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Feb. 10, 2011, 10 a.m.

The Newsonomics of overnight customers

Editor’s Note: Each week, Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of news for the Lab.

It’s a new epidemic of digital-pricing strategery, to borrow a fading term, now breaking out within the newspaper executive suites of the western world. Rupert will soon be charging 99 cents a week for The Daily, and dozens of dailies are laying out digital payment plans to be put into effect this year. Some are hiring top-drawer consultants to parse the many possibilities and run the odds of success before they throw the dice.

The questions are many. Do I charge print subscribers anything extra for digital delivery? If so, how much? If I add a fee for print subscribers, is it opt-out or opt-in? Do I offer a day pass or week pass, or just stick with monthly and annual subscriptions? If I put up a wall, where do I place it? Do I restrict content access by type — allowing free access to classifieds, commerce, and commoditized national and global news, but keep the somewhat proprietary local stuff locked up? Do I let readers read some — maybe 10 or 20 pages a month — of their choosing before making them pay to go further? How many bundles should I offer, and what’s in them?

We’re in uncharted territory. We know very little about consumer behavior when it comes to paying for journalism because the old, steady, entrenched models worked so well for so long that they barely changed over decades. Then the Internet came along and publishers felt compelled to give away their work for free — a subject to be featured in many psychology dissertations to come — as they abandoned, for a 15-year period it appears, a two-legged (advertising + circulation) business model.

A year from now we’ll have lots of data, parsed by all of us every which way from London to New York to Memphis and Augusta to Dallas to San Jose and Modesto, and then we’ll see what works, what doesn’t, and indeed, what “works” means in dollars (and pounds) and cents.

For now, though, the paid plans consist of commonsense, conjecture, conventional wisdom, consultant graphs, and, I believe, some fascinating assumptions about human psychology. On the eve of the launches of more paid offers, let’s examine four of those assumptions underlying this new era.

Let’s call it the newsonomics of overnight customers, which is our first psychological model, and one that I think may turn out to be the most promising.

Our four psychologies:

The psychology of the overnight customer

If you’re a Dallas Morning News subscriber, you’ll wake up sometime after March 1 (the loose date for the debut of the company’s digital paywall), and find that you no longer have a split identity. Though for 15 years you’ve been a “subscriber” for print and a “user” for online, you’re now just a customer. You pay your $30 or $33.95 (the new price as of Jan. 1) a month, and you get seven days of the Morning News and access to the Morning News’ new digital bundle, consisting of desktop/laptop, smartphone, and tablet availability.

That’s right. You’re no longer a “user”, a hateful term if ever one were invented, or a “visitor,” or a brother from another digital planet. Overnight, you’re a customer again.

In this psychology, a news company has put a value on what it produces. You, the customer, now are being shown that value. Maybe a year, or two, or three, from now, you perceive that value — forgetting all about those days of “free” — and value your relationship to the Morning News’ news, whether you access it by paper, phone, tablet, or TV screen.

The big hope: When you are ready to forsake pulp itself, you’re accustomed to paying for digital — you’re a customer of all, clearly — and do so without thinking twice. (And if the Morning News can save big bucks on not having to print and deliver a paper to you, and tens of thousands of your neighbors, it can significantly cut costs, increase profits, and maybe grow its news-gathering capability.)

We expect that after The New York Times’ finishes its own (higher-priced) pricing strategy, it, too, will offer print subscribers digital access as part of the coming “All-Access” bundles. Journalism Online says that about half of its newspaper clients will offer print subscribers no-extra-charge access to digital, while the rest will tack a small upcharge onto print bills.

This psychology, I believe, offers elements of a winning one. Why? It begins to change the artificial split between print and digital consumption. Most likely, it slows down — only temporarily, but every year makes a huge financial difference to news companies — print loss. Bundle it all together — print + digital — and there’s less incentive to drop print, even your use is declining. Less loss in the short-term helps retain print ad revenue, which is still 80 percent or more of all newspaper company ad revenue.

Secondly, it sets up publishers for the hastening print-to-tablet transition. If the kind-of-print-like tablet convinces readers to move away from print more quickly, the more they’ve been accustomed to paying for tablet digital, the less likely they are to balk at paying just for tablet digital.

Journalism Online cofounder Steve Brill will tell you that the company still urges publishers to charge something extra for digital access, even a $1.95 or $3.95 a month, often a 60 percent or more discount compared to what digital-only bundle buyers will pay. Whether you ask print subscribers to pay a small amount for digital access or give them access “free” as part of their print subscription (they still have to register for the restricted access even if no new payment is involved), they’re as likely to sign up for digital access, he says. If that holds, a small, incremental price itself may not be that much of an issue with print subscribers. Those that want it are as likely to pay for it as take it for “free,” as a new digital customer. It’s a way too early to know if that will be the case, but it’s one metric that should be at the top of publishers’ watch lists.

One way or the other, though, print customers are becoming digital customers, quickly. One key lesson here: It is newspapers’ print subscribers and regular readers who should be the likeliest to maintain their loyalty (and show the most willingness to pay of all potential audiences). In a sense, this is a back-to-the-future scenario, redrawing that big “circulation” circle as it was, but now including digital access.

The Forrest Gump psychology

Is a news site just a bunch of chocolates? If so, how important is it to allow would-be news customers to sample the wares before making them open their wallets? If you let them sample, can they sample all the treats, or just half the box — and which half?

Morris Communications’ Augusta Chronicle, partnered with Journalism Online’s Press+, now gives readers 25 pageviews a month before the paywall comes down, giving them access to the whole site. Dallas Morning News digital readers will find that most local stories — other than widely covered local news — have a small “D” symbol, indicating restricted access content that only print or digital subscribers can get access to. In Memphis, the current plan of Scripps’ Commercial Appeal is to start charging in the second quarter, but only for mobile access, while the website itself remains free.

Sampling is a big question. Print subscribers, who tend to be older, know what they are getting, while less habituated readers, who tend to be younger, may need to develop a habit. If sampling of the key, unique, proprietary stuff is made difficult, then how likely are news sites’ to develop a next generation of paying readers?

The psychology of the maze

So what happens when digital visitors bump into paywalls? Remember TimesSelect, and how disorienting that seemed to be to many. It makes people anxious to bump into a wall. Publishers hope that those who bump into walls (after 10-20 pageviews a month), and don’t pay, will come back the next month, and be more likely to pay then. Michael Romaner, head of Morris Digital, which has rolled out an Augusta-like model in Lubbock and plans six more similar rollouts by July 1 (and the rest of the company’s titles by the end of the year), says early data shows that 25 percent of those who ran into the wall paid up. Again, that’s very early data. Let’s see if that 25 percent number holds in Augusta and elsewhere, and what the tracking of the 75 percent — how many go away and never come back? — shows. How many just keep sampling, and are ad-monetized, but never fork over circulation dollars?

The psychology of the psych-out

Maybe news companies are overthinking all of this. Maybe they’ve psyched themselves into believing the world of free news content has really and profoundly changed — with little supporting evidence, other than a number of one-time news apps sales. It’s true that the metered systems, pioneered by the Financial Times and at the core of The New York Times’ and Journalism Online’s models, aren’t bet-the-company strategies. They are designed to keep the engine of growing digital ad revenue humming, allowing 80 percent or more of digital customers go on their merry non-paid ways, while turning those heavier digital readers into digital customers. If they succeed, they’ve picked up a new digital revenue stream, maybe laid down the first pavement to tablet utopia, and maintained a commitment to a digital ad future. All that combined may be just a middling success in revenue, though, as print (see both recent McClatchy and Gannett reports) ad revenues remain stubbornly negative.

If they fail — and that means losing more traffic due to paywalls than they anticipate — then news publishers have once again too strongly believed their own conventional wisdom and will pay the additional consequences.

POSTED     Feb. 10, 2011, 10 a.m.
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