That is the message global media consultants Simon-Kucher & Partners is hoping to send to news publishers, with a report that makes the case for significant increases in newspaper cover prices.
Price hikes are frequently seen as tangible proof of a newspaper’s declining fortunes, a desperate attempt on editors’ parts to combat dwindling revenue. Take for example Jeff Jarvis’s reaction to the NYTimes’s decision to raise the price of its print edition by 25 percent, from $2 per copy to $2.50. Jarvis doubted the viability of such a move, believing that it aimed to “support an outmoded economic model.” Newspapers, he argued, have lost much of their pricing power as online content puts paid to the advertising models that once made newspapers a powerful economic force. Jarvis’s reflections on the impact digital has had on newspaper ad revenue is valid in the main, but his assertion that increasing cover prices is an exercise in futility finds a counter-argument in SKP’s recent study.
In a print industry fearful of alienating its already diminished consumer-base, the advice offered by the report may seem counter-intuitive, but research conducted by Simon-Kucher & Partners indicates that raising cover prices has only a nominal effect on circulation. What is more, the study shows that, even if reader numbers drop due to elevated pricing, circulation revenues are likely to increase, often compensating for the income lost through decreasing circulation volume. Using The New York Times as a case in point, the report shows that when the paper increased its cover price by 25¢ (to $1.50) in 2008, circulation rose by 3 percent. Even more impressive are the statistics for The Dallas Morning News, which saw gains of 11 percent in circulation revenue after its 2009 price rise.
With that in mind, the report’s authors Andre Weber and Kyle Poyar advocate charging more per copy as a means of boosting circulation revenue, rather than expending energy on increasing the number of print copies sold. Weber and Poyar deem raising prices to be “prudent” when declining markets are faced with technological disruption: consumers who are sensitive to mounting print prices will have already made the switch to free or low-cost online content, leaving behind those customers who remain "loyal" to print and who could therefore be convinced to pay more for newspapers.
To measure the extent to which readers of U.S. newspapers were sensitive to price changes, looked at the "price elasticity" of newspapers (the percentage change in customer demand divided by the percentage change in price). As the report explains, “If a company decreases its price by 10 percent and sees a 10 percent increase in demand, then its price elasticity would be -1. The move would leave revenue roughly flat, but likely decrease profits (since there would be more customers to serve). Any price elasticity between 0 and -1 is said to be demand inelastic.” U.S. newspapers have an average price elasticity of -0.7 and are therefore likely to find that significantly higher prices will do little to damage their circulation figures.
Fewer readers would of course have a negative effect on the already deteriorating relationship between newspapers and advertisers. Nonetheless, that might be a risk that news publishers have to take, as advertising deals are unlikely to return to their former position as newspapers’ primary revenue stream. It is becoming evident that instead of relying on advertising dollars, news titles have to develop a more balanced business model: only a decade or two ago 70 or even 80 percent of the revenue generated by newspapers in the U.S. came from advertising. Now, quality titles such as the NYTimes have sought to generate income from other areas of their businesses, and are beginning to treat reader-generated revenue as a serious alternative to ad-driven revenue.
Of course, the proposals put forward by Weber and Poyak are not suited to all newspapers. Realistically, considerably higher cover prices are an option open only to "quality" newspapers, whose content is thought to be worth paying for. Tabloid titles, which often publish stories easily found for free on the Internet, would likely struggle to justify charging readers premium rates for print. Respected broadsheets, on the other hand, could benefit from seeing their printed product as a "bank," with which they could make provisions for the years to come: the revenue produced by raising prices can be reinvested into the future, laying the financial foundations for the digital future.