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Walter Hussman, the publisher of the Arkansas Democrat-Gazette, adds an interesting datapoint to the question of self-cannibalization in the newspaper industry:

Hussman, an early pioneer in newspaper paid online content and frequent speaker on the topic, said his newspaper now has about 3,400 online subscribers who pay $5.95 per month for access to everything on the Web site. Non-subscribers still get a significant portion of online news - including some blogs, multimedia, AP and others - but not everything.

Hussman said the paid content online generates just one-tenth of 1 percent (0.1 percent) of the newspaper’s total revenue. But the newspaper has been very successful in keeping print circulation up in part because the newspaper is not giving all its content away for free. The Democrat-Gazette’s daily circulation is up 3,000 to more than 176,000 over the past 10 years, while other newspapers in the Southeast are down (some significantly). Sunday circulation for the Democrat-Gazette is down just 1 percent in 10 years.

A USC-Annenberg study this spring (the Annual Internet Survey by the Center for the Digital Future) reported 22 percent of survey respondents said they stopped their subscription to a printed newspaper or magazine because they could access the same content while online.

My general opinion on the subject of self-cannibalization is that you first need to get past the natural hubris of newspaper publishers. Yes, there is a degree to which print and online versions of a newspaper compete with each other. But there’s an even greater degree to which a print newspaper competes for its readers’ attention with the entire rest of the internet. If you put your website behind a subscription firewall, there’s no shortage of other content which your readers will happily consume for free.

That said, Hussman has a point: in terms of reader psychology, newspaper subscribers lose a free excuse for not renewing if you create an online firewall. If the paper is available online for free, they can say “I’ll just read it online” — even if they don’t. But if they have to pay for it online, they realize that in order to read the content they’re going to have to pay for it somehow, and if they’re paying a subscription fee anyway, they might as well get the paper delivered to their door, like they’re used to.

I’m interested in Hussman’s online subcription level, too, or $5.95 per month: it’s higher than I would have guessed. The obvious model to use is the magazine subscription model: sell subscriptions at $10 or $12 per year — the minimum possible level at which advertisers really value your readership, on the grounds that you make much more from advertising than you do from subscriptions. Advertisers will pay a premium to reach paying subscribers, but they don’t much care how much those subscribers are paying. So you make the subscription price as low as you can, in order to maximize the number of subscribers and therefore the amount of money you can get from advertisers.

What’s more, the effect of a subscription firewall on print circulation is effectively binary: it’s the existence of the firewall which matters, not the price level at which it’s set.

So what’s the reason for charging $71 a year rather than $10, if online subscriptions account for only 0.1% of your total revenue? I suspect that there’s an anchoring effect at work: a print subscription is $17 a month, or $204 a year, and the online subscription has been set at 35% of that figure.

In any case, if a newspaper is both increasingly reliant on paper subscription revenues and is seeing its paper subscriber numbers decline, there might indeed be a colorable case for implementing a subscription firewall in front of the online content. That doesn’t apply to big papers like the WSJ, FT, and NYT which are not seeing their print subscription numbers fall, and which aspire to being global news sources. But it does apply to smaller, regional papers, where the economics of newspaper publishing are particularly gruesome.

Source: Newspaper Self-Cannibalization Datapoint of the Day