In Going Free, London Evening Standard Doubles Circulation While Slashing Costs
from the but-free-doesn't-work!! dept
In October, we wrote about how, just as Rupert Murdoch and crew look to put up paywalls for online content, the operators of the London Evening Standard were going in the other direction and making their physical paper free. So, how's that been working out? mowgs alerts us to the news that the paper has doubled its circulation in just a month. Not bad. But what's more interesting is that it's also slashed its distribution costs massively. It used to cost about 30p, and now it's just 4p per paper.This actually brings up a point that's rarely talked about in the free vs. paid debate. Charging can be expensive. It takes quite a bit of effort to charge, to take money, to manage the money, to set up the accounting and bureaucracy for managing each transaction. And, even worse, if you're working with third party distributors, like news agents, then you have to handle financial relationships with them as well. Getting rid of the per paper price changes the economics not just on the revenue side, but on the cost side as well -- something that's rarely discussed at all. And, yes, this impacts online news orgs too. Putting up a paywall is going to prove a lot more expensive than most people think on the cost side.
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Filed Under: costs, free, news, subscriptions
Companies: london evening standard
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I bet your local gas station cut some costs when they started letting customers fill up their own personal cups from the soda fountain instead of from plastic cups the station provided. And that even helped the environment a bit.
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used to be, every time a good business model was writen about here, someone would show up and make a big deal about how it would only work for small time musicians no one had heard of, or it would only work for people who already had a huge following.
now people respond, humorously, with 'but it'll only work for [silly subsection of the type of entity in question]!', both for funny and to forestall anyone who thinks to say such things seriously.
so, yeah, the point was 'evening', not 'papers'. read it that way and realise how silly it is and it's funny.
that said, you've got a good point there. i doubt many people would imediatly think to apply it to something other than newspapers... smart.
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a few points
The circulation numbers in such cases will be highly suspect and will affect the advertising business too.
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Re: a few points
Don't forget though that the rise of the Standard has as much to do with the cancellation of The London Paper and London Lite as it does with being free. The other papers both stopped production in the last few months which as left commuters with little alternative.
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Same with broadband
The two biggest costs are
- billing people
- tech support
When it's free, people have fewer expectations and cannot really demand tech support.
With newspapers, a lot of people don't realise just how ad funded they already are. Often they will push to get their circulation to pass some magic number to be able to command better ad revenues (for example the $12 annual magazine subscriptions I used to see for Time or Newsweek).
Of course the Evening Standard may come to dominate the Tube's litter and hence may be forced to address that.
After the Kings Cross fire in which so many died, noone wants to see a build up of flammable litter stuffed out of sight by people too lazy to carry it home. Thanks to the IRA, (and arguably, latterly, Al Qaeda) there are no rubbish bins on the London underground.
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This has already happened - the London Lite and The London Paper were 25% of all the rubbish in the streets of the City of Westminster (the western half of the inner city) at one time. The councils told the papers to fix this or else. The papers put newspaper recycling bins at most Tube stations.
The bins are still there - presumably the Evening Standard will now use them.
The Evening Standard is basically horrible. I pick it up to do the Sudoku and properly dispose of the rest without reading it.
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The same is true of government services, which is why it makes more sense to offer government services for free, rather than to charge a user fee.
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What is the bottom line?
More useful is - Is the paper now making more money than it was when it wasn't free?
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Re: What is the bottom line?
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As a business, the objective isn't to find a loyal readership that is willing to pay a small amount for your product, but rather to hand out your paper to anyone and everyone, no matter what they do with it. As has been seen with other London freebies, they become trash very rapidly. I don't know if anyone has studied it, but I wonder how many of them go from hand to trash without ever really being opened?
From a business standpoint, this lets them claim huge circulation numbers, which in turn leads to higher ad rates. But over time, it can be a negative, as it is clear that some of the circulation isn't even looking at the paper. The trash levels suggest that people aren't taking the paper with them outside of the tube.
Environmentally, well, it's a disaster. More trees cut down to make more newsprint, to use up more ink, to generate more trash (because many of them won't get recycled properly). It's all negative.
I don't think this is a great example of anything except how to abuse the environment and hoodwink advertisers.
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Most deforestation happening in the world is due to farming land, not paper production.
And from a business standpoint, well free newspapers have been a proven business model for at least 15 years with international free newspaper networks like The Metro, and local free newspapers in many major cities. It works.
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So, I don't see why I need to ask the people running London Lite how they're doing when everyone else I see seems to be doing just dandy.
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I am reminded of the SNL First Citiwide Change Bank skits ...
Paul McElroy: All the time, our customers ask us, "How do you make money doing this?" The answer is simple: Volume. That's what we do.
I'm just not seeing where in the article that they have made more money from this. Double the circulation, and free. Let's see, zero times two, carry the zero ... (sorry, cannot resist a Firefly reference)
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so, while more circulation = more money is true, in the case of a free paper there's no circulation...it's merely print run - you can print a million copies, but can't claim a million subscribers.
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It's a proven model that has worked for decades for free newspapers all over the world.
And quality readers are relative. You may be exchanging 20,000 middle class readers for 100,000 lower class readers ... but a credit card consolidation company is going to pay higher ad rates to reach those 100,000 working class people than the 20,000 original readers.
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Where newspapers make their $$
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For the new business model to be more profitable for the company than the old business model ...
C * (50 - 30 - 12) + Old Advertising Income
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For the new business model to be more profitable for the company than the old business model ...
C * (50 - 30 - 12) + Old Advertising Income (less than) 2 * C * (0 - 4 - 0) + New Advertising Income
C = Circulation, units in pence.
[I am not entirely sure about that -12p, the distribution costs were 30p per paper, and 12p per paper for "newsagents;" I am giving the benefit of the doubt and assuming that the newsagents now charge nothing. I'm also making other assumptions, like staff not changing, printing costs not changing, and so forth. There's a lot of limitations in this model.]
Going forward ...
8C + Old Advertising Income (less than) - 8C + New Advertising Income
16C (less than) (New Advertising Income - Old Advertising Income)
As C (old) ~= 300,000
48,000 pounds (less than) (New Advertising Income - Old Advertising Income)
So, if they make 48,000 pounds or more from advertising, per issue, due to this change, it will be a net gain. It's been a long time since I purchased any ad space, and never in Britain, so I have no idea if that is feasible.
I'm getting this cut off when I attempt to use HTML markup or just the less than sign, so I must resort to (less than). Bah, and it looks like I missed one and have to repost.
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Free newspaper companies (such as Metro) employee people to literally stuff the paper into people's hands at subway entrances in most cities they operate in. They hand them out like mad, really, and then on the subway platforms, you find piles of them dropped, ignored, trashed. It is clear that many of the people who are considered "circulation" have no interest in the newspaper, they just satisfied the person handing them out to actually take it.
People who purchase a newspaper tend to do so with the intent to read it. People don't generally spend money for nothing.
So the real question would be response levels to ads. Adding a whole bunch of "circulation" that doesn't actually read the newspaper doesn't bring ad response, which in turn lowers the value of the adspace.
At this point, they have lowered their per paper costs, but they have doubled their print run, so while they have dropped circulation costs from 30p to 4p per paper, there is no indication how much all these extra papers are costing.
Here is where it also gets a little weird: They have a 50p cover price, and 30p to distribute (leaving 20p for other expenses). Now they have 0p income, and 4p costs. So as far as I can see, they are actually -24p per paper right now. Further, they have doubled circulation, so they are further than that in the hole on that side of the game.
They would have to generate huge increases in ad space to cover it, and in a tough ad marketplace, it is hard to imagine it working out.
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It doesnt matter if many end up in the trash
Maybe they will hire more garbage men, improving the economy. Its Win Win Win by giving it away for free.
Personally, (I work in retail) I would much rather advertise in a free newspaper than a pay-for paper. More people read the free papers.
As said before, the price of papers is only to recoup the costs, it isnt a profit-driving mechanism. The real money is in the advertising, and more people means better advertising.
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Portland Oregon WW
Bailout Newspapers??? I THINK NOT!!!
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distribution
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