virtualeconomics

Testing the price of online news

News Corp is experimenting with charging for online news. The Times has a paywall, and all of their content has disappeared behind it. Soon The Australian will have a paywall, and in ostensible emulation of the WSJ and FT model about half of their content will disappear behind that too. Next up is an iPad-only "newspaper" conceived by Murdoch and Jobs, the Daily, which will cost just $0.99 (£0.62) a week.

This latest pricing experiment smacks of desperation - of the plaintive cry "surely to god there must still be a sum of money so utterly infinitesimal that someone will pay it"? If the Indy's new i looked pretty cheap at 20p a day for a print edition, hiring 100 journalists to put out a newspaper for about 10p a day will surely test the limits of that theory. 

Of course, the bad news is that the next question is "compared to what"? 10p a day is very cheap, compared to the print edition of the Times. But it's 10p more than any other news website, and all of them are equally available on the iPad merely by going online. Unless the Daily is going to offer something new and unique that the combined efforts of the BBC, Guardian, HuffPo, NYT, WaPo and every blogger in the world does not, that's 10p that no-one needs to spend. Sure, it's good to test things out. Hats off to Jobs and Murdoch for giving it a whirl. But I'm struggling to see what's so different about the Daily that it's 10p a day better than a million other things.

(Photo from World Economic Forum on Flickr)

News Corp now running ads for Times online during daytime TV

A few days ago I knocked some numbers together to understand the new Times paywall, concluding - per Barry Collins's original observation on an old PC Pro podcast -  that the strategy made most sense as part of News Corp's general content bundling approach and the intended buyout of BskyB (a conclusion which incidentally David Prosser seems to have reached independently at about the same time).

What made less sense to me was seeing a TV ad for the new Times online subscription service today, either during the break or at the end of daytime quiz show Wogan's Perfect Recall (so around 3pm this afternoon. Needless to say I wasn't really paying attention until I noticed the ad and alas didn't manage to get a photo for proof but I definitely saw the ad and it was definitely for the online product).

Quite how the ostensible ambition of extending online the long-term relationship with a valuable, Times-loyalist news audience is served by running TV ads to students and the unemployed is puzzling, and seems unlikely also to make any real commercial sense given the cost of (even daytime) TV ads, conversion rates from TV to online and the value to News Corp of Times online subscribers.

Perhaps it's a branding exercise (though that raises the question what segement of the potential Times audience doesn't already know the brand?). Perhaps I saw the only one or this is a matter of remnant inventory exchanged between C4 and News Corp on terms unfathomable to the casual observer. But it occurs to me that this is another move that makes most sense if the Times online is considered as part of an overall (£500 pa ARPU) News Corp content/ISP/TV/telephony bundle, which is the sort of thing that advertising on TV would make a bit of sense in a way that advertising an online newspaper really doesn't.

News Corp's paywall is about News Corp, not the Times

Round about the same time as it makes a bid to acquire the whole of BskyB, News Corp has also erected a paywall around the Times. Analysis of this move to date has focused on what this means for the Times qua the Times, and what the lessons are for newspapers generally, and produced some valuable insight as to the meaning behind the fluffy numbers. But I believe this move has almost nothing to do with the Times and everything to do with News Corp's wider bundling strategy, and that considered in this light erecting a paywall around the Times was a sound strategic move which has the potential to return the Times (not just the website) to break even.  

Considering that the Times lost £87.7m last year and BskyB recorded profits of £855m on revenues a shade under £6bn, the obvious question for anyone holding both businesses is not "how can we make the Times make more money?" but "how can we make the Times make Sky more money?".

Sure, while a BskyB subscriber is worth £508 per year and someone buying both the Times and the Sunday Times every day is worth £312, the reality is that not every Times reader subscribes or buys every day (fewer than 150k subscribe, from a circulation around 500k at the Times and 1m at the Sunday edition); the circulation figures for the papers fell 15% and 10% respectively year on year; and in any case that's all just talking about the print audience. The online audience, which pre-paywall stood between 3m and 6m depending on which web analytics provider you believe, is estimated to have been worth £10m-£20m in ad revenues last year. That works out at an average value of a visitor to the pre-paywall Times website 0f about £0.30 per month or £3.33 per year, which in my experience is certainly the right order of magnitude and likely to be in the ballpark. In context, Timesonline visitors were about 1/100th as valuable as a print edition loyalist, or 1/150th as valuable as the average BskyB subscriber. Losing 90% of them, and the attendant £10m-£20m in online ad revenues, is a shame, but on an ARPU calculation for News Corp it simply doesn't matter. 

So the paywall isn't about monetising the Times (the best estimates hold that the paywall is generating revenues between £4.8m and £5.5m pa,which in the context of £6bn pa isn't worth the trouble of counting it). BskyB has about 10m subscribers. Of those 2.6m take broadband, 2.4 take telephony and about 2m (21%) take the lot. The business added 1.4m subscribers last year, but with a churn rate of 10.3% that only added a net 400k to the total - or, to put it another way, last year 1m customers worth £508 each or half a billion pounds walked out the door. The Times paywall, therefore, is not about directly monetising the Times but about bundling the Times with News Corp's other services, notably broadband but also TV and telephony, to decrease churn and add customers to the valuable growth part of the business.

The three major UK providers of bundled services are already operating a confusopoly - a search on the major comparison site for a TV/broadband/phone package at a sample London address indicates most clearly the presumably deliberate impossibility of comparing like with like. For £190 a year is Virgin's "medium" TV package with 40 channels and 10mb broadband a better deal than Sky's "basic" TV package and 20mg broadband for £258 a year? Clearly and deliberately this is a decision that cannot be made on price alone, and adding the newly-paywalled Times to that bundle makes it possible for News Corp to retain or add more valuable subscribers to its core business. 

Looking at the numbers, the pre-paywall Times generated 41m pages from 6.4m users; that's now down to 4m pages from 2.4m users. Elsewhere this has been interpreted as a loss of 60% of the audience - I think the lost audience figure is far higher, since pages are down 90% and the way traffic is counted almost certainly includes as "visitors" people who bounce off the paywall. The real audience, actually reading pages rather than bouncing off the paywall, is probably reflected by the page views figure and is down from 6.4m to around 640k. That's 5.8m who used to read the Timesonline and now can't.

At this point it comes down to marginal decisions. We've seen that you can't compare the TV/bb/phone packages on price - the confusopoly makes it impossible. So at the margin, how many people need to decide that on balance a free sub to the Times online is worth switching from Virgin or BT to Sky for this to work? Top-end estimate for lost online ad revenue is £20m; knock £5m off that for online subs under the new model and the paywall is losing £15m a year. With BskyB running an ARPU of £508, if fewer than 30,000 people make the decision to move to (or stay with) Sky because they get the Times online bundled in, News Corp's paywall initiative breaks even. If 200,000 do that's the annual losses of the newspaper operation covered too. In context, the UK pay TV market is about 14m people (own calculation from Sky results plus here and here); the broadband market about 19m; and Sky already churns a million people a year. 0.2% of the UK's broadband market needs to switch to, or stay with, Sky this year for this to add up. Assuming I'm right and they are going to bundle, the maths at the News Corp level work out just fine for a paywall around the Times. And I hear rumours that the Sun and the News of the World have websites too.

 

Addendum. This is obviously back of an envelope stuff. Without access to Sky's internal figures it can never be anything else. There are complexities underlying these basic numbers - for example there would be some, perhaps considerable, deadweight loss in both directions if the bundle was as simple as I've suggested. No accountant would really attribute every penny of a marginal decision to spend £508 a year on a package of TV channels and connectivity to the presence within the package of a free online newspaper. But I believe it's directionally right, and the picture looks even rosier when you consider that if News Corp really does pursue this strategy the audience for the Times online is going to increase dramatically; it will continue to be made up entirely of paying customers for whom News Corp has credit card details and all sorts of deep behavioural data; and at that point the people who are currently eschewing the site as an advertising medium might be willing to reconsider. 

i

"The first quality paper to be launched in Britain for almost 25 years" (since The European in 1990? Since Metro in 1999? Charitably I will assume that the error here is innumeracy, not the hubris to claim the Independent is the last quality newspaper launched in the UK). So what's the first edition like?

First (and second) impressions

Like the iPad, the first impression is of a solution looking for a problem that quite possibly doesn't exist. The first two pages appear fundamentally misconceived, a collection of extremely short-form news that looks a little like an index (but unlike the useful bit of an index doesn't direct the reader to the longer versions within) and a little like the front page of a news site (but unlike the useful bit of a website doesn't have any links to read more at greater length). It's almost as if the newspaper's creators had taken away precisely the wrong lesson from the move of news online - yes, people like to read summaries of the news, but then they like the option of somewhere to go to learn more.

And the second impression is of a mish-mash of content without any real prioritisation. There is a sports section at the back but some sports news apparently warrants being up front (Chilean miners play football for some reason). Personally I value the convention that sports news merits its own section so I can avoid it like the plague. There is a business section, in much the same way that all newspapers with aspirations to seriousness must apparently have a business section, but it is so abbreviated and the selection of constituents so arbitrary that it seems to exist merely to give the impression that business is being covered rather than in any real hope that anyone could rely upon it as their source of business news. Last I checked, the FT and City AM and WSJ and Marginal Revolution are still there, so why is this? 

A digital strategy? Not so much 

Let's not even talk about the rookie mistakes they've made online. Not having a website is one thing, but calling your new product "i" just means no-one will be able to find out anything about it via search. I've searched for commentary about the paper today and still the only way I can find it is by guessing which commentators would mention it and manually scrolling through their recent posts. 

Plenty to like

So what's actually to like about it? Plenty. There's almost nothing dull - every story, in its selection, composition and brevity, is worth the glance that it takes to consume and Kelvin Mackenzie nailed it calling the paper "light, frothy, interesting". The advertising is surprisingly attention-grabbing, both in format and selection of companies. The two third-page strips for Orange and T-mobile on pp24-25; the ad for Google on p9 genuinely intriguing; and there's lots of it (more than in today's Independent itself, I hear). Someone has really solved the problem of how to design an ad-funded medium around the users, given the dilemma created by having two sets of users - advertisers and readers - with diametrically opposed needs. Also, my first glance at the TV listings page made me mutter aloud "now that's clever", cos it is - grouping TV listings thematically makes them dramatically more useful (disclaimer - I never look at TV listings, so maybe I am once again being impressed by something that everyone's being doing for a decade). 

The bottom line - "i" will have a very healthy bottom line

Finally, the business model - more specifically, what I infer about the sales pitch to advertisers - is genius. Both Deborah Ross and Simon Kelner talk about the paper's audience as "time poor" and "busy" and here we see a very intelligent piece of commercial positioning. Who is time poor? Well, that'd be people who are busy making money. For 20p they might just be able to snatch a few minutes on their commute, after catching up with emails on their Blackberry and before watching last night's Inbetweeners on their iPad. It's a pitch which, so far, works dramatically well at attracting all the right (high-yield finance, tech) advertisers. As long as they can get people to pick the thing up every day their sales team has a great pitch to make - "time poor" (and therefore cash-rich) people are reading, and that's an audience everyone likes. 

Yu Wan Mei?

Fellow Onion fans may be amused to see that the Onion has been sold to a Chinese "salvage fisheries and polymer injection" company.

Finally I understand why all their articles in my RSS feed for the past couple of days have been written in broken pidgin and dealt almost exclusively with Chinese sports stars being awesome.

And, like all the best satires, it's basically true. Where next for debt-burdened, credit-crunched newspapers but a harvesting strategy that cashes in reputations built up over the last century? Some are going online-only, some are finding vanity purchasers and others...well, others are going to disappear, or find foreign buyers, and those buyers are going to be people who think that influencing opinion in the US and Europe is worth sinking a few million dollars.

At the intersection of Twitter and print journalism

There's something slightly unsettling about watching Ben Goldacre decide what topic to cover in his next Bad Science column for the Guardian newspaper by asking people who happen to follow him on Twitter what he should write about. But I can't quite put my finger on why it seems odd that the contents of a future newspaper article should get decided this way. 

Once in a lifetime opportunity to rob the public purse

Yesterday, Charles Arthur was talking about the demise of local newspapers in some communities and how the rapid disappearance of proper investigative journalism at the local level makes councils unaccountable to local populations.

Let's say it's true. What would we see to validate this hypothesis? Well...if local councils really become unaccountable when local papers cease to investigate them, I'd expect to see a big increase in the value of positions of financial authority at local government level. Those positions will suddenly become a lot more valuable if no-one is watching the purse-strings all that carefully, so more candidates will want them and those candidates will spend more to win them. 

It's possible that what we have here is a rather lovely natural experiment. If a newspaper closes down in a town, what impact does that have on the apparent attractiveness of local government positions in that town? How many more candidates, and how much do they spend on their campaign (especially, possibly, the new candidates)? Measure that, and you can measure the value to accountable democracy that the newspaper used to deliver. Scott Karp said we should measure where the ad dollars go in Seattle now the PI has gone online-only. I think we should measure where the campaign dollars go. Then we'll know what the watchdog of Seattle democracy was worth.  

Update: couldn't find this earlier but then I, err, tried harder and did...writing in Slate three years ago Tim Harford proposed a rough measure of corruption (in US politics) - what % of the budget up for grabs are lobbyists willing to spend to influence it? He reckoned then that the answer was about 0.1%. If after the closure of a local paper we can see a significant change in the % of local government budgets that candidates are willing to spend to get into power, or local interest groups are willing to spend to get influence, perhaps we can say that local government has become that much more corrupt. 

"Eating out Giles Coren"?

Loyal VE readers will recall my habit of buying the Times on a Saturday solely for the pleasure of reading Giles Coren's alleged restaurant column. Not, you understand, because I have any particular interest in restaurants - given that much of the pleasure of the column comes from his regular reluctance to mention having visited one - but simply because (with the possible exception of Larushka Ivan-Zadeh's film column) it is probably the best and most amusing thing written in English every week.

Recently it got something of a revamp (again, loyal readers will recall that I do not read anything else at all in the Saturday Times so cannot enlighten you how much further, if at all, this revamp extends - a quick skim reveals mainly that a column on the back page called Beta Male is written by a man called Robert Crampton who is the spitting image of my mate Silk) and is now rather oddly entitled "Eating out Giles Coren". Sure, the "Eating out" is in bold pink and the author's byline is italicised in a completely different font and colour but mere typography is hardly enough to disguise the fact that in the absence of any punctuation the column's title is now unambiguously "Eating out Giles Coren". If the thing was penned by Nigella Lawson I would have considered this outcome inevitable - as it is not, this new double entendre merely bewilders. 

That's two quid a month saved

Excellent news today - Giles Coren's weekly restaurant review, which I buy for £1.50 every Saturday from my local newsagent (inexplicably padded though it is with literally hundreds of other pages that, annoyingly, I have to carry home before I can ignore and recycle them) is now available for a mere £1 a week. That's a definite £2 a month that the credit crunch is saving me. I've yet to so clearly identify any other positive benefits of this recession but since it has yet to inconvenience me either I'm currently counting the recession as a net win.  

The gap between news and life

Comment on the news found on a friend's personal blog I thought some of you would enjoy:

"The newspapers are making me dispirited and sad. Reading stuff like the column in the Independent by a resident of Gaza (his dad died ten days ago, and he just found out his house was destroyed on the day his wife's due to give birth), and the whole Heathrow runway thing, makes me feel like there's no place for optimism and that all idealism is doomed. But the bits of the world near me seem like a giant toyshop full of fascinating new things and exciting plans. It's a confusing business."

And we really wonder why fewer and fewer people buy the things.