Rising prices and falling demand: why did print newspapers become more expensive?

by on January 6, 2017 at 12:55 am in Economics | Permalink

Yes, I still subscribe to the paper versions.  I found this study by Pattabhiramaiah, Sriram, and Sridhar interesting:

Between 2006 and 2011, daily print newspapers in the U.S. lost 20% of their paid subscribers, partly due to increasing availability of alternative sources of news, such as free content provided on newspaper websites and by news aggregators such as Yahoo. However, contrary to the expectation that firms respond to softening demand by lowering prices, newspapers increased subscription prices by 40-60% during this period. In this paper, we explain and quantify the factors responsible for these price increases. We calibrate models of readership and advertising demand using data from a top-50 U.S. regional print newspaper. Conditional on these demand models, we calibrate the newspaper’s optimal pricing equations, and assess whether the increase in subscription prices are mainly rationalized by: a) the decline in readers’ willingness to pay (WTP) in the presence of heterogeneity among subscribers, or b) the newspaper’s reduced incentive to subsidize readers at the expense of advertisers, due to softening demand for newspaper advertising. We find that the decline in the ability of the newspaper to subsidize readers by extracting surplus from advertisers explains most of the increase in subscription prices. Of the three available subscription options (Daily, Weekend, and Sunday only), subscription prices increased more steeply for the Daily option, a pattern consistent with the view that newspapers are driving away low valuation weekday readers while preserving Sunday readership and the corresponding ad revenues. Thus, our research augments theoretical propositions in two-sided markets by providing a formal empirical approach to unraveling the relative importance of the role played by agents on the subsidy and demand side in determining prices.

For the pointer I thank the excellent Kevin Lewis.

1 leppa January 6, 2017 at 1:24 am

Link to study missing.

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2 leppa January 6, 2017 at 1:25 am
3 Massimo January 6, 2017 at 1:30 am

I would have assumed that the web simply eliminated the most price-sensitive clients. If it were so, the rational move would have been to increase the price for the remaining readers, who are not price-sensitive. In my case, for example, if they fired that Zannoe-something lady and put again somebody like Cobden or Spencer, I would subscribe again to The Economist even if the price was 50$ per week.

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4 Troll me January 6, 2017 at 2:18 am

What’s the issue with her? I recall perhaps an article on gender gaps that was not highly attentive to all known sources of possible control which reduce the stated gap for some specific places, and also the coverage of climate change failed to criticize the non-binding agreement related to climate change and in fact seemed quite supportive of this additional indication of cooperative preference indicated in Paris last year …

I dunno, I just don’t see what to complain about …

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5 Massimo January 6, 2017 at 4:46 am

I have been a subscriber to the Economist for 30 years. I never liked their interventionist position (remember Iraq?) but I admired their generally classical-liberal position in economic and personal issues. After Micklethwait the paper became an obscene social-democratic rag. This is the most recent example: http://www.economist.com/blogs/economist-explains/2017/01/economist-explains.
How in hell can you say that the crisis of 8 years ago was a free-market failure and the State had nothing to do with the mortgage market in the US? How can you talk about the spontaneous order of the market and not to mention Hayek? Herbert Spencer must be spinning in his grave.

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6 Troll me January 6, 2017 at 6:31 am

There are at least a hundred different angles on that question. I do specifically recall that they have published more than a few articles which address in a very head on manner the role of governmental efforts which contributed to the size of the bubble and risk potential.

Generally speaking, it was confidence in the ability of markets to appropriately price financial instruments which led to lack of consideration of the regulatory requirements to go alongside with that to counter moral hazard, etc. Stories of risk-oriented people in positions specific to risk management being let go from their positions in favour of those who did not emphasize risk highly abound from that pre-crisis era.

Hayek, I think, is well worth the read. But there are much more specific-to-today vocabulary and jargon which are well-suited to the specific situations at hand, which may be motivated by similar thinking to that expressed in Hayek. However, I think he is better situated in philosophical discussions than efforts to pinpoint specific origins of events in economic phenomena.

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7 Lurker January 6, 2017 at 7:13 am

Is this supposed be a rebuttal to Massimo’s comments regarding changes at the Economist? If so, it fails.

IMHO, the Economist has grown more statist over time.

8 Lurker January 6, 2017 at 7:32 am

I should elaborate

The question being, has the economist changed direction/philosophy considerably? If so, how, when and with whom?

I have heard off the cuff comments about this, but nothing discussed seriously. This seems like a good forum for this question.

9 Troll me January 6, 2017 at 10:03 pm

I’m not sure I’d consider it a rebuttal. I’m pointing out the anecdotal nature of his observation and rejecting the belief that Hayek is required to defend market principles.

Mostly, those who comment on changing editorial bent at the publication have an extremely obvious agenda to discredit that which they disagree with. But Massimo seems pretty genuine here.

10 Ray Lopez January 6, 2017 at 9:57 am

@Massimo – you are quite the scholar and know your stuff about the Economist. “After Micklethwait the paper became an obscene social-democratic rag” – really? OK. He wrote a good book on the history of the corporation, and I understood he was the DC editor for a while. I do recall when I was an Economist print subscriber in the 1980s, they changed their tone around 1992 or so to favor less of an apocalyptic tone about the US current accounts deficit and govt fiscal budget deficit, which for me was a turn-off. For the longest time they would harp about how things like the “J-curve” would save the US from having a big current accounts deficit (it never did, I think due to a stubbornly strong dollar if memory serves). I also thought backing Bush / Blair’s war mongering was a mistake, as you say. Their captions editors were very un-politically correct, but it never bothered me (free speech and all) though I suspect it was to pander to their more racist readers. BTW I still read the Economist, but for free, on Piratebay.

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11 Massimo January 6, 2017 at 1:02 pm

Ray, I confess I have a soft spot for Micklethwait because of his epic misfortune. Being a fan of the hapless Leicester City, he always bet 50 pounds on LC winning the Premier League since he was a kid, without any serious hope to win it. Two years ago, having moved to New York to work at Bloomberg, he could not place the bet for the first time in his life (he could with the web, but apparently he didn’t bother). LC was 5.000/1, he would have made 250.000 pounds. The story was told to me by a common acquaintance.

12 HI January 6, 2017 at 3:15 pm

Massimo, same here. Economist subscriber for 10+ years, canceled last year after one too many Marxist stories. I also increasingly got the feeling that their stories are written by 22-year olds. I’d be curious to see their circulation numbers for 2016.

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13 Heorogar January 6, 2017 at 10:00 am

I subscribed to Barron’s which value was beneficial, but could be obtained in a half-hour, one evening while sipping a jigger of Dewars Scotch. Now, I spend that half-hour in the library sans booze.

When I subscribed to the WSJ, I too infrequently read an article that was worth the subscription price. I stopped the WSJ because it gutted the financial market stats pages and for its propagandizing for gun control and open borders.

I haven’t read Times in decades. It’s like a blind man trying to describe the color “red.” .

$50 a week???? I don’t spend that much on booze which, my friend, is far more edifying than reading bullshit and propaganda written by utterly ignorant children.

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14 So Much For Subtlety January 6, 2017 at 1:35 am

a pattern consistent with the view that newspapers are driving away low valuation weekday readers while preserving Sunday readership and the corresponding ad revenues

Newspapers aren’t declining. Their appeal is just becoming more selective. Which may explain why they got the election wrong. They drove away the working class readers and kept the Upper Middle class ones.

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15 Troll me January 6, 2017 at 2:14 am

Sounds more like they were attracted by free alternatives than “driven away”.

Some means of ensuring that people are sufficiently informed about the value and risks associated with their data might go along with promotion of higher quality alternatives … the line of thinking being that if you need to datamine someone completely to make some money from them, then probably you aren’t actually offering something all that useful or valuable, whereas a quality product should be obviously of value to the correct audiences with just one or two datapoints.

Economics is a great background for this. With a century of deep experience in trying to do the max with minimal data while protecting privacy rights (Bog Brother fears) means that the field is very well-suited to seeking out simple means of finding things like who to market to with a minimum of information. For example, beyond postal code-level average income easily available from government statistics bureaus, you might just need one or two additional pieces of information to identify the availability of a target market within a given strategy.

People who don’t like to be creeped out by all digital tracking stuff, and marketing which demonstrates its invasion of privacy for the fact of being tailored in some manner, might easily respond much better to that.

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16 Troll me January 6, 2017 at 2:06 am

People who will only consume free news aren’t really worth competing for. Those who want high quality information are certainly willing to pay higher than the market equilibrium which previously existed when there was little/no free news.

Most profit-driven outlets ensure some level of free access in order to get eyeballs, which contributes to advertising revenues online and also increases the potential audience which might get a future subscription (so you can’t make it completely free or there’s little interest in the print version).

And that’s not to mention the supply side, where revenues are needed to ensure ongoing ability to deliver quality outputs.

Mainly, I find myself unwilling to pay for publications which offer high quality informatoin for the fact that they abuse their credibility come election time. I don’t like to subsidize propaganda – if that’s what I wanted to do, I’d find a dedicated organization and write them a cheque. I do, however, buy The Economist, and have unquestioningly done so since when living on a student budget. Is it “bias” when the editorial bent is essentially identical to what they say it is?

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17 Datroof Jackson January 6, 2017 at 3:12 am

What sort of budget are you living on now? Do you have a job?

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18 Troll me January 6, 2017 at 6:33 am

I feel pretty obliged to answer questions like that to random people online.

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19 Post-Truth Politics January 6, 2017 at 12:15 pm

But how can Datroof Jackson attack you ad hominem, unless you give him personal information? LOL, you are standing in the way of “discussion” here.

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20 Datroof Jackson January 6, 2017 at 8:05 pm

Never mind, Google sorted it out for me. A CEO *and* you’re single??? Hello ladies.

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21 Anon7 January 6, 2017 at 2:41 pm

It’s either a nice sinecure, old age pension, or inheritance/living in parents’ basement given how much free time he apparently has to graffiti this blog with his limitless stream of consciousness.

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22 Troll me January 6, 2017 at 10:05 pm

Graffiti this –>

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23 Gary Leff January 6, 2017 at 5:32 am

Airfares rose in the immediate aftermath of 9/11, even though planes were empty.

There was almost no discretionary travel once US airspace re-opened on 9/13. The only people flying were those that had to fly. Discounting wasn’t going to fill seats, so why charge lower prices to your least price sensitive customers?

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24 dearieme January 6, 2017 at 8:13 am

I wanted to cancel our morning paper but my wife outvoted me 1 to 1. Clearly another example of the Russians hacking an election.

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25 Anonymous January 6, 2017 at 11:11 am

More a case of need to abolish your residential Electoral college,

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26 dearieme January 6, 2017 at 11:58 am

And another time I wanted to have a night at home with my wife but she and her boyfriend from Nigeria outvoted me again and they started banging right in our living room. What else could I do but pour a glass of scotch and watch the show from my easy chair. That’s how you do it well Cucked gentlemen *wink.

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27 Bill January 6, 2017 at 8:17 am

This paper is similar to others that have commented on multi-sided or two sided markets and the price discrimination between segments and the change in advertising mix. If you want more on this, look for some articles by Shapiro and Varian or work by Van Alstyne.

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28 kevin January 6, 2017 at 8:44 am

I always assumed the current status quo (less readership) results in a higher average cost per paper printed. Seems pretty straightforward why the price went up then, less supply outweighing the less demand.

Newspapers seem like the perfect business to have economies to scale. In addition to the fixed price of capital, and an editorial staff, advertisers are going to pay less for a smaller base.

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29 JWatts January 6, 2017 at 8:59 am

“Newspapers seem like the perfect business to have economies to scale. In addition to the fixed price of capital, and an editorial staff, advertisers are going to pay less for a smaller base.”

They are also the perfect case for online subscriptions. However an aggregator has never appeared and most newspapers seem hostile to the idea. For video you have Netflix and Hulu.

A large group of papers would do well to follow that model instead of standalone subscriptions.

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30 Dan January 6, 2017 at 9:16 am

Interesting economic question. I suspect the higher prices are a combination of fixed costs of distribution, changing mix of subscribers , price discrimination, subscriber inertia, and shifting priorities of publishers.

I eliminated all of my physical newspaper subscriptions 16 years ago, and replaced books with ebooks as soon as they were available. The smart phone makes it possible to consume content anywhere, any time, and any place. I consume and produce news and analysis for a living (privately), so the internet is indispensable for broadening and diversifying my array of sources. However, I don’t find most paid content to better than the free content I consume, so I don’t pay for it very often. Obviously there is a lot of very bad free content, but just because it is free doesn’t mean it is bad. After all, MR is free, and it is good …

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31 TMC January 6, 2017 at 10:10 am

They haven’t all gone up, exactly. I receive the holiday papers delivered for free – not requested. And used to get the Sundays free also. Seems the value of getting all those coupons out there is greater than the zero price I pay.

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32 Careless January 6, 2017 at 10:40 am

Am I the only one who hates physical newspapers because of the form? Large, floppy, annoying to hold

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33 Lanigram January 6, 2017 at 11:17 am

No, you and everyone under thirty – they are playing video games, watching Youtube clowns, and madly texting via Snapchat. Aging Zuck will be replaced by the Snap cat because “young people are just smarter”. A lack of empathy makes for good monopolies.

Me, I love the smell of a newspaper in the morning. It smells like, sniff sniff, delivery…

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34 Lanigram January 6, 2017 at 11:07 am

I used to subscribe to two newspapers – one local and the other a Silicon Valley/Bay Area paper – and the Ecommunist. Both newspapers were bought by a media monstroushitty, duplicated articles, got very thin, and shifted left. I cacelled all three and now I don’t have to call ciculation anymore regarding non-delivery for a prepaid product. Both mewspapers are augering in. Bye kitty kitty… I still like to read the Economist in the library like the other old fogies – I try not to look homeless. I love the WSJ but would never pay their price. I look past their pro-illegal immigration open borders bias. I doubt any WSJ staff/mgmt, subscribers, ever expect to have to live next to an illegal alien.

Most rags nowadays pander to the bias of their readership anyways. The product is corrupted – propaganda should be free. I wonder if even Orwell predicted we would some day actually PAY for political/social/economic propaganda peddled by a pampered elite.

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35 Pizza Man January 6, 2017 at 12:12 pm

I always thought the biggest factor was that when the most price sensitive customer bailed (for free online content), the price elasticity of demand was altered and it made more sense to raise prices.

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36 Post-Truth Politics January 6, 2017 at 12:26 pm

They won’t buy the paper if they can get the infotainment for free– even if they could easily afford it.

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37 Post-Truth Politics January 6, 2017 at 12:27 pm

If you pay money, you expect to get something that you can’t get for free.

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38 A Black Man January 6, 2017 at 1:29 pm

Newspapers through the 1980’s were not in the business of selling content. Their business was to carry stuff to people. That stuff was advertising. They were printing companies and logistics companies. They printed the ads for the advertisers and then figured out how to deliver those ads to the consumer in a timely fashion. The newsroom was, at best, a break even operation. The writers and reporters attracted enough customers to justify the cost.

Consolidation in the 60’s and 70’s disguised this from publishers. As a result, their costs for the newsroom went up. They hired stupid rich kids out of journalism school to spin yarns and sell the government line. It worked fine as long as the ad and trucking arms could make enough money. Then the internet took the classifieds away. Retail advertisers, facing their own pressures, moved from circulars to the web. Employers moved to Monster and their own employment portals.

The new business model means charging enough for the content created in the newsroom to cover the cost of the newsroom. The trucking side no longer makes money. Printing no longer has a profit. The only thing they have to generate money is web ads and subscriber fees. As a result, those nominal subscriber fees have gone way up as they keep trying to find the sweet spot.

The real challenge to newspapers is when the billionaire owners figure out that no one believes the New York Times or Washington Post. These propaganda organs have lost their credibility and exist as the PA systems do in North Korean villages. When Bezos and Slim decide they are not getting anything for their money, the NYTimes and WaPo head to the dustbin of history.

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39 AlanW January 6, 2017 at 3:33 pm

Holy mood affiliation, Batman.

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40 jk January 6, 2017 at 8:53 pm

Death spiral?

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