Ken Doctor's  Instablog

Companion post: The Newsonomics of Pricing 101

First published at Nieman Journalism Lab

Honk if you still love newsprint enough to pay $700 or more a year for a seven-day print subscription to The New York Times. Of course, you have many other choices.

You can try one of several print/bundled options for considerably less money. Or if you want to be parsimonious, you can get 10 free article views a month, or more if you want to work the social and search on-ramps to NYTimes.com. Maybe you want to be among those who pay Ongo $1.99 a month, and get 20 Times news stories a day, among lots of other news content.

Love the Guardian, and want to follow each tick of the U.K.'s Murdoch saga? If you're in the U.S., you can subscribe to the lively iPad edition for $13.99 a month - or access it for free via the Safari browser on the tablet. In the U.S., its smartphone app is free, but in the U.K. and Europe, it requires a subscription. Of course, it's quite successful Facebook app gives you access for free as well, anywhere.

If you're shopping the Ongo news kiosk, look at wide spectrum of prices individual publishers are charging for access through that product: The Guardian is 99 cents a month, The Christian Science Monitor is $3.99, while the Chicago Tribune is $9.99 and The Boston Globe $14.99.

It's not just newspaper companies that offer a patchwork of buying (or not buying) choices.

Are you a late-arriving fan of AMC's series "Breaking Bad"? If you want to catch up and subscribe to Netflix streaming, you've got a good deal at the $7.99 a month rate. Cram in the first three seasons' 37 episodes in a single month (where did that month go?), and you'll pay just 21.5 cents per show, and anything else you have time to watch is gravy. Ah, but if we want to watch Season 4, which you can't yet see on Netflix streaming, you have to upgrade to those red envelopes and get Season 4 DVDs - but it'll cost you another $7.99 a month, and you'll have to wait until the DVDs are released in June. (Ah, maybe that's one of the reasons Netflix's maladroit move to streaming is pushing it to a loss.)

Or you can turn to Amazon VOD and get the episodes for $1.99 each (or $2.99 in HD!), or $25.87 for the season. Or why stream when you own the DVD in a few weeks for $29.99 (or add an extra 10 bucks for added Blu-ray clarity). But wait - I'm an Amazon Prime customer. Can't I watch it for free? It's not part of the Prime free streaming offer, but I can watch a whole lot of other stuff as often as I want for nothing. Or maybe I can access "Breaking Bad" through Comcast's Xfinity $100-a-month plus service. Nah, no deal - "Breaking Bad" isn't available.

One more try: on the AMC site itself, there's quite highlights, blogs, and more on the series, but no full episodes.

Let's add in music.

Take Tristan Prettyman. It's $9.99 (or 83 cents a song) for her last CD on iTunes. Through my $36 annual ad-free Pandora subscription, I can listen to dozens of her songs, her musical soundalikes, and thousands of other tunes in a year, bringing down the cost to pennies per song. Or there's Spotify, where her songs are available for either zero, five, or ten bucks a month, depending on what devices I want to use and whether I can stand ads.

Magazines, of course, are offering their own split-screen experiments. The U.S. magazine industry ("The Newsonomics of Next Issue Media's All-You-Can-Eat Kiosk") is testing the all-you-can-eat, cross-title buffet, bringing some its titles down to as long as 37 cents a month (if you consumed all 27 "basic" titles) through the kiosk, but $39, or $59, or $79 a year if you buy a single title directly through a publisher.

It's a fool's paradise of pricing out there in the digital world, right now, at least for wily consumers. The Department of Justice's ebook suit and related settlements only complicate things. Five and ten years ago we were wondering whether people would ever pay for digital media - Newsweek's Steven Levy took us into the terra incognita in "Meet the Napster Generation" back in 2000. But now the question isn't whether people, young and old, will pay - it's how the hell to figure out how much to charge them throughout what we politely like to call our multi-platform world.

Content no longer demands to be free. It wants a fee - but how much of one?

Consumer pricing is not a core competence of many media companies. For decades, media pricing was on automatic. Newspapers picked a quarter or fifty cents, and then re-programmed the coinboxes. Magazines kept prices low enough to build audiences to reap substantial ad rewards. Book publishers did some minor stratification. Music companies picked a couple of price points, and let the vinyl and CDs fly.

In the digital era, though, pricing is confronting - and confounding - media companies. Just what in the digital world of vanishing manufacturing costs is digital media worth? Now with those 20th-century costs - printing, manufacture, distribution, shipping - passing into the night, the question of price, and value, is making itself loudly heard.

We can certainly identify the wrong-headedness of the Department of Justice's price-fixing suit against book publishers and/or point out how the DOJ had little choice in pursuing the case, neither of which is a surprise. The law has struggled unsuccessfully to keep up with business changes wrought by the Internet, from fair use to antitrust to media monopoly. Oft-earnest American regulators find themselves falling farther and farther behind, trying to track technology's dominating nature and make new sense of it. Often, European Union regulators take a more forthright stab but end up retreating.

Create a new legal framework that better balances producers, distributors, and consumers? Forget about that in this age of politics where stalemate and status quo is the order of the day.

Publishers of all media are on their own, then, and they'd better make sense of pricing. It's core to their survival and future sustainability. Sure, the Amazons of the world will try to monopolize book pricing, returning closer to its pre-"agency pricing" market share of 90 percent from its current paltry 60 percent. Yet, publishers - especially of news and feature media, news organizations and "magazine media" - have many pricing plays to try as customers discover content near and far from traditional outlets.

I'll call this the newsonomics of 99-cent media because that's the world into which we have moved. Today let's look at that 99-cent model, and next week we'll delve into the early lessons that pricing's practitioners have stumbled across as they've moved into paid content.

At first, it looks like a tyranny of 99-cent pricing (or the parallel expected tyranny of $9.99 Amazon book pricing). Will 99-cent pricing cause brand damage? Will it last? If the U.S. follows Canada and forsakes the penny, then the 99 cent pricing may fall into history. For now, though, it's got a certain consumer magic.

"Ninety-nine-cent introductory offers have done wonders for take rates," says applied economist Matt Lindsay, president of Mather Economics. His company has worked with more than 200 titles - about 75 percent of them newspapers - on pricing and related strategic issues. Take a look across media pricing, from The New York Times to Hulu Plus, and 99 cents (or its derivatives of $1.99 to $7.99 to $9.99) are everywhere.

Take rate is simple: What percentage of customers click yes - and provide precious credit card data - when confronted with an offer. Offer readers the ability to start a "trial" for 99 cents, and you'll see results two to three times any other number, says Lindsey. At 99 cents, readers "take that as a signal. They understand that you want them to adopt this product. By setting the full price at a high number, you are basically saying, 'This is the true value of the product.'"

Steve Jobs understood signaling in a parallel way. As Chris Anderson described well in Wired last November ("The Magic of 99 Cents"), one of Jobs' great successes with iTunes and the iPod was that 99-cent pricing for songs. He could get the hardware and software right, but in the not-quite-post-piracy age, 99 cents was the third leg of the value equation. It worked as a signal: somewhere in between free and too much.

Start with 99 cents and you can conquer the world. As they set off on that quest, what are some of the pricing guideposts for publishers?

• 99 cents is a beginning and not an end. For newspapers used to being paid $200 or $400 a year, 99 cents seems like a declaration of cheapness. Put some round 0s on pricing; it just seems more honest. The oft-cited example of Louis CK's $5 video is a case in point. Five bucks says authenticity. Yet media that answer thousands of reader questions every day aren't comedians. Just because you set an intro price of 99 cents, the down-the-road price sends thatother important signal to value. Ultimately, says Lindsay, it's true that "people take price as a signal to quality."
• If you have lots more to sell, then 99 cents isn't a price, it's a price of admission. Responding to my recent column about "small things" adding up, Rob Pegoraro asked, on Twitter, how The New York Times' earnings results related to the notion. "I think NYT 454K dig subs become great market for 'small things' like ebooks, events+," I responded. David Johnson then added, "You pay to be in a market. These business plans resemble theme parks and non-profit fundraising strategies." That thought fits perfectly here: it's not about the money, large or small, an even buck or 99 cents - it's about establishing a new relationship. Or, to use the vernacular, 99 cents is gateway-drug pricing.
• Get ready to sell lots of stuff. So if you are Six Flags, or The New York Times or the L.A. Times, you'd better be able to leverage that new relationship by selling lots of stuff. Maybe not yet 100 products a year, but at least a half dozen to start. Ebooks, of course, fit perfectly here, as add-on products offered to members or subscribers. Sure, use some, as The Boston Globe is doing with Sunday Suppers, to reinforce subscriber/member value. But price others to match potential value. A guide to Boston-area colleges from, who else, the Globe, could be a $19.95 solid seller, given the $100,000-plus parental investment ahead. "Ebook," though, is much too limited a name to put on it, and sounds like something not current. Wonderfactory founder and creative director David Link made this basic but hugely important point when we talked last week: There really isn't a fundamental difference between an app and an ebook. "From an agency and a technology's point of view, it's only in how you create them. Talking about a recent product Wonderfactory worked on, "You go to the ebookstore, and it's just text. You go into the app store and it's got the text with 50 percent app-like sauce." So, right now, publishers and their creative people are having to create multiple forms, but essentially the same product is both an app and an ebook. The technologies, and the costs, will clarify, as will the marketplaces for all the digital paraphernalia of our lives. The point for publishers selling more stuff is clear though: solve audience needs better than someone else, create products for the devices of the day, and price accordingly.
• It's not just the content we're paying for. That's a tough, tough lesson for literal newsies. As with the music revolution Apple wrought, it was the combination of convenience, ease, presentation, pricing, and wonder that rationalized (for good and bad) the digital music industry. Today's first batch of digital news subscriptions rely as much on convenience and mobility values as they do on the words and pictures.
• We're all in the same business. Think of your own media purchases. A little music, more and more video, selective news and magazine subscriptions, increasing numbers of ebooks. Yes, the marketplaces for ebooks and apps, alongside this kiosk and that e-store, are confusing. Media, though, is media, and the pricing schemes are forming in a remarkably similar way across movies, music, newspapers, and magazines. We all like, for instance, the notion of All Access; we'll pay once and get our stuff everywhere. So news and magazine publishers must look through the assorted lessons of the music and movie industries, those lessons still in much progress. News pricing is not an island.

First published at Nieman Journalism Lab

When the price of your digital product is zero, that's about how much you learn about customer pricing. Now, both the pricing and the learning is on the upswing.

The pay-for-digital content revolution is now fully upon us. Five years ago, only the music business had seen much rationalization, with Apple's iTunes having bulled ahead with its new 99-cent order. Now, movies, TV shows, newspapers, and magazines are all embracing paid digital models, charging for single copies, pay-per-views, and subscriptions. From Hulu Plus to Netflix to Next Issue Media to Ongo to Press+ to The New York Times to Google Play to Amazon to Apple to Microsoft (buying into Nook this week), the move to paid media content is profound. The imperative to charge is clear, especially as legacy news and magazines see their share of the rapidly growing digital advertising pie (with that industry growing another 20 percent this year) actually decline.

Yes, it's in part a 99-cent new world order as I wrote about last week ("The Newsonomics of 99-Cent Media"), but there are wider lessons - some curiously counterintuitive - to be learned in the publishing world. Let's call it the newsonomics of Pricing 101. The lessons here, gleaned from many conversations, are not definitive ones. In fact, they're just pointers - with rich "how to" lessons found deeper in each.

Let's not make any mistake this week, as the Audit Bureau of Circulation's new numbers rolled out and confounded most everyone. Those ABC numbers wowed some with their high percentage growth rates. Let's keep in mind that those growth numbers come on the heels of some of the worst newspaper quarterly reports issued in awhile. Not only is print advertising in a deepening tailspin, but digital advertising growth is stalled. Take all the ABC numbers you want and tell the world "We have astounding reach" - but if the audience can't be monetized both with advertising and significant new circulation revenues, the numbers will be meaningless.

When it comes to dollars and sense, pricing matters a lot.

Let's start with this basic principle: People won't pay you for content if you don't ask them to. That's an inside-the-industry joke, but one with too much reality to sustain much laughter. It took the industry a long time to start testingoffers and price points, as The Wall Street Journal and Walter Hussman's Arkansas Democrat-Gazette provided lone wolf examples.

The corollary to that principle? If you don't start to charge consumers - Warren Buffett on newspaper pricing: "You shouldn't be giving away a product that you're trying to sell." - then you can't learn how consumers respond to pricing. Once you start pricing, you can start learning, and adjust.

We can pick out at least nine emerging data points:

• 33-45 percent of consumers who pay for digital subscriptions click to buy before they ever run into a paywall. That's right - a third to a half of buyers just need to be told they will have to pay for continuing access, and they're sold. As economists note that price is a signal of value, consumers understand the linkage. Assign what seems to be a fair price, and some readers pay up, especially if they are exposed to a "warning" screen, letting them know they've used up of critical number of "free" views. Maybe they want to avoid the bumping inconvenience - or maybe they just acknowledge the jig's up.
• If print readers are charged something extra for digital access, then non-print subscribers are more likelyto buy a digital-only sub. Why pay for digital access is the other guys (the print subscribers) are getting it thrown in for "free"? Typically, Press+ sees a 20-percent-plus increase in signups on sites that charge print subscribers something extra. That extra may be just a third or so of the price digital-only subscribers pay (say, $2.95 instead of $6.95), but it makes a difference. Consequently, Press+ says 80-90 percent of its sites charge print subscribers for digital access. The company now powers 323 sites and thus has more access to collective data than any other news-selling source.
• You can reverse the river, or at least channel it. The New York Times took a year, but figured it out righter than anyone expected. It bundled its Sunday print paper (still an ad behemoth) with digital, making that package $60 or so a year cheaper than digital alone. The result, of course, is that Sunday Times home delivery is up for first time since 2006. It's not just NYT or the L.A. Times which have embraced Sunday/digital combos. In Minneapolis, the Star Tribune began a similar push in November. Now, of its 18,000 digital-only subscribers, 28 percent have agreed to an add on the Sunday paper, for just 30 cents a week, says CEO Mike Klingensmith ("A Twin Cities turnaround?"). So we see that consumers may well be more agnostic about platform than we thought. Given them an easy one-click way of buying even musty old print, and they will. Irony: If you hadn't charged them for digital access, you probably wouldn't have sold them on print.
• New products create new markets. 70 percent of The Economist's digital subscribers are not former print subscribers, says Paul Rossi, managing director and executive vice president for the Americas. That's surprising in one sense, but not in another. Newspaper company digital VPs will tell you that they're surprised to see how little overlap there is between their print audience customer bases and their digital ones. The downside here: Many print customers seem not to value digital access that much. The Star Tribune is finding a low take rate of 3 percent of its Sunday-only print subscribers willing to take its digital-access upsell. One lesson: The building of a new digital-mainly audience won't be easy and will require new product thinking; it's not that easy just to port over established customers.
• The all-access bundle must contain multiple consumer hooks. Sure, readers like to get mobile access as well as desktop and print, and maybe some video. Yet some may especially prize the special events or membership perks they are offered, as the L.A. Times is banking on (and start-ups Texas Tribune, MinnPost, and Global Post have applied outside the paywall model). Some will like the extras, like The Boston Globe telling its new 18,000 digital subscribers, as well as its print ones, that they now get "free" Sunday Supper ebooks ("The Newsonomics of 100 Products a Year"). Sports fanatics or business data lovers will find other niches to value - and ones that make the whole bundle worthwhile. Archives - and the research riches they offer - will prove irresistible to some. In 2012, a bundle may offer a half dozen reasons to buy, casting a wide net, with the hope that at least one shiny lure will reel in the customers. By 2013, expect "dynamic, customized offers," targeting would-be buyers by their specific interests to be more widely in use.
• While pageviews may drop 10-15 percent with a paywall, unique visitors remain fairly constant. We see the phenomenon of those who do hit a paywall one month coming back in subsequent months, rather than fleeing forever. "It may be the second, third, or fourth month before someone says, 'I guess I am a frequent visitor here, and I'll play,'" says Press+'s Gordon Crovitz.
• Archives find new life. Archives have lived in a corner of news and magazine websites for a long time. They've been used, but not highly used or highly monetized. Now, courtesy of the tablet, and a new way to charge, The Economist is finding that 20 percent of its single copy sales are of past issues. Readers will pay for the old in new wrappers, whether back e-issues, or niched ebooks. The all-access offer can be much wider than cross-platform, or multi-device. It can extend across time, from a century of yesterdays to alerts for tomorrow.
• News media is probably underpriced. Take the high-end Economist. CEO Andrew Rashbass - speaking to MediaGuardian's Changing Media Summit 2012, in a recommended video - said that a survey of its subscribers showed that a majority didn't know how much they were paying for the Economist. When pressed to guess, most over-estimated the price. At the Columbia (Missouri) Daily Tribune, an early paywall leader in the middle of America, a recent price increase to $8.99 from $7.99 has so far resulted in no material loss of subscribers. At Europe's Piano Media, early experience in Slovakia and Slovenia is that price isn't a big factor, says Piano's David Brauchli. "Payment for news on the web is really more a philosophical mindset rather than economic. People who are opposed to paying will always opposed to paying and those who see the value of paying don't mind paying no matter what the price is." That suggests pricing power. It makes sense that publishers, new to the pricing trade, have approached it gingerly. Yet the circulation revenue upside may well be substantial.
• Bundle or unbundle - what's the right way? Mainly, we don't know yet, and the answer may be different for differing audience segments. The Economist started with print being a higher price than a separate digital sub. Then it raised the digital price to match that of print - to assert digital value. It now offers all-access: one price gets you both. Next up: You can buy either print or digital for the same price, but if you want both, you'll pay more. It's an evolution of testing, and so far, it's been an upward one.

Overall, this is a revolution in more than pricing. It's a revolution in thinking and, really, publisher identity.

The Boston Globe's Jeff Moriarty sums it up well, as his company aims (as has the Financial Times before it; "The Newsonomics of the FT as an Internet Retailer") to emulate a little digital-first company called Amazon:

I think overall publishers have to start thinking more like e-commerce companies. More like Amazon. You can't just throw up a wall or an app and expect it to just sell itself. We're still building that muscle here at the Globe, and some of our colleagues in the industry are even farther along. We have extensive real-time and daily analytics and are employing multivariate testing to try offers and designs to refine the experience that works best for each type of user.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Warren Buffett, newspaper mogul of the 21st Century. The notion is enough to throw many off course.

A billionaire philanthropist buying into the woebegone American newspaper industry does make a good story and prompts the usual question: Why? Does he something others don't?

As Buffett's Berkshire Hathaway relieves Media General of its newspapers - "We've come to understand that most investors do not view the publishing sector as a place to generate the best returns on their capital," Media General CEO Marshall N. Morton put it succinctly in April - I think we can see this deal roughly in line with the spate of other newspaper deals that have gotten done in the last year or so.

Most of these deals do not rely that much on the actual value of the newspaper property. Rather than rely on other things - the value of underlying real estate has driven numerous of the deals - and the meager cash flow of the properties themselves is seen as a way to generate enough revenue to pay off low-interest, acquisition debt. In this deal, Buffett has taken more of a three-cushion billiards approach, much as the headlines announce "Berkshire Hathaway Bets Again on Newspapers with Media General Deal." Each cushion rings up advantages for the company, even if the newspaper ownership itself is the most problematic.

Buffett is, at base, an opportunistic investor. See a business, or industry deep in the doldrums, and think you can leverage money out of a deal, one way or the other, and you've got an opportunity. The difference, if you are Berkshire Hathaway, you get a better deal than others, because of your financial capacity and willingness to take the long view. That's what BH did with General Electric and Goldman Sachs, back when the world seemed to be ending in 2009. With that long-term position, he is perceived much more as an eagle than a vulture, yet he's a predator nonetheless.

So, Berkshire Hathaway takes the newspapers off of Media General's hands. At $142 million, he is buying 63 titles or about 21 actual "newspaper" properties. So that's like buying a top-of-the-line house in each city, but you get a newspaper with it. When the pool ball drops in the corner, BH Media needs to figure out a new game plan for those properties, one that I'll bet will involve bringing a higher degree of technology application in cutting legacy costs faster and deeper.

It's the early movements of the ball that make this deal more a feat of financial engineering than a newspaper deal. Three cushions provide investment relief:

• Lend Media General $400 million, and extend a $45 line of credit, at 10.5% interest. That allows Media General to escape shorter-term financial pressures, and gives BH a good profit along the way.
• Gain warrants that are convertible to about 19.9 percent of Media General's outstanding shares. The new Media General is mainly a broadcast company, a sector with its share of issues, but with lots more projectable upside than the newspaper industry. So it's gotten - as Buffett earlier got in General Motors and other "bail out" deals - a better deal than your average investor, as Media General re-charts its future.
• Takes title to all the real estate these newspaper companies sit on.

Now the new BH Media Group can move forward with its properties - where and how will the Omaha and Buffalo properties fit here? - and unencumbered by debt or short-term pressures. If you are a long-term investor like Buffett, you can afford to give "newspaper" properties a breathing period.

He, as well as anyone knows that the future will be mainly digital, though it will slower to unfold in Lynchburg and Winston-Salem than in competitive major metro markets. He can be buoyed by the profound industry move to charging for digital access, after decrying free digital access: "Newspapers have been giving away their product at the same time they are selling it and that is not a great model. You're competing with yourself… you shouldn't be giving away a product you're trying to sell. That's key to the future of the newspaper. giving away a product free in one place that you charge for in another." We now have enough evidence to believe that core newspaper readers will transition over their payments for "circulation" as they themselves move to tablets and other devices, if publishers approach the transition smartly.

The problem is print advertising is far deeper; it's in an unending and accelerating spiral. No doubt he is buying - by bypassing Media General's Tampa Tribune - profitable entities. Indeed, we may find out, looking back, that Buffett is just another greater fool, having believed his buy was close enough to the bottom to justify. Or we may see the code broken well enough on new business models, as the BH Media Group takes a long, hard look at the realities of John Paton's Digital First Media initiatives, to manage downturn and change well enough to stay in the black. As that drama unfolds, it's the profits from a Media General broadcast bet, loan interest and potential sales of real estate that buffett this deal from the harsh day-to-day reality of newspaper downturn.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.