popular content on any news website, so why would you give that away? Newspapers charge readers to read obits in print. Do the same online. If you have a metered site, non-subscribing relatives still can read for free.

— Andy Waters

Tell us your storyIf you’ve implemented a paid content model,

we’d like to hear what you’ve learned. Tell us about your experience and what worked — and maybe what didn’t work so well. Send an email to Mike Jenner at [email protected], or call (573) 884-2270.

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By Iris ChyiUniversity of Texas

Prior to a couple of years ago, only a handful

of newspapers were charging online — it was considered to be a failure.

Nearly 80 percent of U.S. newspaper sites were generating revenue from online advertising, but only 3 percent were charging for

access. And 71 percent of users said they’d go to other online sites that were free.

But ongoing declines in print revenue coupled with the inability to show significant growth in online ad revenue have driven newspapers to revisit the notion of charging for access to online content.

Against this background, we conducted a study attempting to determine the predictors of paying intent across platforms (print, web, mobile, tablet). The results are based on a survey of 767 randomly sampled online U.S. adults in August of 2010 (about four months after the iPad was launched). The final analysis involved weighting the sample to ensure it was representative of the U.S. internet population.

The first question was “how likely is it that you would pay for info on three platforms — print, web, and apps?” Thirty-three percent were “likely” or “very likely” to pay for print; 13 percent for online content, and 8 percent for apps.

Those most likely to pay for print were those who had a high news interest, who already paid for print, and who did not use online news. Those most likely to pay for online were those who were young, male, had high interest in news, and were already active online news users. Those most likely to pay for apps were those who were young, male,

had high interest in news, and who were already actively using print, online and TV for news.

Respondents were also asked to assume that their favorite newspaper was no longer free, in print or online. Under that condition, how much would they be willing to pay for print, web, and apps? While 30 percent were unwilling to pay for a print newspaper, 60 percent said they would pay nothing for online news, and three-quarters said they wouldn’t pay anything for news apps. Using the amounts respondents said they would be willing to pay, the study computed a mean price for each platform: $7.70 per month for print, $3.10 for web and $1.50 for apps.

Finally, respondents were presented with six specific models of newspaper content payment, including micropayments, a metered approach, free access bundled with print, a subscription with a free tablet, etc.

The data show that willingness to pay for any of the models is extremely low.

These results are important for several reasons. First, they can be used to provide estimates for the potential to increase online revenues. (see Mantrala and Thorson, 2011).

They are also important because they demonstrate that people are willing to pay for print news at a much higher price than for online or web news. This shows that consumers consider online news to be what economists call an “inferior good.” These results imply that consumers perceive online news to be more like ramen noodles, while print news is like a nice dinner at an expensive restaurant.

In the lexicon of an economist, the term “inferior good” has a specific definition: As income increases, demand for inferior goods decreases. For normal goods, when income increases, demand increases.

Iris Chyi is a new media researcher and assistant professor at the University of Texas at Austin.

Online news customers and their willingness to pay

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1. Free hardware with contract for content: A free iPad with a 2-year subscription at $30/month (i.e. $720 for 2 years) that covers all content in all ELECTRONIC formats. (1.6)

2. Micropayment: “Buy the article once, no strings attached” at $0.19 per article in all ELECTRONIC formats. (1.6)

3. Tiered (or metered) system: First 10 articles free per week. $0.99 for each additional article in all ELECTRONIC formats. (1.8)

4. Day pass: $0.99/day in all ELECTRONIC formats. (1.8)

5. Customized content: A “build your own, mix and match” subscription menu that covers all ELECTRONIC formats. Content is self selected by topic (e.g., sports+local news, etc.). Price: $0.99 per content topic per month. (1.8)

6. Free online access for print subscribers: Montly subscription that covers all PRINT and ELECTRONIC formats. Price: $33 per month. (2.0)

When we looked at which packages differ-ent groups of people preferred we found some striking differences. Here are the most salient ones:

u There were no differences in what men and women chose except a strong preference by women for print users getting everything else free.

u There were no differences in how people with differing levels of education preferred the six different packages.

u There were no differences in how people with differing levels of income preferred the six different packages, except that people who made more money tended to prefer that print users get everything else free.

u People who use a lot of print news liked package 1 (free hardware with contract for con-tent) and 6 (free access for print subscribers),

but not 5 (customized content).

u Not surprisingly, people who use a lot of on-line news liked all the packages except 1 (where they’d get a free iPad—they probably already have one) and 6, because they don’t want print and therefore don’t want to pay for it.

u Heavy TV news users were also not sur-prising in their preferences — the day pass, probably because they don’t plan to use online newspaper very often — and customized top-ics — where some topics like sports might be interesting enough to them to motivate them to seek the depth that newspapers provide.

u The most interesting finding was that the people who expressed high interest in news responded positively to ALL the packages. This clearly indicates that heavy news users are much more able to overcome the negatives of having to pay for content.

Payment models studied

Key findings

By Murali Mantrala, Esther Thorson, Alex Prewett and Elina TangUniversity of Missouri

Industries around the world make use of economic modeling

to determine investment, product and pricing strategies. Newspapers could profit from such an approach, particularly when determining whether to charge for online content. Rather

than relying on “best practices” or experiments by other newspapers, economic modelers identify the basics of investment and revenue flow, use relevant data where it is available, and then build models that help businesses determine analytic answers to questions like whether to charge for online content. Marketing modeler Murali Mantrala, the Sam Walton professor of marketing in Trulaske College of Business, University of Missouri, and Esther Thorson, Journalism Associate Dean and Director of Research at Reynolds Journalism Institute, along with two doctoral students, teamed up to provide an example of such a model. The model is described briefly here. It could be adapted to any individual newspaper situation to help with business decision making.

We start first with a little background about how newspaper investments generate revenues from print and line advertising, and from print subscriptions. (See research articles listed in footnote.)

The most important investment a newspaper company makes is in its newsroom. Those dollars drive revenues much more strongly

than investments in advertising or other areas of the operation.

Newsroom investment directly influences print circulation, which generates circulation revenue but also creates a positive feedback loop affecting advertising revenue. There also is a positive feedback loop between print circulation and online readers. This feedback loop is intuitively obvious: the more people read the print product, the more people will be reading the online version.

Six simple assumptions need to be added. 1. The print paid (or paying?) subscriber

base is relatively stable. (Slow downward trend in circulation does not challenge this assumption.)

2. Print advertising revenue is relatively stable. Although revenues have plunged over the past 3 years, they’ve hit a point where they’re stabilizing.

3. Print paid subscribers will get access to the online version for little or no additional cost.

4. Online readers are a mix of print subscribers and non-paying online-only readers.

5. Online ad revenues are connected to the number of online readers.

6. Online-only readers are price-sensitive to cost. In other words, many are likely to refuse to pay and go elsewhere.

Given the price sensitivity of online-only readers we can infer in our model that the higher the price of online content access, the greater the decrease in online-only readers will be.

It should be kept in mind that paying customers, unlike free online-only news readers, are more valuable to the site, and to the advertiser because of their investment in

Economic modeling offers lessons in pricing models

13

the product. Readers who are paying to consume news on a site are more likely to read more of the content, remain on the site longer, and be more likely to respond to the ads.

In general, online profits are going to be a direct function of the gain in profits from charging the online-only readers who are willing to pay for access to online news minus any ad revenues lost because of online traffic declines. Then, the newspaper can have a net gain in revenues at some online price that is positive rather than zero as long as the total number of online-only readers when online is free divided by the proportion of online readers lost per unit increase in the price is greater than the online ad rate.

Thus to apply the model we need to know, first, what to expect in terms of the loss of online-only readers when they have to pay for online news rather than getting it free. One way to answer this is to ask current customers what they would be willing to pay. Iris Chyi (2011) did just this. In a random sample

online survey of 767 U.S. adults in August of 2010 (about four months after the iPad was launched) she asked how likely people were to pay for information on three platforms: print, web and apps. She estimated that 60% of a newspaper’s audience will be lost when you increase your online-only charge from zero. (This is a somewhat larger fall-off than reported by Tartakhoff (2009)). Of course, people’s answer to this question may not perfectly predict what they really do, and more sophisticated “willingness-to-pay” measurements may be needed. However, we can use these data as a beginning estimate of how many online-only readers a newspaper will lose if it establishes payments for online content.

Chyi’s data also showed, however, that the remaining online readers are actually quite inelastic to online price. In the less elastic range (beyond 60%) there is a rough estimate of “b” of about 2.5, that is, there is an average decline of about 6.25% of the remaining online reader base

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ReferencesFootnote: These findings

are developed in the following scholarly publications:

Sridhar, Shrihari, Murali K. Mantrala, Prasad A. Naik, and Esther Thorson, (2009) “Dynamic Marketing Investment Strategies for Platform Firms” MSI Working Paper [09-121]

•Sridhar, Shrihari, Murali K. Mantrala, Prasad Naik, and Esther Thorson (in press). Dynamic Marketing Investment Strategies for Platform Firms. Journal of Marketing Research.

•Yihui(Elina) Tang , Shrihari Sridhar, Murali K. Mantrala, and

Esther Thorson (2011),” The Bricks that Build the Clicks: Newsroom Investments and Online Advertising Performance” International Journal of Media Management•

•Mantrala, Murali K., Prasad A. Naik, Shrihari Sridhar, and Esther Thorson (2007), “Uphill or Downhill? Locating the Firm on a Profit Function.” Journal of Marketing, 71(2), 26-44.

Chyi, Iris (2011). Paying for what? How Much? And why not? Predictors of paying intent for multiplatform newspaper content. Presentation at Paid Content Models for the Future, April 26,2011, Reynolds

Journalism Institute.Evans, David S. (2009). The

Online Advertising Industry: Economics, Evolution and Privacy, Journal of Economic Perspectives. Volume 23, #3, Summer, 37-60.

Parrott, Scott (2010, April 29). To pay or not to pay for online content. Project on the Future of Journalism, University of Alabama College of Communications and Information Science.

Tartakoff, J. (2009, September 2). Taking the plunge: How newspaper sites that charge are faring. Online article accessed Mach 17, 2010, via paidcontent.org

with every unit increase in online price. When these numbers are plugged into the

equations shown in above, we can predict optimal pricing. That optimal pricing depends on:

1. total original number of ‘free’ online-only readers

2. estimated loss of online-only readers per unit increase in online price

3. expected online ad rate after the change.Applying this model to the Chyi data, and

using an estimated online ad rate of $1.5 per viewer using data from Evans (2009), the optimal online price to charge is about $5.47 per month. It should be noted that the Arkansas Democrat-Gazette charges $5.95 per month for complete online content access (Parrott, 2010).

ConclusionsCharging for access to online content can

yield a gain over current “free” online models revenues when:

1. The number of online news readers currently attracted by “free’ online news is large

2. Fall-off of readers due to charging for online news is bounded and remaining online-only readers are much more price inelastic;

3. Online ad rates are relatively low (as is usually the case)

These conditions are likely to be met for many newspapers. Hence, we believe it would be worthwhile for most newspapers who currently do not charge for accessing online news to seriously consider and investigate moving to an online pay model.

It should be noted that this analysis does not consider the economic benefit of “protecting the print edition.” Many newspapers report that there is an increase in print circulation when charging for online content is introduced. Adding this benefit will only increase the revenue gain resulting from charging for online content.

Ken FlemingDirector, Center for Advanced Social Research

Phone: 573-884-6563Email: [email protected]

Mike JennerHouston Harte Chair in Journalism


Andy WatersPresident and general manager, Columbia Daily Tribune


Murali MantralaSam M. Walton Distinguished Professor of Marketing

Phone: (573) 884-2734Email: [email protected]

Iris ChyiNew media researcher, University of Texas at Austin

Email: [email protected]

Documents

Paid Content Report by: Mike Jenner