Raising cover prices for print media – the beginning of the end

By April 21, 2009Content

The only print media I buy regularly is the Financial Times, and as they have increased their cover price from 80p maybe seven years ago to £2 as of earlier this month I have kept buying.  However this latest increase (from £1.80) has really got me thinking whether it is worth it.

That coupled with a post on techdirt this morning title Magazines Looking to Raise Prices? which details similar moves by the Economist and People led me to think that what we are witnessing is probably best understood as a reaction to falling circulation and declining advertising revenues, but the wrong reaction.

It is an understandable reaction in that the fixed costs of these publications have remained the same in the face of declining revenues and that increasing prices will hopefully improve profitability.  However, in the face of increasingly good free alternatives via the web my bet is that any increase in revenues that follows from increasing prices will be shortlived as the medium term result will be a decline in the number of copies sold.  The micro-economics of supply and demand tells us that.  I can maybe buy that the FT has a strange demand curve, but I very much doubt that is the case for all print media, espescially in the face of increasingly good free substitutes.

So my guess is that these cover price increases will come to be seen as the last roll of the dice for the print media industry.  Further, like the Seatle PI I think they would be better off trying to radically re-invent themselves as web companies.  Even though the risks of transition are high and there is a substantial short term opportunity cost my guess is that a risk weighted discounted cash flow analysis would value the long running cash flow potential from a web business to be worth more than a couple of years worth of depressed profits from a printed paper.

  • james

    Nick – it is true that raising prices is a classic strategy in a *declining* market. However, this doesn't mean “the end is nigh” for print or that it's the “wrong reaction”.

    Firstly, FT circulation has held up very well since they started rapidly increasing prices – which suggests that they were under-pricing before. Think about the value you get for your £2.00 – there's a great bundle of information there in a flexible, convenient format. £2 is the price of a medium latte. Ok you could read it 100% online but it's far from a perfect substitute – otherwise you would already be doing so.

    Secondly, building an online service and raising cover prices for the print product isn't mutually exclusive, in fact, harvesting the print platform will support investment in digital.

    Finally, there's no reason why the FT can't continue to sell a smaller number of copies at a higher price in the medium-to-long term – there is likely to be a group of people that will continue to want to read and value a print product. Print as a media platform has some quite unique characteristics and I really don't see it disappearing completely – after all we still have theatre, radio, TV. Industry dynamics might change, but there will still be a market for print.

    I do agree that print media as a whole will contract but it's more complex than the view you often get from digital people that it's going to die out completely.

  • Thanks for the comment James. You make a great point that raising the cover price and building a compelling online offering are not mutually exclusive.

    I'm not so sure about the viability of the print FT with a small circulation though. There are significant fixed costs to a print operation.

  • The cost of newspapers will be able to go down considerably once portable readers like the Kindle become mainstream. I get a few paper magazines/newspapers still, the one I read most being the economist which is sent to me in the post. This costs approx £2 issue. I would assume it must cost at least £1 to print and deliver this to me by royal mail. While I don't think the Kindle is quite there, a 4th or 5th generation version likely will allow me to swap to a completly digital version allowing the economist to increase profits or decrease prices. I have no idea how much the FT costs to print/distribute – but I wonder if on an annual basis its much less than giving a subscriber a free kindle?

    How long until you tap your kindle to a wireless reader outside a tube stop and get the Metro or the London Paper delivered to it. I presume printing/distribution are the major costs of both of these papers – they could be wipped out.

  • Chris – thanks for the comment, they all mean a lot and I'm sorry to be so slow to approve this. Email totally got the better of me on Friday.

    I'm with you on this in part. Portable readers (in which I would include the iPhone and other mobiles) will change the game for newspapers. The trick they will have to try and pull off, and it will be tricky, is to see off competition from point news sources and maintain interest in the bundle that is today's newspaper getting disaggregated.

  • Chris – thanks for the comment, they all mean a lot and I'm sorry to be so slow to approve this. Email totally got the better of me on Friday.

    I'm with you on this in part. Portable readers (in which I would include the iPhone and other mobiles) will change the game for newspapers. The trick they will have to try and pull off, and it will be tricky, is to see off competition from point news sources and maintain interest in the bundle that is today's newspaper getting disaggregated.