Thursday, February 2, 2012

Will Digital Subscriptions Save Newspapers?

Probably not for most.  On-line there is easy substitutability for new content and thus price competition soon erodes away any real profit - or so it appears.  But there are a few uniquely situated news organizations that provide something a bit different: a broad range of coverage, in-depth reporting, a national and even global reach and the reputation for quality.  The New York Times is one such organization and over a year ago they decided to stop offering their content for free and start digital subscriptions.  The results, while not providing any comfort to smaller, regional papers, are encouraging for the Gray Lady.

Here is the blog Newsonomics dissecting the numbers and extrapolating their impact on the bottom line:
The numbers in brief, from this morning’s Times 2011 earnings report:

  • 390,000 digital subscribers overall.
  • Growth rate of 20% fourth quarter over third quarter. 
Those are the public numbers. We’re left to extrapolate the dollars. My extrapolation is that the run-rate for the Times’ new digital revenue is about $86 million a year.

He then goes on to discuss some other interesting numbers:

In talking with Paul Smurl, VP of paid products for the Times, this week, I picked up some related datapoints that help us understand what this first year may lead to:

  • 70%+ % of the Times’ print subscribers have now “authenticated.”
  • Churn is less with digital than print customers: Skeptics opined that people might sign up, but then flee after sampling the paid digital product. The opposite appears true: Smurl says digital churn is less than print churn.
  • About 12% of digital buyers live outside the U.S.: That’s a growing number. It’s an indication that the Times is becoming a global news medium.

And my favorite (because it describes me):

Exploiting Sunday: It took about 12 seconds for Times’ readers to figure out the new subscription math, when the company when digital-paid last year. When they did the math and saw they could get the four-pound Sunday paper and “all-digital-access” for $60 less than “all-digital-access” by itself, they took the newsprint. Which stabilized Sunday sales, and the Sunday ad base.

The problem with local paper like The Oregonian who would like to follow this model is that they don't have a suitably differentiated product - there is just too much competition. The problem for consumers is that it is too hard to judge quality past a certain point - what stories are being missed, what stories are not explored deeply enough, and so on? When such information asymmetries exist in markets the result is well known: all the high quality stuff goes away.

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