The economics of print media

Dr An Nguyen
Media Economics – MMAP02 (HCMC)
M.Sc. in Media & Communications Management
HO Chi Minh City, 21 January, 2010

Outline
1. The economics of the newspaper publishing
industry

Most major economics concepts covered in first lecture to the
newspaper industry

2. Key economic characteristics of the magazine

publishing industry

3. Print media in the Internet age

1. The economics of the newspaper

publishing industry

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 Revenue streams

A dual-product market (except free newspapers)

Content priced and sold to readers

Access to audience priced and sold to advertisers via
advertising space

Contribution of each to total revenue varies across

types of newspapers and across titles

depending on market position and readership

e.g. British quality press rely more on circulation income
while popular press more on advertising

Classification of advertisements

Classified ads = ads published by categories in limited
in size and content in newspapers and other media

Purchased by business and non-business people

e.g. recruitment, housing, second-hand goods, personal ads

Display advertising = large advertisements frequently

illustrated with graphics

Key source of ad income for the media, usually purchased by
retail stores, manufacturers, service firms

Dependent on consumers’ expenditure and firms’ profits

Advertorials = advertisements with the appearance of

an editorial piece (news or feature stories)

Must be clearly displayed as advertising, not editorial content

Classified ads & the newspaper

A crucial source of income, esp. for regional and local
papers

20%-35% of income for US dailies

Half of UK’s regional newspapers

A source of valuable information for many readers

Less vulnerable to TV than display ads

Internet now the new threat: searchable and free

But highly sensitive to cyclical upturns and downturns

Falls faster than display ads in recession as employment,
housing and car sales stagnate

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Key indicators for advertisers

Readership versus circulation

Circulation = the number of copies printed and distributed

Readership = number of people reading the newspaper

Readership penetration (into a group)

The percentage of people in a particular group who read a
magazine or newspaper

E.g. 25% of women aged 25-54 read newspaper X.

Readership profile

The percentage of a magazine or newspaper readers who
belong to a particular group

E.g. 50% of X's readers are women aged 25-54.

Typical characteristics of newspaper

readers

Higher socio-economic status (SES)

More wealthy

More educated

More advantaged living environments (esp. urban areas)

Because with their resources, they have a greater

ability to read, comprehend and store the intensive
information on newspapers than lower SES people

Often special tax on newspapers to encourage lower-

SES people

UK: no VAT (17.5%) on newspapers

Other European countries: discounted or preferential VAT on
newspapers and other products conveying knowledge

What does that mean to market

supply?

Higher SES profile most attractive to advertisers

Advertising rates charged much higher among those with
higher SES readership

Thus more newspapers aim at them than lower SES
groups, often with quality content

There are still popular titles aiming at less affluent

segments

because the market is large enough for them to survive by
serving different segments of the whole spectrum of
consumer interest

more on circulation than on advertising

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 Audit Bureau of Circulation

An industry watchdog owned by the media industries

Auditing and providing accurate circulation and readership
data to ensure advertisers and their agencies are not misled

Data based on formal audit and inspection rules and

procedures

devised and frequently revised by specialist committees of
media owners, advertisers and advertising agencies

Without an ABC certificate, a media outlet cannot

demonstrate its integrity

because they show a lack of willingness to be audited and to
conform to industry standards.

Costs in broad categories

Content costs

Cost of gathering information/materials and packaging the
product for printing; about 10% of total cost of US dailies

Printing costs

Cost for reproducing the first copy (inc. ink, newsprint)

Newsprint: about 20% of total cost in the UK and 15%-30% in
the US

Distribution costs

Largest contribution (about 40%) to total cost

Other costs (transaction, R&D, advertising etc.)

The distribution process

Three channels

Independent distributors (those buying the paper at
wholesale price and selling it at retail price) – most popular;

Contracted distributors (delivering the paper for a fee)

Employees who receive hourly wages or salaries

Distance and density

The further the distribution area, the more expensive

The denser the distribution area, the cheaper

Distance and density combine to create unwillingness

to serve potential readers in certain areas

E.g. Vietnam’s print media mostly serve urban readers

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Economies of scale

High initial costs

Esp. costs for editorial and administration activities; thus
first-copy cost very high

But relatively low marginal cost

Thus basic cost per copy decreases along with increase in
circulation (the more, the cheaper)

Example

The basic cost of a newspaper copy is £25,000, regardless of
quantity of printed and circulated copies

If 5,000 copies are produced, the basic cost per copy is £5;
if 50,000 copies: 50 pence each

Economies of scope

Overall cost can be reduced if one publisher has
several titles

Methods to create economies of scope

Combining back-office activities such as administration,
finance and personnel

Sharing editorial content between titles

Centralised advertising sales (reducing transaction costs
etc.)

Centralised sub-editing offices

Market structure

Markets tend to be geographically defined

UK, Ireland, Australia, Japan: national newspapers dominate

US and other large European countries: regional and local
dailies much more popular than national publications

Competition between newspapers depend on

size and wealth of the geographic market they serve;

the number of rival titles that the market can support

In general

Local and regional titles operate as monopolies (due to small
markets)

National titles face more competition in an oligopoly

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 Factors influencing pricing strategies

Costs (obviously!)

Targeted markets

Objectives

If profit maximisation: the cost-plus approach (adding
some percentage points on top of the cost)

If non-commercial objectives: sustenance and continuation
of the paper, not profit, is the key concern

Market structure

How many competitors? How similar are they? What
pricing strategies do they use? How would they react to
our price? Should we compete or cooperate?

Competitive strategies

Acquiring rival titles (not always legally possible)

Launching new titles

Many differentiated products prevent new entrants

but too risky

Promotion

e.g. special offers, competitions, discounts for collected tokens

effective but short-lived

Product improvement

Price adjustment (including predatory pricing)

Product improvement

Maintaining consistent news coverage and editorial
content so that they

reflect the social values of readership (e.g. their preferences,
attitudes, opinions);

build and maintain a strong identity for the title (to generate
loyalty)

Adjustments to design, layout and organisation of

content (e.g. introducing separate sections)

Providing free extras

extra supplements, magazines within the newspaper etc.

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Price change

Brand loyalty is the king?

Price reduction can either raise or sustain market share

But is brand loyalty to newspapers so strong that price
reduction does not work as a competitive advantage?

The “price war” in the UK in the early 1990s tells a

different story

a one-third price cut by The Times led to a vast increase in
its circulation at the expense of its major competitors’
losses.

2. Key economic characteristics of

the magazine publishing industry

Types of magazines (1)

Consumer magazines

Magazines addressing the general interest to the market or a
segment of the market

E.g. Reader’s Digest, Kien Thuc Ngay Nay, The Gioi Moi, PC
World, Elle, Marie-Claire, My Pham, Nguoi Dep etc.

Trade/business/business-to-business magazines

Magazines publishing “must have” or “need to know”
information that professionals require to perform their job

E.g. Nguoi Lam Bao, Nghe bao for journalists in Vietnam

Customer magazines

Specialist magazines produced for large companies to
distribute to their customers (e.g. Heritage for Vietnam
Airlines)

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Types of magazines (2)

Newspaper supplements

Special magazines covering less time-critical topics, given as
gifts to those buying daily or Sunday newspapers

Partworks

Series of magazine-format publications on a particular topic
over a pre-determined period (to build up an “encyclopaedia
on the topic)

Often cover-mounted with relevant gifts (e.g. DVD on the
topic of the series)

Academic journals

Those published to serve academics and scholars in different
fields and disciplines

Articles go through rigorous peer review process before
being accepted for publication

A flourishing industry

In the US

11,045 new magazine titles launched between 1985 and
2000 – i.e. an average of 690 a year or nearly two a day.

Nearly 17,000 titles in existence as of April 2009

In the UK

Number of trade/business and consumer titles grew from
6,725 in 1990 to 8474 in 2005

i.e. on average 117 new titles entering and surviving the
market per year (or nearly half a title a day!)

Business model

Revenues: similar to newspapers

Advertising more important for professional/business
magazines

Copy sales = major source for consumer magazines (those
concerned with leisure, lifestyle etc.)

Cost structure: similar to newspapers but total cost

much lower

thanks to desktop publishing technologies, cheap external
printing services

Strong effect of economies of scale

although magazines’ print runs tend to be smaller

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 Breakdown of revenue streams

Paid circulation (subscription)

Newsstand circulation

Classified and display advertisements

Mail-list rentals

Reprints

Book spin-offs of articles

Advertorial sections (advertisements with the feel
and look of regular editorial material)

Special issues

Trade shows

Exports

Franchising (to foreign publishers)

International character

Not expected to be socially responsible for addressing
local or national concerns like other media

More able to cope with language barriers through

a heavy reliance on visual imagery that is not tied to specific
national or regional audiences

editorial adaptation in local editions

Less subject to local legislative barriers

Able to segment markets into transnational niches

Segmentation of demand

Dividing the whole market into groups of customers
with similar needs or preferences

More and more titles serving small niches with

specialised interests

E.g. sports, yachting, golf, motor, cars, home, gardens

Traditional categories (e.g. women, men or teenagers)

now subdivided into different groups

according to age, income, lifestyle, and attitudes

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 Advantages of segmentation

An efficient strategy to respond to market demand

Increased demand for higher quality entertainment, features,
hobby and other specialist topics (resulting from increased
leisure time and disposable income)

Allowing publishers to target cross-border groups of

specialist interests with relatively low cost

Cross-border economies of scale

Creating synergies with other commercial activities

E.g. masthead television (programmes based on particular
magazines) and other complementary products (exhibitions,
trade fairs, databases)

3. Print media in the Internet age

A heralded death (1)

Newspapers “somewhere between beleaguered and
dying” (Steve Case, in Black, 2000).

“If you mix the ink and chop the trees, you’ll
probably be put out of business” (Michael Bloomberg,
1998)

In short, “in their worst nightmare, … newspapers

may be to the communications business what the
horse and cart were to transport” (The Economist,
1999).

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 A heralded death (2)

Reasons: the intensified threat by

the Internet (1)

Print media survive radio and TV partly because

Portability

Depth of information

Wide range of content

Random access to content

All traditional strengths now offset by the Internet

use convenience (any time and almost anywhere)

immediacy

desirable depth

multimedia content/format

news-on-demand capacities (customisation)

interactivity (esp. participation opportunities)

Reasons: the intensified threat by

the Internet (2)

Also, low production and distribution costs

Low entry barriers: more competitors

Do-it-yourself advertising by firms

Traditional revenue streams threatened

Little paid content on the Internet

Classified advertising more efficient on the web (thanks to
searchability)

All amidst a decade-long trend of declining newspaper

readership

Since the 1970s

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Some initial signs

High debt and declining advertising sales

Massive cost-cutting measures by newspapers

Layoff, imposing temporary unpaid leave

Seeking bankruptcy

Tribune Co. (the Los Angeles Times and Chicago Tribute)

The Minneapolis Star Tribune

Others now up for sales or facing an online-only

future (e.g. the Seattle Post-Intelligencer)

Could this happen in Vietnam?

In developed countries: print media are ubiquitous

accessible to and read by the majority of the population

In Vietnam: print media still a luxury to the majority

proportions having access to and reading newspapers and
magazines are still small

thus still big potential market for print media, especially
along with urbanisation and rural development

Probably the same in other developing countries

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