Twitter  Slate just debuted its not-a-paywall membership model, Slate Plus. The details: nie.mn/QzHDRH  
Nieman Journalism Lab
Pushing to the future of journalism — A project of the Nieman Foundation at Harvard
Cheap Canned Goods

The newsonomics of 99-cent media

The confusing digital world has led news companies to sell the same goods at different price points across different platforms. Is there a magic number?
Email

Honk if you still love newsprint enough to pay $700 or more a year for a seven-day print subscription to The New York Times. Of course, you have many other choices.

You can try one of several print/bundled options for considerably less money. Or if you want to be parsimonious, you can get 10 free article views a month, or more if you want to work the social and search on-ramps to NYTimes.com. Maybe you want to be among those who pay Ongo $1.99 a month, and get 20 Times news stories a day, among lots of other news content.

Love the Guardian, and want to follow each tick of the U.K.’s Murdoch saga? If you’re in the U.S., you can subscribe to the lively iPad edition for $13.99 a month — or access it for free via the Safari browser on the tablet. In the U.S., its smartphone app is free, but in the U.K. and Europe, it requires a subscription. Of course, it’s quite successful Facebook app gives you access for free as well, anywhere.

If you’re shopping the Ongo news kiosk, look at wide spectrum of prices individual publishers are charging for access through that product: The Guardian is 99 cents a month, The Christian Science Monitor is $3.99, while the Chicago Tribune is $9.99 and The Boston Globe $14.99.

It’s not just newspaper companies that offer a patchwork of buying (or not buying) choices.

Are you a late-arriving fan of AMC’s series “Breaking Bad”? If you want to catch up and subscribe to Netflix streaming, you’ve got a good deal at the $7.99 a month rate. Cram in the first three seasons’ 37 episodes in a single month (where did that month go?), and you’ll pay just 21.5 cents per show, and anything else you have time to watch is gravy. Ah, but if we want to watch Season 4, which you can’t yet see on Netflix streaming, you have to upgrade to those red envelopes and get Season 4 DVDs — but it’ll cost you another $7.99 a month, and you’ll have to wait until the DVDs are released in June. (Ah, maybe that’s one of the reasons Netflix’s maladroit move to streaming is pushing it to a loss.)

Or you can turn to Amazon VOD and get the episodes for $1.99 each (or $2.99 in HD!), or $25.87 for the season. Or why stream when you own the DVD in a few weeks for $29.99 (or add an extra 10 bucks for added Blu-ray clarity). But wait — I’m an Amazon Prime customer. Can’t I watch it for free? It’s not part of the Prime free streaming offer, but I can watch a whole lot of other stuff as often as I want for nothing. Or maybe I can access “Breaking Bad” through Comcast’s Xfinity $100-a-month plus service. Nah, no deal — “Breaking Bad” isn’t available.

One more try: on the AMC site itself, there’s quite highlights, blogs, and more on the series, but no full episodes.

Let’s add in music.

Take Tristan Prettyman. It’s $9.99 (or 83 cents a song) for her last CD on iTunes. Through my $36 annual ad-free Pandora subscription, I can listen to dozens of her songs, her musical soundalikes, and thousands of other tunes in a year, bringing down the cost to pennies per song. Or there’s Spotify, where her songs are available for either zero, five, or ten bucks a month, depending on what devices I want to use and whether I can stand ads.

Magazines, of course, are offering their own split-screen experiments. The U.S. magazine industry (“The newsonomics of Next Issue Media”) is testing the all-you-can-eat, cross-title buffet, bringing some of its titles down to as low as 37 cents a month (if you consumed all 27 “basic” titles) through the kiosk, but $39, or $59, or $79 a year if you buy a single title directly through a publisher.

How much to charge?

It’s a fool’s paradise of pricing out there in the digital world, right now, at least for wily consumers. The Department of Justice’s ebook suit and related settlements only complicate things. Five and ten years ago we were wondering whether people would ever pay for digital media — Newsweek’s Steven Levy took us into the terra incognita in “Meet the Napster Generation” back in 2000. But now the question isn’t whether people, young and old, will pay — it’s how the hell to figure out how much to charge them throughout what we politely like to call our multi-platform world.

Content no longer demands to be free. It wants a fee — but how much of one?

Consumer pricing is not a core competence of many media companies. For decades, media pricing was on automatic. Newspapers picked a quarter or fifty cents, and then re-programmed the coinboxes. Magazines kept prices low enough to build audiences to reap substantial ad rewards. Book publishers did some minor stratification. Music companies picked a couple of price points, and let the vinyl and CDs fly.

In the digital era, though, pricing is confronting — and confounding — media companies. Just what in the digital world of vanishing manufacturing costs is digital media worth? Now with those 20th-century costs — printing, manufacture, distribution, shipping — passing into the night, the question of price, and value, is making itself loudly heard.

We can certainly identify the wrong-headedness of the Department of Justice’s price-fixing suit against book publishers and/or point out how the DOJ had little choice in pursuing the case, neither of which is a surprise. The law has struggled unsuccessfully to keep up with business changes wrought by the Internet, from fair use to antitrust to media monopoly. Oft-earnest American regulators find themselves falling farther and farther behind, trying to track technology’s dominating nature and make new sense of it. Often, European Union regulators take a more forthright stab but end up retreating.

Create a new legal framework that better balances producers, distributors, and consumers? Forget about that in this age of politics where stalemate and status quo is the order of the day.

Publishers of all media are on their own, then, and they’d better make sense of pricing. It’s core to their survival and future sustainability. Sure, the Amazons of the world will try to monopolize book pricing, returning closer to its pre-”agency pricing” market share of 90 percent from its current paltry 60 percent. Yet, publishers — especially of news and feature media, news organizations and “magazine media” — have many pricing plays to try as customers discover content near and far from traditional outlets.

The magic of a good price point

I’ll call this the newsonomics of 99-cent media because that’s the world into which we have moved. Today let’s look at that 99-cent model, and next week we’ll delve into the early lessons that pricing’s practitioners have stumbled across as they’ve moved into paid content.

At first, it looks like a tyranny of 99-cent pricing (or the parallel expected tyranny of $9.99 Amazon book pricing). Will 99-cent pricing cause brand damage? Will it last? If the U.S. follows Canada and forsakes the penny, then the 99 cent pricing may fall into history. For now, though, it’s got a certain consumer magic.

“Ninety-nine-cent introductory offers have done wonders for take rates,” says applied economist Matt Lindsay, president of Mather Economics. His company has worked with more than 200 titles — about 75 percent of them newspapers — on pricing and related strategic issues. Take a look across media pricing, from The New York Times to Hulu Plus, and 99 cents (or its derivatives of $1.99 to $7.99 to $9.99) are everywhere.

Take rate is simple: What percentage of customers click yes — and provide precious credit card data — when confronted with an offer. Offer readers the ability to start a “trial” for 99 cents, and you’ll see results two to three times any other number, says Lindsey. At 99 cents, readers “take that as a signal. They understand that you want them to adopt this product. By setting the full price at a high number, you are basically saying, ‘This is the true value of the product.’”

Steve Jobs understood signaling in a parallel way. As Chris Anderson described well in Wired last November (“The Magic of 99 Cents”), one of Jobs’ great successes with iTunes and the iPod was that 99-cent pricing for songs. He could get the hardware and software right, but in the not-quite-post-piracy age, 99 cents was the third leg of the value equation. It worked as a signal: somewhere in between free and too much.

Start with 99 cents and you can conquer the world. As they set off on that quest, what are some of the pricing guideposts for publishers?

  • 99 cents is a beginning and not an end. For newspapers used to being paid $200 or $400 a year, 99 cents seems like a declaration of cheapness. Put some round 0s on pricing; it just seems more honest. The oft-cited example of Louis CK’s $5 video is a case in point. Five bucks says authenticity. Yet media that answer thousands of reader questions every day aren’t comedians. Just because you set an intro price of 99 cents, the down-the-road price sends that other important signal to value. Ultimately, says Lindsay, it’s true that “people take price as a signal to quality.”
  • If you have lots more to sell, then 99 cents isn’t a price, it’s a price of admission. Responding to my recent column about “small things” adding up, Rob Pegoraro asked, on Twitter, how The New York Times’ earnings results related to the notion. “I think NYT 454K dig subs become great market for ‘small things’ like ebooks, events+,” I responded. David Johnson then added, “You pay to be in a market. These business plans resemble theme parks and non-profit fundraising strategies.” That thought fits perfectly here: it’s not about the money, large or small, an even buck or 99 cents — it’s about establishing a new relationship. Or, to use the vernacular, 99 cents is gateway-drug pricing.
  • Get ready to sell lots of stuff. So if you are Six Flags, or The New York Times or the L.A. Times, you’d better be able to leverage that new relationship by selling lots of stuff. Maybe not yet 100 products a year, but at least a half dozen to start. Ebooks, of course, fit perfectly here, as add-on products offered to members or subscribers. Sure, use some, as The Boston Globe is doing with Sunday Suppers, to reinforce subscriber/member value. But price others to match potential value. A guide to Boston-area colleges from, who else, the Globe, could be a $19.95 solid seller, given the $100,000-plus parental investment ahead. “Ebook,” though, is much too limited a name to put on it, and sounds like something not current. Wonderfactory founder and creative director David Link made this basic but hugely important point when we talked last week: There really isn’t a fundamental difference between an app and an ebook. “From an agency and a technology’s point of view, it’s only in how you create them. Talking about a recent product Wonderfactory worked on, “You go to the ebookstore, and it’s just text. You go into the app store and it’s got the text with 50 percent app-like sauce.” So, right now, publishers and their creative people are having to create multiple forms, but essentially the same product is both an app and an ebook. The technologies, and the costs, will clarify, as will the marketplaces for all the digital paraphernalia of our lives. The point for publishers selling more stuff is clear though: solve audience needs better than someone else, create products for the devices of the day, and price accordingly.
  • It’s not just the content we’re paying for. That’s a tough, tough lesson for literal newsies. As with the music revolution Apple wrought, it was the combination of convenience, ease, presentation, pricing, and wonder that rationalized (for good and bad) the digital music industry. Today’s first batch of digital news subscriptions rely as much on convenience and mobility values as they do on the words and pictures.
  • We’re all in the same business. Think of your own media purchases. A little music, more and more video, selective news and magazine subscriptions, increasing numbers of ebooks. Yes, the marketplaces for ebooks and apps, alongside this kiosk and that e-store, are confusing. Media, though, is media, and the pricing schemes are forming in a remarkably similar way across movies, music, newspapers, and magazines. We all like, for instance, the notion of All Access; we’ll pay once and get our stuff everywhere. So news and magazine publishers must look through the assorted lessons of the music and movie industries, those lessons still in much progress. News pricing is not an island.
                                   
What to read next
kiev-maidan-cc
Ken Doctor    April 17, 2014
Questions about “the business model” sound a little different in Ukraine these days. One English-language newspaper is trying to build a sustainable future in an uncertain land.
  • Don

    Just to correct…Canada is dropping the penny, not the loonie (metal dollar bill), something the US badly needs to do. Anyway, interesting reading

  • http://www.niemanlab.org/ Joshua Benton

    Ugh, you’re right! Sorry — fixed.

  • ranjanxroy

    I really enjoyed the article but feel the most critical point is “Get ready to sell lots of stuff”. After reading your 80/20 rule post, I genuinely do not understand all the debate around content wanting to be free / not free with news. The music and video industry is different, but news was effectively always free content funded primarily by advertising.

    I think the point about selling “lots of stuff” really hits home at what needs to be done. Newspapers simply don’t recruit top quality advertising / businesspeople any longer. Until they revamp their business models into the ecommerce companies they should be, all the traffic increases in the world will be useless.

    I understand the discomfort of a newspaper company being called an ecommerce company, but they were never effectively ‘news’ companies. They were advertising companies that used news as marketing. Until that simple admission is made, I see most decisions being approached with the wrong mindset.

  • http://pulse.yahoo.com/_HOFWXLJATWG57C6T5L4SJCPTLE Perry Gaskill

    “… they were never effectively ‘news’ companies. They were advertising companies that used news as marketing.”

    This is a point of view that’s been articulated by people such as Clay Shirky, and though Shirky is a really smart guy, it’s still open to debate.

    For example, in order for your statement to be true one would have to assume most newspapers were started with the primary purpose of selling advertising. The reality is probably closer to the idea that most newspapers were started because somebody had a political axe to grind, or was a shameless gossip, or just thought it would be interesting to hold a mirror up to a town and let it take a look at itself.

    If readers liked what you were doing, they were willing to pay for it. Which meant you could keep on doing it. Advertising was a way to offset the cost of what you might have had to pass along to the reader. For the most part, advertising follows readership, not the other way around.

    It’s not hard to agree with you that newspapers should be looking at other revenue streams such as ecommerce. Still, the problem is what, specifically, those revenue streams should be. There was a fairly heated discussion about this a few years ago over at Reinventing Classifieds, and as one wag put it: Our office is next to the courthouse; why don’t we do bailbonds?

    And the hazard can be this: At what point while becoming a bailbond business do you stop being a newspaper?

    It also seems to me the same idea applies whether it’s a dead-tree paper trying to transition online or a new startup with journalism as a primary mission.

  • ranjanxroy

    Appreciate the response Perry and I definitely agree that newspapers certainly weren’t started as advertising companies. It’s more the idea that once the audience was brought in, based on the monopoly of access to the communities, advertising was the natural monetization strategy.

    They found an amazing business opportunity in classifieds, high margin print ads, and any other number of very creative marketing ways to leverage this access they had. In the end though, that was what the News itself did, bring in the audience, and then smart businesspeople had to figure out a way to monetize it. 

    My main point is that in the digital age, it makes no sense to me why newspapers think it has to look just like it did in print. Why advertising? Why can’t they sell “bail bonds” of sorts? You know your reader, you know their profile, sell them something.

    It could be such a seemingly minor, yet in reality, revolutionary change. Before, the content brought in the audience, and then the media company sold that audience’s eyeballs to advertisers. Head the exact opposite direction, instead of selling the audience to the advertiser, sell something to the audience. Ecommerce is the high margin business of the future (especially with digital products), why not be try to be part of it?

  • http://feldmanfile.blogspot.com Len Feldman

    Ken, you should know that the TeleRead blog (
    http://www.teleread.com/paul-biba/the-newsonomics-of-99-cent-media/) reprinted this entire article under Creative Commons rights, stripped your byline and replaced it with TeleRead’s editor’s name, and links at the very end of the article not to this page but to the Nieman homepage. I and another reader have asked Biba to give you appropriate credit, but so far he’s ignored our requests.

  • http://twitter.com/KCENDorian Dorian Davis

    I couldn’t help but notice that you use “its” incorrectly in your article. Good research though!

  • Martin Langeveld

    So, question: does all that 99 cent pricing mean the paywalls aren’t working very well? That’s certainly obvious at the Globe. The question is why they immediately jump to the bargain basement idea, instead of testing other paywall construction methods.Again especially the Globe, because they have a zero tolerance paywall. Wouldn’t it be better to go to X articles free per month rather than 99 cent trials?And are there really no other ideas out there except “X articles free and then you pay”, and “99 cents for 4 weeks and then you pay”?For example, I was thinking the other day, what about trying a model like this:Some content is always free. Other content is designated premium. The designation criteria are fluid, and based on careful monitoring of usage patterns. So maybe sports is always free, opinion is always premium, wire news is free (why charge for stuff that’s obviously free elsewhere), local news is premium, local news is premium (unless it’s breaking news, like Hurricane Irene). THEN: all premium designations expire, after varying lengths of time — maybe a week for big enterprise stories, but 24 hours for local news stories. So the customer can have it all for free, but pays for the convenience of timely access.If it were my newspaper, I’d rather try that than 99 cents. Apple picked 99 cents for totally different reasons, but they stuck to it. They never had a bargain basement sale. Once you do that, you’re basically in the same category as toilet bowl cleaner, which any frugal homemaker never buys unless it’s on sale and they have a double coupon, so in effect, the bargain basement price is the real price.

  • Martin Langeveld

    Sorry for some reason all my paragraph breaks disappeared….

  • http://www.niemanlab.org/ Joshua Benton

    FYI, I left a comment on the post complaining and Paul (or someone) took it down.

  • http://feldmanfile.blogspot.com Len Feldman

    Joshua, thank you for doing that! It’s unfortunate that Mr. Biba ignored requests from his regular readers to provide proper attribution, and when he finally responded, he did so without making an apology.

  • Counsel Dew

    Maybe. The assumption stands. While a Pew study finds 65% of people buy content online, was the question appropriate? “Have you told the truth?” says little about how much you lie… 65% have paid for content-2/3. If 1/3 bas not, that is huge-no way to hide that…

    The price point of 0.99 is there because people don’t want to pay for that content-but the price point helps them overcome their hesitation… Start “nickle & diming” people for additional cpntent, and I think they will forgo psying the 0.99 for the convenience due to the barrage of “SPAM.”

    Most kids today just want immediate gratification (search on-line for the people, many in their 20s, yalking about free downliads & gtatification). The irony is that content creators, current & past, and marketing may be to blame…

    Don’t get me started on parenting, or the lack thereof…

    nce