The United States National Newspaper Industry Austin But, Benjamin Wainberg, David Schatz, Jeff Gottlieb An Inquiry How do you, Cornell University students, get your news? Why We Chose the National Newspaper Industry • Changing nature of medium makes it exciting o • Dual sided market o • • Once-daily format to instant information era (Facebook, Twitter) Newspapers sell ads to companies AND papers to customers Heterogeneity of firms o Political slant, writing styles, coverage Media affects us! 3 biggest players in "an industry of their own" 30.49% market share 40.80% market share 28.71% market share = HHI of 3418.54 (Concentrated) Why These Three? They exert the most power! Highest circulation, by far Most name recognition Have most national focus • • • High Barriers to Entry • Capital investments (web presses), etc. o • • NYT spends $63 million quarterly on raw materials (ink, paper) Relationships within distribution network Trust/goodwill • • • • Major Player #1: The Wall Street Journal Slant towards business and economic news, often thought to be "pro-industry," "laissez-faire" Written to advanced readability level Average household income of reader: $236,848! Owned by Dow Jones, and thus News Corporation o News Corporation's 2012 revenues: $34 billion! • • • • • Major Player #2: USA Today Easy readability Covers general domestic news in full color No staunch perceived bias Owned by Gannett-company revenue $5.439 billion in 2010 Demographics: • • • • 68% men, and 32% women Average age of 46 80% of its readers are employed Median household income of $78,848 Major Player #3: The New York Times • • • • • • Covers domestic news with slight NY focus Oldest newspaper; established in 1851 Perceived liberal bias in commentary, possibly reporting o 2007 survey shows 40% of Americans believe a liberal bias exists (most frequent response) Written to intelligent readership "All the News That's fit to Print" o Historical Significance The New York Times Company o 2012 revenue: $2 billion! Delivery techniques? Value Chain Traditionally: Content Producers Newspapers (Professional Journalists) American Public Digital age (via the internet and social media): Content Producers (often the public-anyone with a smartphone) Digital technologies American Public • Overall Industry Trends Shift towards digital media large threat towards stagnant print industry o • Exemplified by recent tragedy in Boston-sources like Reddit, Twitter and Facebook became integral One-sided content stream archaic; technological advances empower consumers Overall Industry Trends Cont’d • • • Information is becoming commoditized and expected to be "free" Government regulation? Minimal, freedom of speech exists (with slanderous exception) Major players having trouble monetizing data in digital era o NY Times paywall Case in point... Pricing Strategies Wall Street Journal • Mixed Bundling Strategy o The choice of purchasing parts or the entirety of a bundle Digital-only Print-only Both! WSJ - Pricing Digital-Only Web + Tablet + Smartphone $21.99 for the first 3 months $21.99/month thereafter Unlimited Access to Archives • • Bundled In • WSJ Money WSJ Weekend WSJ Pricing - Cont'd Print-Only $34.45/month Delivered 6 days a week • • *Prices for print-only subscription were not available online, why do you think that is? WSJ Pricing - Cont'd Preset Option! Digital + Print All benefits of Digital and Print subscriptions combined + WSJ Magazine Clearly discourages the print only option • • Corporate-Oriented Strategy Companies interested in a corporate WSJ account calls the WSJ Corporate Accounts Team Companies provide specific information to WSJ - # of physical subscriptions, company type etc. WSJ uses this information to provide a tailored price quote to the company. Tailored price for each customer. First Degree Price Discrimination. Student Focus • • • $29.95 for 15 weeks All digital + print access Student per week prices - 70% off Third Degree Price Discrimination. USA Today Pricing • Mixed Bundling Strategy E-newspaper Print and free E-newspaper USA Today Pricing Print Subscriptions o o Prices set regardless of delivery address Increasing monthly cost for longer subscriptions • Incentive for consumers to subscribe for one month and decide if they like it with less of a financial commitment o No distinct options for weekday or weekend subscriptions USA Today Pricing E-newspaper subscription o o o Digital version of print paper One subscription option: $99.00 for 1 year Note: This is different than access to tablet or mobile apps Tablet and Mobile Apps Free to download and access content, but with lots of advertisements. • NY Times Pricing • Mixed Bundling Strategy o Can purchase Digital Subscription or Print/Delivery Subscription with included Digital subscription Digital-only Print and free Digital NY Times Pricing- Cont'd Second Degree Price Discrimination Digital Subscriptions versioned by platform accessibility (e.g. tablet, mobile, pc) • • Make those who own all types of devices pay more Print Subscriptions versioned by day of the week (e.g. Weekdays, Weekend, Daily) NY Times Pricing Cont'd Special Offers for New Subscribers NY Times Pricing Cont'd 1-year Cost Comparison Digital vs. Print 1-year Unlimited Digital Access: ($0.99/month) (for first month) + (11 months) ($35/month)= $385.99 1-year Weekday Print Subscription (w/Unlimited Digital Access): ($4.05/week)(for first 12 weeks) + (9 months) ($32.40/month) = $340.20 NY Times Pricing Digital more expensive than Print Discourage current print subscribers from switching to digital only Preserve ad revenues from print • • NY Times Pricing Cont'd Third Degree Price Discrimination Education Rates • Students and Faculty get 50% off Digital Subscription, Smaller discount off Print Subscription First Degree Price Discrimination Corporate Rates • Pricing determined on individual basis Available for Print and Digital Subscription Billed on annual basis only Advertising Pricing Strategies Advertising: The Other Side of the National Newspaper Industry • • Advertising has historically been a crucial revenue generator Trends: o Major decrease in overall advertising revenue over the last decade Huge decreases in print advertising revenue Gradual increases in digital advertising revenue not sufficient An Advertising Problem, Not a Circulation Problem Total Ad Revenues, 2003 - 2012 Upon Closer Examination: Print vs. Digital Ad Revenue, 2003 - 2012 Putting It Into Perspective... Source: The Atlantic Scary Ratio Getting Scarier • • 2011- Newspapers lost $10 in print advertising revenue for every $1 earned in digital advertising revenue 2012- Ratio now 16:1 Who's Responsible for the Advertising Revenue Decrease? Digital Advertising Pricing Strategies Among the Three Newspapers • NO PRICE QUOTES READILY AVAILABLE! o All potential advertisers need advertisements submitted and approved before price quote o With this power over advertisers, all three newspapers can engage in First Degree Price Discrimination o Charge different advertisers different prices for potentially same digital advertising option More Similarities • Among Wall Street Journal and New York Times o Across-platform multimedia packages and sponsorships o Bundling- advertisers may end up paying to advertise on a platform they otherwise would not Print Advertising Pricing Strategies • All three national newspapers charge different prices for different sizes o • • Sizes vary from 1/16 of a page to full page Different prices for Black-And-White and COLOR advertisements Higher prices to advertise on Sunday Wall Street Journal's Print Advertising Pricing Strategies • WSJ Franchise Net Revenue Contracts o Advertisers receive discounts if they sign contract to spend a certain amount on advertising The Value of WSJ ContractExample • Advertiser is contracted to spend $2.5 million in advertising o • Advertiser is contracted to spend $5.2 million in advertising o • Full-page color ad in Global Edition = $279,523.79 Full-page color ad in Global Edition = $261,304.89 Advertiser has no formal contract o Full-page color ad in Global Edition = $379,597.53 WSJ: Third Degree Price Discrimination • • Based on edition's geographic circulation Example: price of full-page color ad for a non-contracted advertiser o Eastern Edition: $116,610.48 o Central Edition: $96,907.86 o Western Edition: $62,611.92 USA Today's Print Advertising Pricing Strategies • Discounts based on advertising spending commitment- similar to Wall Street Journal Source: USA Today Rate Card USA Today's Unique Strategy • Different prices for Friday Edition than for Monday - Thursday Editions Source: USA Today Rate Card New York Times's Unique Strategy • • • • • Third Degree Price Discrimination- charge different prices based on advertiser's industry and even the product(s) advertised Grocery products: $927.00 per column inch Drug stores: $411.00 per column inch Automotive: $859.00 per column inch Healthcare: $1,254.00 per column inch Because We Were Curious... • • • We decided to investigate whether there was a significant difference in the mean amount of ad space per page among the three national newspapers We measured the amount of ad space per page of the April 16th, 2013 editions We used an unbalanced completely randomized design to test for differences Highlighted Data • USA Today o o • New York Times o o • 36 pages measured Mean proportion of ad space per page = .093 54 pages measured Mean proportion of ad space per page = .239 Wall Street Journal o o 40 pages measured Mean proportion of ad space per page = .285 ANOVA Table Source SS df MS F Treatment 0.766 2 .383 4.163 Error 11.691 127 .092 Total 12.456 129 SS(T) = 18.339 - (27.654)2/130 = 12.456 SS(Tr) = (11.389)2/40 + (12.931)2/54 + (3.333)2/36 (27.654)2/130 = 0.766 SS(E) = SS(T) - SS(Tr) = 11.691 Hypothesis Test 1. Ho: µUSA = µNYT = µWSJ HA: not all means equal 2. alpha = .05 3. Fcalc = MS(Tr)/MS(E) 4. df1 = 2, df2 = 127 5. Fcalc = 4.163 Reject Ho if Fcalc > 3.0675 Reject Ho at alpha = .05 6. There is a significant difference in the mean proportion of ad space per page among the three newspapers. Multiple Comparisons Technique: Tukey-Kramer Method Newspaper: Mean: USA Today NYT WSJ .093 .239 .285 _________________ ____________ Conclusion: USA Today has a significantly lower mean proportion of ad space per page than the Wall Street Journal. Recommendations Source: MarketWatch.com Mixed Opinions New York Times Gannett Concerns about decreasing advertising revenues are partially offset by optimism in the growing digital business segments of these companies. Digital, Digital, Digital "Our all-access content subscription model and digital business - two initiatives that underpin our growth plan - continued to gain momentum during the quarter." - Gracia Mortore, Gannett CEO Strategic Recommendation Focus on digital streams of revenue! 2013 2Q Earnings Report: • • • 57% Increase in Net Income 29% Digital Revenue Growth 35% Increase in Digital segment operating cash flow Questions?