If Your Business Model Is Based On Hoping Your Customers Never Do Math, You're In Trouble

from the ny-times,-we're-looking-at-you dept

Wed, Jan 12th 2011 12:21pm — Mike Masnick

As we get closer to the NY Times finally putting in place its long-promised, often-mocked paywall concept, it's worth pointing to a story from a couple months ago, which I didn't have time to write about when it came out. It involved some comments on a panel from Gerald Marzorati, the Times' assistant managing editor for new media and strategic initiatives, in which he more or less mocked the subscribers of the print publication for being too ignorant to do basic math and realize just how much they were paying:

"We have north of 800,000 subscribers paying north of $700 a year for home delivery," Marzorati said. "Of course, they don't seem to know that."

As evidence that Times subscribers don't realize how much a subscription costs, he pointed to what happened when the paper raised its home-delivery price by 5 percent during the recession: Only 0.01 percent of subscribers canceled. "I think a lot of it has to do with the fact that they're literally not understanding what they're paying," he said. "That's the beauty of the credit card."

Of course, another explanation (which is much more favorable to the NY Times) is just one of general price inelasticity to a newspaper like the NY Times. If that's the case, where the price rises and most people keep subscribing, it suggests that most of those people continue to value the subscription more than the price, and the newspaper might even be able to get away with raising the price further. What's odd, however, is this assumption by Marzorati, that it's the general ignorance of their subscribers that keeps them in business. We're in an age when assuming ignorance on your customer base is a very dangerous position to be in.

If the company's guy in charge of new media and strategic initiatives seems gleeful over ignorant readers, rather than focusing on ways to make sure they continue to get more value out of their subscription than they pay for it, it makes you wonder how long this sort of setup can really last. There are all sorts of ways that a publication with the reputation of the NY Times can make lots and lots of money. But betting on the ignorance of subscribers does not seem to be like the best overall strategy.

Filed Under: business models, customers, ignorance, journalism, paywalls
Companies: ny times

23 Comments

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Anonymous Coward, 12 Jan 2011 @ 12:34pm

That's like $2.25 per issue.
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Matthew (profile), 12 Jan 2011 @ 12:40pm

Wow...
Someone in his position saying something like that in public - seems like a good way to be out of a job. But hey - if he's right then their subscribers are probably too dumb to be offended by how dumb he thinks they are.
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Anonymous Coward, 12 Jan 2011 @ 12:56pm

It seems to me that saying your customers are stupid in a public forum might not be the smartest thing to do either.
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Anonymous Coward, 12 Jan 2011 @ 12:59pm

Then they complain that people are not buying.
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Anonymous Coward, 12 Jan 2011 @ 1:15pm

Isn't the whole RtB thing about selling people stuff way over what it is really worth in order to pay for freeloaders? At some point, don't you think those people will "do the math" and realize what they are really paying for?
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Anonymous Coward, 12 Jan 2011 @ 1:20pm

Re:
Read more - talk less. You might have something useful to contribute then.
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Dark Helmet (profile), 12 Jan 2011 @ 1:33pm

Re:
"Isn't the whole RtB thing about selling people stuff way over what it is really worth in order to pay for freeloaders?"

Congratulations! You win today's "So Completely Wrong It Hurts" award!
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Colin, 12 Jan 2011 @ 1:39pm

Re:
Is that the kind of post the "funny" button was made for?
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Anonymous Coward, 12 Jan 2011 @ 2:02pm

Re:
No, TAM, but good effort!
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Anonymous Coward, 12 Jan 2011 @ 2:20pm

Re: Re:
Sorry, I read the post. Their monthly subscription price is around $70 a month (confirmed by other sources) but their newsstand price is nearly twice that (if purchased every day).

The readers aren't ignorant, as the subscription price isn't anywhere near the street price. In fact, I suspect they feel they are getting a pretty good deal at 50% off. So a couple of points of moving up isn't an issue for them.

The real value for them in is having 800,000 assured subscribers for advertisers. 800K subscriptions beats the living crap out of 800,000 random website visitors any day of the week.

My point is sarcastic: People are getting a good deal, the value the product, etc. CWF+RtB would have them getting the newspaper for nothing, and paying stupidly out the ass for
hoodies or maybe a phone chat with a reporter.

See, when they don't charge enough, they are stupid. When they charge enough they are stupid. When they give it away for free it is stupid. No matter what, TD will always find printed newspapers stupid. There isn't any news here.

The have long since CWF. TD may not like it, but 800,000 is a really big number.
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jfgilbert (profile), 12 Jan 2011 @ 2:22pm

There is hope for the NYT
If Henry Mencken is right, "Nobody ever went broke underestimating the intelligence of the American public."
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Lyle D (profile), 12 Jan 2011 @ 2:24pm

One has to wonder though at what percentage of the subscribers are business's or paid for with company credit cards.. A lot I expect.. They don't care about the price..
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jjmsan (profile), 12 Jan 2011 @ 2:42pm

Re: Re: Re:
If you read the post did you miss the part where the circulation director indicated that his customers were paying more than the product was worth? What part of that do you thinks is a good idea in any business system?
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bahhhh, 12 Jan 2011 @ 4:30pm

Dont point out the flaws. If the big media companies keep shooting themselves in the foot we could be due for a content revolution.
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Isaac, 12 Jan 2011 @ 6:51pm

People of Math:)
People don't read their credit card statements as they should. I believe most people do the math. Maybe some don't or they're not good at math at all.
I know of so many large companies are taking advantage of the people who are not aware of what they are being charged for. We might assume people don't do the math but I believe it's not the case. People just forget or don't look at it.
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Anonymous Coward, 12 Jan 2011 @ 7:59pm

So, did anyone else think this post was going to be about lotteries from the title?
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Anonymous Coward, 12 Jan 2011 @ 8:26pm

Re: People of Math:)
Or people might assume that a newspaper subscription, like every other damn thing we pay for, will only ever go up in price.
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Derek, 12 Jan 2011 @ 9:47pm

I paid...
I was a paying subscriber. The value wasn't in the content per se, of course I could get that on my computer or phone.

The value was in the ink delivered to my door every morning. I could take it on the train, through the tunnel, without wifi or 3G or a battery, without stopping to stand in line. I'd leave it lying on the table at work, fueling interesting conversations with colleagues over lunch. Most days, my Times was read by two or three people.

Within reason, I didn't care what home delivery cost. I was paying to have instant, shareable news around all day -- until delivery became unreliable. The NYT quit selling what I was buying.
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Anonymous Coward, 13 Jan 2011 @ 12:42am

Re: I paid...
"No one in this world, so far as I know�and I have searched the record for years, and employed agents to help me�has ever lost money by underestimating the intelligence of the great masses of the plain people."
� H.L. Mencken
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Lance (profile), 13 Jan 2011 @ 5:04am

Another thing to consider
Marzorati's comments are completely ignoring something very simple. Raising the rates by 5% on a $65+ per month bill is not likely to raise a lot of eyebrows. People will usually accept a small enough raise in the prices for goods that they find useful. It is easy to allow your credit card to be charged an extra $2 to $3.

With the paywall, people that have never had to hand over their credit card number will now be required to do so. What is the incentive to start paying for information that they might just as easily acquire elsewhere? I believe that getting your current customers to go from x dollars per month to x+5% dollars per month is probably easier than getting your casual reader to go from paying nothing per month to two dollars month (unless that two dollars gives them something they didn't get before).
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Gene Cavanaugh, 13 Jan 2011 @ 10:10am

Ignorant readers
I am reminded of the story (likely an urban rumor, but very appropriate): an author of a science review disparaged a comment by a reader; but the person making the comment, a certain Albert Einstein, didn't seem to mind.
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BestGames (profile), 16 Jan 2011 @ 1:36pm

Why does that fool think the readers do not know how much they are paying? He can say that in his opinion they are not getting their monies worth. But he cannot know what is in (or not in) the minds of it's readers. The NY Times is one of those authority sources that a lot of knowledgeable people feel they cannot be without. The newspapers in the rest of the country seem to be getting smaller and less valuable. After 40 years getting daily delivery, we cut down to just Sunday delivery - and that is just to get the TV schedule (which is also in a pathetic state).
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james moylan, 20 Apr 2011 @ 11:35pm

about subscribers to newspapers
I have a web site where I give investment advise on penny stocks and stocks under five dollars. I would like to comment about subscribers to news services this may be a coming trend charging subscriptions for information. I think it would only be worth paying for something that you know is of great value.
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