Digital Media Require New Pricing Methods

Newspaper publishers need to explore new methods of pricing content as they expand their digital portfolios because merely transferring the methods used in print can never bring the success publishers desire.

Print newspaper publishers have traditionally tended to set prices based on production and distribution costs and not on value created. Unfortunately, this has made it impossible to possible to obtain a price premium for factors such as prestige, service, experience, and convenience.

New digital operations, however, provide significant other pricing options because they differ in terms of whether they maintain the existing content bundle, whether non-payers can be excluded from use, the types of experience they deliver and how they are used.

Digital media require significant new thinking because they tend to be joint and complementary products with print. These lend themselves to selling strategies of bundling and versioning that permit uses of bundle pricing, option pricing, multiple purchase pricing, differential access pricing, and inventory based pricing that have not typically been used in the newspaper industry.

Pricing is particularly complex in the digital environment because the number of price choices grow exponentially. In the print product managers price advertising and the circulation, but when they add an online product they have to make 8 choices because they are shifting to a multisided platform operation. If mobile, social media and other print products are added to the portfolio, one must give significant thought to the roles each plays in the portfolio and the interactions of pricing choices among them.

Although digital media use is growing significantly, companies need to be pragmatic in their investments and operations and their hopes for new revenue. Online consumption is still only about 10 percent of all media use and online advertising is still only about 13% of offline advertising. Those numbers are significant and rising so companies needs to seek and exploit opportunities in digital spaces, but managers cannot expect those to immediately replace the contributions of their legacy operations.

Newspaper Companies Start to Think Beyond Today's Bills

The somewhat improving condition of the newspaper industry is permitting companies to move from merely paying operating expenses to finding ways to improve their balance sheets and looking for new opportunities. In recent weeks:

• The Gannett Co. has placed senior notes totally $500 million that will be due in 2015 and 2018. The notes financed at 6.375% and 7.125% will give the company some financial breathing space by being used to pay a maturing loan and revolving credits. In addition it negotiated an extension on $2.7 billion in revolving credit with Bank of America from 2012 to 2014.
• The New York Times Co. has cut its debt by 40 percent in past 2 years and is beginning to look at small investments in digital media that may position it for future growth. It recently provided $4 million in financing for Ongo, a start-up news sharing site that will aggregate stories from a number of newspapers.
• The Washington Post Co. announced it would repurchase 750,000 of its outstanding shares. Such a move will increase future earnings per outstanding share and boost shareholder equity in a tax beneficial way. This type of buyback typically occurs when cash is accumulating in the company and its stock is undervalued.

All of these developments reflected the improving financial performance of newspaper companies and indications that the revenue picture for newspapers is getting better. With improved profits and dividend payments, newspaper companies, lenders, and investors are starting to step back from the brink and the reconsider the completely negative picture of newspapers that developed 3 years ago.