In Going Free, London Evening Standard Doubles Circulation While Slashing Costs

from the but-free-doesn't-work!! dept

Thu, Nov 19th 2009 8:11pm — Mike Masnick

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

29 Comments

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Anonymous Coward, 19 Nov 2009 @ 9:10pm

"But this will only work for Evening papers!"
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Pjerky (profile), 19 Nov 2009 @ 9:49pm

Re:
Says who? Cost is cost in any industry at any time of day. If your most expensive cost comes from charging for a distributed product then you may actually free up more revenue to be available as profit.

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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Chargone (profile), 20 Nov 2009 @ 12:23am

Re: Re:
i think you missed the running gag there.

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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ranon (profile), 20 Nov 2009 @ 12:54am

a few points
With a free paper, how does one know that the paper is getting delivered to actual readers and not just ending up undelivered somewhere.

The circulation numbers in such cases will be highly suspect and will affect the advertising business too.
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Call me Al, 20 Nov 2009 @ 1:17am

Re: a few points
I live and work in London and I have certainly seen much more of the Evening Standard than previously. It is everywhere on my commute home where, in typical London fashion, it litters of the floors of the trains and stations.

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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Griff (profile), 20 Nov 2009 @ 2:06am

Same with broadband
I once read an analysis of the costs of offering broadband in a coffee shop.

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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David Gerard (profile), 20 Nov 2009 @ 3:14am

"Of course the Evening Standard may come to dominate the Tube's litter and hence may be forced to address that."

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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Stephen Downes (profile), 20 Nov 2009 @ 3:36am

> 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.

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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Rabbit80 (profile), 20 Nov 2009 @ 4:02am

What is the bottom line?
You have told us about slashing costs, and doubling circulation - neither of which actually matter at the end of the day...

More useful is - Is the paper now making more money than it was when it wasn't free?
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Kazi, 20 Nov 2009 @ 4:43am

Re: What is the bottom line?
Well it's making more money then prviously if it slashed costs as it doesn't speak of any cost increases ... increased circulation icnreases its value ...
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Anonymous Coward, 20 Nov 2009 @ 5:42am

Free newspapers are a horrible idea, both as a business and from an environmental point of view.

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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Anonymous Coward, 20 Nov 2009 @ 6:46am

"Our model is to force people to have a habit and once they have a habit they get addicted," Greig said.

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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ChrisB (profile), 20 Nov 2009 @ 7:22am

Re:
Papers make money from advertisers, who pay for more eyeballs. Hence, more circulation = more money. This your first time here?
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Hephaestus (profile), 20 Nov 2009 @ 9:41am

Re: Re: Re:
Anonymous Coward you forgot the sarcasm tag!! and confused the new guy
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spaceman spiff, 20 Nov 2009 @ 9:47am

Where newspapers make their $$
Newspapers have NEVER made their profits on selling the physical paper. They make it on advertising which is priced upon the circulation of the paper. This means that The Evening Standard is in a win-win situation. They are reducing their costs, and increasing their income and marketability. Gee, someone there seems to have a brain!
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Anonymous Coward, 20 Nov 2009 @ 9:57am

Re: Re:
not quite, chris. advertisers will pay only for quality eyeballs. if your paper is free, it also means a large number may not even look at the ads (instead they may just grab it for Sudoku, for instance). and advertisers aren't dumb.

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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Anonymous Coward, 20 Nov 2009 @ 10:04am

As far as I know, advertisers pay for what's essentially square footage (or "inchage," in this case) in a paper. The paper can attempt to negotiate the rate/sq-in based on their circulation ("we reach nn,nnn people!"), but that rate does not automatically rise, nor is it a one-to-one accounting. In addition, the people purchasing the advertising might well ask, "Now that it's free, how do you know people aren't just lining their birdcages with it and not even reading it?"

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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Anonymous Coward, 20 Nov 2009 @ 10:07am

As far as I know, advertisers pay for what's essentially square footage (or "inchage," in this case) in a paper. The paper can attempt to negotiate the rate/sq-in based on their circulation ("we reach nn,nnn people!"), but that rate does not automatically rise, nor is it a one-to-one accounting. In addition, the people purchasing the advertising might well ask, "Now that it's free, how do you know people aren't just lining their birdcages with it and not even reading it?"

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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Alan Gerow (profile), 20 Nov 2009 @ 10:26am

Re:
The government more than makes up for the difference in savings in billing costs with general inefficiencies, corruption, and lack of accountability allowing the offering of sub-standard services without fear of free-market pressures.
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Alan Gerow (profile), 20 Nov 2009 @ 10:30am

Re:
There is almost no paper anymore made from virgin forests. Almost all consumer and newsprint paper is made from trees from tree farms.

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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Alan Gerow (profile), 20 Nov 2009 @ 10:35am

Re:
The cost of a newspaper by the reader has NEVER even covered the cost of printing. So, they removed a MARGINAL REVENUE STREAM with the idea that increased readership will allow for MUCH HIGHER AD REVENUE.

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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vyvyan, 20 Nov 2009 @ 10:46am

Re: Re: Re:
they can hire you to hawk and give the count in the evening... err morning.
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Ryan Diederich, 20 Nov 2009 @ 10:50am

It doesnt matter if many end up in the trash
Even if only 10% of new readers actually read the newspaper, it is still an increase of circulation. Just because more of it ends up on the streets doesnt make it a bad idea.

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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jambug, 20 Nov 2009 @ 12:25pm

Portland Oregon WW
Although the Willamette Weekly only comes out, well, weekly - it has a HUGE circulation and turns a decent enough profit from advertising alone to print some of the most spectacular articles and reviews in the Pacific Northwest and remain completely free. Those who deny this marketing method as viable are flat out not only wrong, but - well - in denial about what works and what doesn't concerning hardcopy newspapers.

Bailout Newspapers??? I THINK NOT!!!
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Anonymous Coward, 20 Nov 2009 @ 2:51pm

Re: Re:
Ask the people running London Lite how the free paper business is going. It's a semi-functional business when there are no competitors, and once their is competition, it's a race to the basement.
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Anonymous Coward, 21 Nov 2009 @ 4:24pm

Re:
Part of the problem is that you cannot put a free newspaper and a pay newspaper side by side and compare it in a simple manner.

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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Alan Gerow (profile), 23 Nov 2009 @ 2:17pm

Re: Re: Re:
There are hundreds of free newspapers running in the US in saturated paid newspaper markets. Boston with the Boston Metro & Weekly Dig ... Denver has the Denver Daily News and another free weekly paper and The Onion (while satirical news, they have a huge local arts & entertainment section for the Denver & Boulder area). Yet, both of those markets (Boston & Denver) have shown the paid newspapers are failing while ... the free ones are thriving.

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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mr.m hishon, 27 Nov 2009 @ 2:59am

distribution
why is it i cannot obtain a copy in and around the walthamstow east london area in any tesco or sainsbury branches. I have only managed to get hold of one copy this week, Iam getting fed up searching for a copy
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jaytaylor5555 (profile), 18 Aug 2010 @ 7:57am

If you are looking to lower business costs I recommend buying cheap business checks in bulk from CheapCheckStore.com. You will save money on both ink and paper.
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