Thinking about the economics of news over coffee
The Detroit Free Press recently staged a promotion with Panera, the baked-goods purveyor, that offers a nice lesson in the economics of charging for news. Patrons who purchased a cup of coffee could also grab a copy of the Freep for a penny. More than 1,600 people took advantage of the offer each day, according to the Newspaper Association of America, and single-copy sales of the Freep, which recently curtailed home delivery, remained elevated after the promotion ended.
Sounds like a smart promotion, but consider how it worked: charge for the coffee and give away the news. (They asked for a penny to count the copies as circulation under ABC’s recently loosened standards.) Economists will tell you that it’s easy to put a price on a private good like coffee because you can’t drink from my cup of joe once I’ve consumed it. But news is an information or public good, which means it lacks both rivalry (you can have the same news as me) and exclusion (you can obtain the news without paying for a newspaper). I’m cribbing here from Jay Hamilton’s book, All the News That’s Fit to Sell, which we discussed extensively in February.
There will always be a disconnect among the fixed costs of producing a newspaper (high), the value that society places on news (high), and the amount that economic theory says you can charge for an information good (nothing). So long ago, newspapers got into the business of selling a private good, its readers’ attention, to advertisers. That’s why the eyeball-maximizing penny press emerged in the 1830s and returned this year to Detroit.
Zachary M. Seward | July 24, 2009 | 1:10 p.m.
Tags: advertising, All the News That's Fit to Sell, Audit Bureau of Circulation, circulation, coffee, Detroit Free Press, economics, eyeballs, fixed costs, information goods, Jay Hamilton, Panera, penny press, private goods, promotions, public goods, single-copy sales
Zachary,
Interesting promotion, but doesn’t this punch holes in the whole, “we should charge for news on the Web argument?” It’s certainly much cheaper to run a Web site than a printing press
But I think you’re right. This certainly shows that there are different economics at play here. And for better or for worse, while people value news more than coffee as a society, individuals would much rather pay for coffee. I can’t blame them either.
And let’s keep in mind that coffee doesn’t come plastered in advertisements, unlike news.
Ever walk into a hotel room and see a magazine? Chances are the publisher didn’t get much more than a penny for the copy. It is an ABC trick to count net paid circulation, just like the Free Press did with Panera.
Does that mean the magazine in that room doesn’t have much value? Of course not.
The value of a publication is not defined by how much someone pays for it. It is more defined by the time a reader spends with it and how engaged they are with the edit.
How about publishers worry more about the quality of what they are writing as opposed to how much money they can make.
Let’s face it. The publishing bubble burst at the same time the housing market did. If the world of publishing would get back to spending more time focusing on their mission maybe they can start making money again.
Patrick, I do think it’s difficult to charge for news online but for somewhat different reasons. In print, the rotary press introduced high fixed but low marginal costs for newspaper publishers, which meant they needed wider distribution, which lead to lower prices per copy. (It also introduced objectivity to the equation, which I wrote about in February.)
The Internet is sort of like retuning to the era before the rotary press, where both fixed and marginal costs are low. That encourages much smaller distributions, where the potential to charge for content is higher. But nevertheless, the same principle of information goods applies. There’s some related discussion in this segment of Josh’s interview with Jay Hamilton.
Bill, your points are well taken, but I should note that Panera received 40 cents per copy from Panera.
And a question came in from @rissriss222 on Twitter: “why the disconnect between the value of news & how much it’s worth monetarily?” According to Hamilton, people may value news in an abstract way — they think it’s good for society that newspapers exist, say — but don’t usually factor that into their decision of whether to pay for news. In part, that’s because they can obtain the public good of having newspapers exist without paying for them. Sure, if nobody paid for newspapers, they probably couldn’t exist, but individual consumers don’t make that kind of calculation. —Zach
“the value that society places on news (high)”
While I believe this to be true, I also believe that the value that many (most?) individuals place on news is LOW.
That is why they won’t pay!
Similar to charging for the coffee and giving away the news, ISPs charge for access to the Internet where the news is given away for free. But the ISP makes money on that. I think the newspapers of the future are going to be hologram-like; the projector will be smaller than an iPod; won’t need Internet; can read as projected text OR holographic images (can be scary – think of what goes on in this world); advertisers will make ads FUN … what do you think? News companies need to jump on this.