Pricing Strategy For Digital Content of An Indian Newspaper
Pricing Strategy For Digital Content of An Indian Newspaper
Pricing Strategy For Digital Content of An Indian Newspaper
Table of Contents
INTRODUCTION...................................................................................................... 3
INFORMATION GOODS........................................................................................... 3
TWO-SIDED MARKETS............................................................................................ 4
SELLING DIGITAL CONTENT....................................................................................5
Pricing strategies for tied digital content............................................................5
Business model opportunities.............................................................................6
TRENDS IN MONETIZATION................................................................................. 7
PRODUCT CONCEPT............................................................................................... 8
METHODOLOGY...................................................................................................... 8
INSIGHTS............................................................................................................... 9
EXHIBITS................................................................................................................ 9
REFERENCES........................................................................................................ 20
INTRODUCTION
The number of registered newspapers in India has grown exponentially over the last five
years, to 99,660 newspapers across the country. Of these, about a third are Hindi language
papers, while English language papers comprise about one-eighth of the total. The total
circulation of newspapers stands at about 35 crore, and has been growing at the rate of 6%
every year.
The internet user base in India stood at about 350 million in June 2015, and is expected to
touch 500 million by 2017, according to a report by KPMG. Of these, about 170 million are
mobile internet users, a number that is expected to grow to 315 million by 2017. Of the total
internet users in the country, about 50% are mobile-only internet users. Of these, about 65
million are from rural India and it is estimated that 4.4% of the total rural population use a
mobile device to access the Internet. The report also states that 2G internet usage is expected
to decline in favour of 3G. Currently, there are about 85 million 3G internet users, which is
projected to grow at a CAGR of 61% to reach 284 million by the end of 2017.
Globally, newspapers and magazines have struggled to design a coherent strategy for their
online offerings. While most publishers maintain a web presence, even large firms have
found it difficult to leverage this presence and monetize their digital offerings. There are a
number of models used for payment, including subscriptions and paywalls, but with limited
success.
INFORMATION GOODS
Information goods are defined as a type of commodity whose main market value is derived
from the information it contains. For information goods, the pattern in which the material is
arranged plays an important role in determining likelihood of consumption, as opposed to
material goods, whose market value depends on both the material of the good and the way in
which it is arranged.
Typically, information goods have high initial fixed costs and negligible marginal costs. This
means that the first copy of the information good is typically high cost to produce, and most
of the cost is sunk cost which cannot be recovered. However, subsequent copies can be
produced virtually at little or no cost.
According to classical strategy theory by Shapiro and Varian, there are two approaches for
firms producing information goods.
1.
Differentiation: Firms must offer a resource that provides unique value to the
customer, and charge customers for the value derived. The rich information content of
information goods allows a differentiation strategy. Hence, it is possible to gather
content for all readers and customize content for individual readers
2. Price leadership: Due to the low cost of reproduction online, web-based transaction
brings about efficiency which reduces transaction costs, and enhances operational
efficiency.
The Internet is bringing about significant changes in the way information goods are packaged
and consumed. It reduces the time required for transaction and distribution. Delivery of goods
is almost instantaneous, and this speeds up subsequent processes of transaction, logistics and
settlement of payments. It also offers a number of ways of aggregating or disaggregating
information. A few strategies include bundling, tying, licensing, subscription and pay-per-use.
Since information is freely available, the job of the platform providing the information would
be to add value by means of filtering with respect to location and content for the target
audience. In such cases, an aggregating or bundling strategy comes in use. An aggregation
strategy modifies the effect of the demand curve to one which sellers can use to their
advantage. These strategies are useful when marginal costs are low, such as in Internet-based
publishing. Firms can also exploit price discrimination opportunities by leveraging customer
constraints such as high opportunity costs, time constraints etc.
Information goods can also be perceived as experience goods i.e. goods which consumers
want to experience before paying for them. Information goods such as newspapers can be
converted into experience goods where the customer pays for the experience of reading the
newspaper, possibly through curation for individual preferences.
TWO-SIDED MARKETS
Two-sided markets cater to both consumers and service providers. They involve platforms,
which are products and services that bring together two groups of users. Examples of twosided networks include newspapers which join subscribers and advertisers, e-commerce
platforms which join merchants and buyers, etc.
There are a number of challenges involved in two-sided networks. The first is pricing the
platform. Platform providers have to choose a price for each side, which factors in the impact
on the opposite sides growth and willingness to pay. Typically, two-sided networks have a
subsidy side, which are users, which, when attracted in volume, are attractive to the
money side. The large volumes of subsidy-side users are crucial for developing network
effects, and determine the platform providers ability to price the platform.
There is also the challenge of winner-takes-all. A number of conditions apply in two-sided
markets. Multi-homing costs, comprising all the expenses network users incur- including
adoption, operation and opportunity cost of time- are high for at least one user side. However,
network effects are strong and positive for the users on the side of the network with high
multi-homing costs.
There is also the threat of envelopment. Platforms frequently have overlapping user bases.
Leveraging these shared relationships offers attractive merger opportunities, but the threat is
that of a new platform offering your platforms features as part of a multi-platform bundle.
Networked markets are rich with bundling opportunities which can blur market boundaries, a
phenomenon known as convergence.
Magazines and newspapers can be considered a two-sided market. Kaiser and Wrights paper
examines price structure in two-sided markets using magazines as an example. Advertisers
value the number of readers of any magazine far more than readers value any ads in the
magazine. Hence, magazines subsidize cover prices and make a profit by charging premium
prices from advertisers. Cross-price effects also are a challenge, as magazines compete for
readers and not advertisers, but the demand for advertising in each magazine is found to be
susceptible to the rival magazines ad rates.
While valuing tied products such as digital content, which they are likely to buy repeatedly,
customers look at the total expected consumption of the content, along with frequency of
consumption. These factors influence their willingness to pay for any tied content. Also, the
consumers net surplus of consuming digital content is variable and a convex function of the
price that they have to pay for the digital content.
A number of factors affect the customers willingness to pay for the content. Most customers
are price-sensitive, but the price sensitivity arises out of the perceived utility of the content to
the customer. This is also influenced by the presence of substitutes and complements to the
content available, as well as other factors such as time and location.
Typically, overall firm profit increases with reduction in price of digital content. However, if
content is bundled along with devices, as Amazon with Kindle, then the firm can make profit
from the device or the content, and can afford to give away the content for free or reduced
price if margins on devices are higher.
1. Pay wall: Publishers can create a paywall where access to content is generally
available to paying customers. However, they can offer certain articles for free, to
allow users to sample and experience the content and develop willingness to pay.
2. Tiered access offerings: A multi-tiered access model can be employed, where
publishers offer a certain number of articles for free on registration or free trial
subscription, and unrestricted access, including timely content and additional features,
on payment. Different slabs can be created, with different offerings for different
payment levels.
3. Subscriptions and micropayments: Subscriptions are usually a steady source of
revenue, since they require a long term commitment from subscribers. Some
publishers have also experimented with micropayments for individual articles.
Subscription helps build loyalty, but micropayments may be attractive to customers
looking for specific content in the short term
4. Premium content: Occasionally, publishers may offer exclusive content to premium
subscribers to retain loyalty and build traction for premium subscriptions.
5. Archive access: Certain publishers offer complete access to back issues and archived
content to subscribers. This is particularly useful for long-established newspapers
which have significant archives which would be of interest to researchers
TRENDS IN MONETIZATION
Newspaper publishing:
Different newspapers have tried out different models to monetize their digital content. New
York Times has a paywall with a metered access approach, where it allows a certain number
of articles to be read for free every month. As of 2015, New York Times had over 1 million
digital subscribers, with 250,000 paid digital subscribers.
Financial Times, in contrast, has adopted a subscription-based approach, where content is
accessible only to registered users and subscribers. The paper has about 415,000 digital
subscribers as of 2014, and digital and services revenues account for about 55% of the
groups revenues. Wall Street Journal uses micropayments for individual articles, on a pay-asyou-read basis. It has 700,000 digital subscribers as of 2015.
Indian newspapers, in contrast, do not use any model to monetize digital content. Most
newspapers have advertising on their websites, but content is offered for free. Some
newspapers, such as Hindustan Times, have experimented with subscription for access to
online archives, but there is no tendency to monetize it.
The apprehension of Indian newspapers to put content behind paywalls may be due to
perception that Indian readers would not be willing to pay for content that is otherwise
available freely online. No newspaper wants to lost subscribers by being the first to move to a
payment system. Also, since, unlike the US, print newspaper subscriptions are growing in
India, newspapers do not feel the need to focus on monetizing their digital offerings.
Magazine publishing:
Major magazine publishers such as Atlantic Media, National Geographic and Conde Nast
offer combinations of their print content with online perks and services such as research or
special access to events or product sales. Hearst provides iPad editions of its popular
magazines. It is estimated that about 30% of the single copies sold on tablets are back issues.
Magzter is a platform for reading digital editions of magazines. It offers a revenue sharing
model with publishers who sign up for the platform, and gives the publishers freedom to add
or edit ads from print editions, and earn all the ad revenues. A number of Indian magazines
have signed up with Magzter.
Cannibalization of print:
Research by Simon and Kadiyali shows that, on average, a magazines print circulation
declines by 3-4% when it offers a website. Offering digital content with limited overlap with
current print magazine reduces sales by 2-4% while offering digital access to the entire
content of the current print edition reduces print sales by about 9%. This phenomenon is not
yet seen in the Indian scenario due to lack of penetration of the Internet and growing print
subscriptions, but the rise of mobile internet could lead to increase in this phenomenon, as is
seen in USA and Europe.
PRODUCT CONCEPT
METHODOLOGY
Qualitative research:
Stage 1: Secondary research
A literature survey was conducted to find out the prevailing trends in access and distribution
of digital content, including pricing strategies and trends in monetization adopted by various
content publishers, such as newspapers and magazines
Stage 2: Focus group discussions
Two focus group discussions were conducted among students of IIM Ahmedabad, to
understand trends of usage of news apps, preferred characteristics and willingness to pay.
Stage 3: In-depth interviews
After gleaning certain insights on usage and prevailing mindset towards news apps, a set of
in-depth interviews were conducted with people from different customer segments, to
crystallize the learnings and get insights for developing the questionnaire.
Quantitative research:
Stage 1: Questionnaire
Based on insights gained from the qualitative research, a questionnaire was developed, which
contains targeted questions which would help further understand users willingness to pay for
news apps.
Stage 2: Conjoint analysis
INSIGHTS
Qualitative research:
2 FGDs, and 2 in depth interviews were carried out in the age groups of 20-25, 30-40, and 40
and above. Some of the motivations behind using and App for the consumption of news
across age groups were similar. The structured format in which the news is presented was
appreciated. The convenience of access to news while on the move was also a major
advantage that was asserted. The regular updates that help consumers keep up-to-date with
recent news was another major reason for using apps for consumption of news. Aggregation
of news rather than having to flip through multiple newspapers was also a driver for the use
of apps. Such an aggregation gave the respondents glimpse of news in a short period of time.
While all of them used apps to read news, it was observed that they also subscribed to one or
more newspapers. Subscribing newspapers is more of a habit than a need for the customer.
For the age group above 40 it was observed that they seek variety in the information, as a
result of which the app they use and the hardcopy newspaper they subscribe are different.
Another rationale to support the subscription of hardcopy was the consumption of news by
the other members of family. Due to this, they preferred ordering The Times of India, for the
ease of language.
With respect to paying for an app there were different opinions observed. The general
perception was that news is free and therefore they would prefer switching to another app if
one of them starts charging for the information. The aforementioned attitude was more
pronounced in the age groups of 20-30 as the people in the age bracket of 40+ didnt mind
paying for the app if they saw value in using the same. The major barrier for payment for
consumption of news apart from the perception that news is free were the issues faced with
connectivity. As per the respondents, apps take a lot of time to load and while the younger
generation didnt face a problem in accessing news, the respondents from 40+ age bracket
felt that the apps were not intuitive enough to use. Hence, while they were not averse to pay
for an app, they wanted some additional features for example easier user interface. Additional
features were also sought by other respondents to cross over the barrier and go for a pay and
use app.
The motivations to pay for an app ranged from eliminating banner advertisements and their
proliferation over time which the respondents found irritating. In the wake of poor
connectivity and lag in the network, the opening up of random ads was also a motivation to
pay for an app which does not have ads. While the younger respondents didnt abhor the
presence of ads on the news app, but they were more critical about the proliferation of these
while surfing news items in an app.
When asked about the price the respondents were comfortable to pay for the app, t was seen
that the reference price was that of the hardcopy format. For a monthly subscription, they
were willing to pay around Rs.150-200. An interesting point raised by one of the respondents
was that the effective price for a newspaper was Rs.70 as there did exist a salvage value at the
end of consumption. While the younger respondents would wait for all the news apps to start
charging a fee for the service before going for a subscription, the respondents of 40+ age
bracket were ready to pay a premium of up-to Rs. 100 if they were found it a value for
money.
EXHIBITS
Exhibit 1: Transcript of interview with Kartika, student, PGPX 2015-16, IIM
Ahmedabad
QN 1.
Do you follow news?
ANS
Yes. I read ET
QN 2.
ANS
QN 3.
ANS
QN 4.
ANS
QN 5.
Do you read ET in newspaper format? Why or why not?
ANS
Yes. The news is very detailed and the content is very good. I have been reading it
for a long time. It has almost become a habit.
QN 6.
How often do you switch between app and website versions? What makes you
choose one over the other?
ANS
App. It is very structured, bucketed and easy to use
QN 7.
Have you bought any paid app? Why?
ANS
No. Because news is free and I have already subscribed to hard copy
QN 8.
Are you aware of subscription-based news apps, like FT? Would you try them out?
ANS
No, I would not prefer subscription apps
QN 9.
Suppose ET planned to charge you after a fixed number of articles. Would you
continue reading it?
ANS
I might. But I am not sure
QN 10.
Suppose all news apps in the world charged for access. What would you agree to
pay?
ANS
I can but not for every month. Months when I am too occupied I will subscribe to
app. I can pay around 70Rs/month as I pay 100-105/month for a hard copy
newspaper which also has a recycling value
QN 11.
What do you look for in a news app?
ANS
Structure, continuous news updates and limited content. Not too much detailing
QN 12.
What led you to install the ET app?
ANS
Time utilization and structure. While commutation to office, this is the best source
of information. Also time availability was a concern. App provided all the news at a
place in a very organised manner.
QN 13.
Suppose ET app is free, but before every article there is an advertisement, but FE
will charge you for news, but there will be no ads. Would you continue using ET?
ANS
I have to take a call then. I dont like ads in between. If the ads are too annoying I
might switch to FE with some payment
QN 14.
Suppose ET asked for a lot of user details before installing, would you use the app?
ANS
No. I am very sceptical about providing information. I will provide only relevant
information
QN 15.
If ET says that app is free, but contact details will be shared with third party which
would send you newsletters/ads. Would you install?
ANS
No
Exhibit 2: Transcript of interview with Ravi Kumar, student, PGPX 2015-16, IIM
Ahmedabad
QN 1.
Do you follow news?
ANS
Yes.
QN 2.
What is your predominant mode of news consumption?
ANS
QN 3.
ANS
QN 4.
ANS
I usually use digital means: apps and iPad. I mostly follow US news
Do you use mobile apps for consuming news?
Yes. I use CNN and Bloomberg
Which mobile news app do you usually use? Why?
CNN and Bloomberg. Its very structured and I am from US, planning to go back there. So,
I prefer reading US news
QN 5.
Do you read any newspaper in hard copy format? Why or why not?
ANS
I follow only US news, and hence use only apps. Also, news is available
everywhere, and can be accessed for free. Hence I dont see a need to buy a
newspaper.
QN 6.
How often do you switch between app and website versions? What makes you
choose one over the other?
ANS
App. It is very structured, crisp and user friendly
QN 7.
Have you bought any paid app? Why?
ANS
No. News is freely available. Why to pay for something when we already have something
for free
QN 8.
Are you aware of subscription-based news apps, like FT? Would you try them out?
ANS
No, I would not prefer subscription apps
QN 9.
Suppose CNN or Bloomberg planned to charge you after a fixed number of
articles. Would you continue reading it?
ANS
I would see if that content is of interest to me and is available for free somewhere else. If it
is available for free I wont pay. If I have no other source and I am very much interested
then I will pay.
QN 10.
Suppose all news apps in the world charged for access. What would you agree to
pay?
ANS
Many other news sources are there. If every news sources becomes a paid one, I will pay
$1.99 a month
QN 11.
What do you look for in a news app?
ANS
Structure, light, crisp, user friendliness
QN 12.
What led you to install your news apps?
ANS
Convenience and structured way of presenting news
QN 13.
Suppose your app is free, but before every article there is an advertisement, but
another app will charge you for news, but there will be no ads. Would you continue
using your app?
ANS
Ads are annoying. Still I have to see the difference in content, and if from utility point of
view the other app seems good to me I will pay.
QN 14.
Suppose your app asked for a lot of user details before installing, would you use
the app?
ANS
No. I will read privacy clauses and then take a call
QN 15.
If ET says that app is free, but contact details will be shared with third party which
would send you newsletters/ads. Would you install?
ANS
Not at all
QN 16.
What is the difference between US and Indian news apps?
ANS
In India, most of the news is very commercialized. Many redundant things are given. In the
US, only relevant news items are provided.
Exhibit 3: Focus group discussion conducted with 12 students of PGP 2015-17, IIM
Ahmedabad
Participants:
Responde
Respondent Name
nt
Number
R1
R2
R3
R4
R5
R6
R7
R8
R9
R10
G V Ajay
S Dinesh Kumar
Akash Gupta
Hrishikesh Pardeshi
Rishabh Prasad
Abhishek Singh
Animesh
Anoop
Siddak Singh Tuli
Anshul Kumar Rai
R11
R12
Suvansh Bansal
Praful
News Website
App
t
R1
R2
R3
R4
LiveMint
Firstpost
The Hindu
Hindu, Economist,
ET
The Hindu
Hindu, Economist,
Hindu
Hindu, TOI
Hindu, IE
-
R5
R6
R7
R8
R9
R10
Firstpost
Hindu, Economist
Firstpost
FT.com
FT
-
Firstpost
Hindu
Hindu, ET, Indian Express
ET, TOI
Hindu, NDTV
BBC, Hindu
NewsHunt
Hindu, Telegraph
Hindu
Hindu
Hindu
TOI
Hindu
R8: If Im already a user of its site or print version, then those can be source of
recommendation
R9: Friends
R10: Website and friends
14. Suppose your preferred app is free, but before every article there is an
advertisement, but another app will charge you for news, but there will be no
ads. Would you continue using your preferred app?
R1: No problem with ads, will use the free version
R2: No problem with ads if they are not video ads for more than 5-10 secs. And the images
are not full screen. Otherwise, will switch
R3: Will switch
R4: Depends on the kind of ads
R6: Will pay for the other app, if its a reasonable amount and if quality is good
R7: Will continue using it, will pay if amount is reasonable
15. Suppose your preferred app asked for a lot of user details before installing,
would you use the app? Or, if your preferred app is free, but contact details will
be shared with third party which would send you newsletters/ads. Would you
install?
R1, R2,R3, R4, R5: It depends. While we are at home we usually refer to hard copy, while on
the move we use mobile to see what is happening around the world.
R1: Mostly TOI because it is easy to understand and family has been subscribing to it since
my childhood, so it has become a norm
R2, R3,R4: The Hindu is not biased towards any party and provides authentic news as
opposed to other news agencies who have some preconceived notions about politics and
parties.
5. Do you read the follow the same agency news in newspaper format also? Why
or why not?
R1: Yes
R2, R4: No, in case we read the Hindu from app then we order the regional newspaper for the
hardcopy format and TOI. TOI is specifically purchased because others in house can read it
as well. We try to bring variability.
R3, R5: No, regional newspapers only for consumption in the form of hard copy.
All: yes
7. How often do you switch between app and website versions? What makes you
choose one over the other?
R1: rarely turn to website for news. When at home, use hardcopy and when on the move, app.
R2, R3: When sitting on computer/ laptop, will use website because it is more clear, spacious
than app. You can get news highlight without much scrolling up and down. The app is a bit
random as links open up even when you do not want them
R1: yes, I am the experimenting kind. If after using an app I feel that its worth the money
then I would pay happily
R2: No
R3: Yes, I used an app on trial basis liked it and eventually bought its subscription.
9. Are you aware of subscription-based news apps, like FT? Would you try them
out?
All: Yes.
R1, R2, R3, R5: Yes we are willing to try if we see there is a value addition.
R4: Dont know. May be I will ask around as I am not that good with technology.
10. Suppose the present app you are using planned to charge you after a fixed
number of articles. Would you continue reading it?
R1, R2, R3: No, the user interface of these apps are not seamless. They have a lot of glitches.
Lot of advertisements and the transition from one link to another is slow too.
11. Suppose all news apps in the world charged for access. What would you agree
to pay?
13. Suppose the app you currently use is free, but before every article there is an
advertisement, but another reputed one will charge you for news, but there
will be no ads. Would you continue using the older one?
14. Suppose your preferred app asked for a lot of user details before installing,
would you use the app?
15. If your preferred app says that the app is free, but contact details will be
shared with third party which would send you newsletters/ads. Would you
install?
R1: Yes
REFERENCES
http://pib.nic.in/newsite/erelease.aspx?relid=79265
http://articles.economictimes.indiatimes.com/2014-07-30/news/52237784_1_registrar-printmedia-newspapers
http://economictimes.indiatimes.com/tech/internet/internet-users-in-india-to-reach-503million-by-2017-iamai/articleshow/48144802.cms