Why don’t the Wall Street Journal and New York Times combine paywalls?

This is a legitimate question.

Imagine that tomorrow, the two papers announced that it would no longer be possible to purchase individual online subscriptions: instead, you could buy only a joint subscription, for a price roughly similar to the previous cost of a single subscription. What would happen?

Obviously, there would be some revenue loss. Anyone already subscribing to both newspapers would suddenly find herself paying much less. But it’s hard to imagine that in practice, the overlap is really so large: maybe 20% at most. And over the course of a year or two, there would be a much larger effect from increased demand. After all, subscribing to two leading newspapers for the price of one would be a really great deal, one that consumers would be happy to exploit. This arrangement would be likely to increase online revenue, possibly by a substantial amount.

On a more theoretical level, let’s imagine that the NYT and WSJ are trying to maximize their joint income. Offering separate subscriptions is effectively a form a price discrimination: it extracts a little more money from wealthy readers who are hungry for news and willing to pay for two subscriptions. By offering their subscriptions at different prices, the papers can also target slightly different segments of the market. But is this the most effective form of price discrimination? Probably not. It would make more sense to offer core access to both papers for a basic fee, and then some more expensive frills to get extra revenue from readers with disposable cash. After all, that’s how price discrimination usually works—ask anyone who’s flown recently.

Under a joint arrangement, consumers would inevitably complain that they didn’t want to subscribe to both papers. Why should they be forced to pay for a New York Times subscription when they just want to read the Wall Street Journal? But this complaint is based on a misunderstanding of markets with zero marginal cost. Aside from the relatively trivial price of webhosting, it doesn’t cost anything to throw in the New York Times for everyone who wants to read the Wall Street Journal. Why shouldn’t it be included?

In fact, there’s a strong resemblance here to the debate over a la carte cable. Consumers constantly grumble that they don’t want to subscribe to all 10 gazillion channels; they only really watch five or six. Why can’t they just pay for the channels they want? As I’ve argued before, this misses the key point: the cost of providing content is in creating the content, not streaming it to viewers who already have cable. If it was possible to purchase channels a la carte, everyone probably would subscribe to only five or six channels, but that doesn’t mean that they would pay less: instead, either (1) the total amount of content would go down dramatically or (2) they would end up paying roughly the same as before, just getting less for their money. (Probably both.) After all, the money to create content has to come from somewhere; if everyone subscribes to their five favorite channels, the total cost of production won’t magically decline, unless it turns out that nobody wants to watch MTV after all.

There’s a possibility, of course, that the current system of bundled cable directs money in an inefficient way: without consumers making an explicit decision to pay for some channels but not others, it’s not clear which channels are really the important ones. In practice, however, cable companies have plenty of information about the content consumers want: they can look at ratings, survey results, demographic data, and so on. Ultimately, the channels receiving the highest affiliate fees seem to be more or less those that provide the most valuable content, at least according to this chart.

If they attempted to merge their paywalls, the New York Times and Wall Street Journal would face a similar problem: how to split the revenue? In fact, this is probably the biggest barrier to such a deal (aside from the possible DoJ lawsuit). If they used a simple measure like pageviews to allocate revenue, there would be perverse incentives to create cheap, frivolous content that drew eyeballs but didn’t provide enough real value to justify a subscription. On the other hand, if they tried to apply more complicated measures, it would be tough to write the specifics into a contract. If a focus group says it likes the NYT’s travel section, how much should that be worth?

This is where the analogy to cable suggests an alternative. Two papers don’t need to sign a contract with each other to bundle their content; third parties can do it for them. Just as Comcast negotiates with dozens of content providers before assembling its packages, an Apple or Google could come along and bargain with several national newspapers to assemble a cheap bundle of online subscriptions. Since the bundler would have a very strong incentive to provide a reasonable price for customers, it would put in the effort to determine what each paper really contributed.

Why hasn’t this happened already? First of all, online news is still in its infancy. But I think there’s also a widespread failure to understand the economic advantages of arrangements like bundled cable. It’s easy to dismiss them as relics of an earlier era, when it wasn’t technologically possible to deliver a different package of channels to every home. In fact, bundles are an excellent way to circumvent the dilemmas of providing a service at zero marginal cost. The ideal is to provide as much value as possible while still collecting revenue, and as Microsoft has evidently discovered in marketing Office, the optimal way to do that is usually to throw in several different kinds of content for one fee.

Eventually newspapers will understand that too.


Edit: Tomáš Bella points out in comments that this idea is already in place: he’s launched a project to combine leading content providers in Slovakia under a single paywall. David Backus writes in to point out an excellent paper by Crawford and Yurukoglu, forthcoming in the AER, on the effects of bundling by cable providers. Yanis Bakos and Erik Brynjolfsson have also written some very insightful papers about bundling of information goods, which provide a much more refined and better-articulated version of the ideas I’ve advanced here.

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12 Comments

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12 responses to “Why don’t the Wall Street Journal and New York Times combine paywalls?

  1. Pingback: Assorted links — Marginal Revolution

  2. jake

    Check out the Piano system that is being implemented in Slovakia.

  3. Alex

    In one word: competitors.

  4. Paul Johnson

    It’s even more complicated. The online WSJ and NYT are not simple products – they are also gateways to selling all other kinds of services, they yield a harvest of data about subscribers that has real value… And the NYT and the WSJ are in competition to be the nation’s newspaper of record going forward. Bundling products of different firms may work but only if they are complementary – not in competition.

  5. MattW

    I’ve wondered what would be more effective, a combined subscription for similar content, or for dissimilar content?

    The NYT and WSJ is an example of similar, along with a Netflix-Hulu combined subscription. Or would NYT make more money by offering a package of NYT newspaper, Hulu video services, and The Economist magazine? With something like that I like more subscription services would come up, and there would be more combinations to choose from.

  6. MPS17

    Because the Wall Street Journal is an inferior publication going downhill and the New York Times doesn’t want to share revenue with them.

    • Jim Glass

      The NY Times doesn’t have revenue to share with anybody. Its stock price is down 75% in the last four years, and it is selling off assets left and right, slashing payroll (and busting its unions) to keep its nose above water.

  7. Billy

    Without having a good grasp of the details, my initial reaction is this: it would be a terrible idea from the WSJ’s perspective. My understanding is that, like the FT, the Journal has had a lot of success with their paywall. This is primarily due to the fact that it’s business reporting is perceived to add a lot of value for people who simply need the news – they need to understand the latest developments for markets, companies, industries, etc. That is why the FT and the WSJ have apparently done well. In contrast, the NYT, while a superb newspaper – and my favorite as well – is more generalist and I don’t think businesspeople, particularly Wall Street, thinks its reporting is as vital as that of the FT and the Journal. That’s the perception I from both general observation and my experience working in finance.

    However, like I said, I’m not an expert on the details of paywalls, and I only base my claim about the FT and WSJ from what I remember hearing about each paper doing well under that system. The NYT may find that it has a similarly good experience with a paywall, but I believe the WSJ and the Financial Times will always be on another level since they are more necessary, and neither would agree to a joint subscription unless they received the majority of the profit from it.

  8. Veracitor

    Sure, why don’t the WSJ and NYT form a cartel. Their cartel can replicate some of the features of the local monopolies enjoyed by cable providers, and extract the maximum surplus from consumers using aggressive bundling. It’s all so simple. Indeed, the newspaper cartel should amalgamate with a cartel of cable providers (since those folks control most consumer high-speed Internet access already) and charge everyone in America one price for access to a bundle of all forms of news and entertainment. Think of the benefits to consumers! For only, say, $300/month (per household resident over age 16), consumers would be freed of the need to spend mental effort or time choosing which news or entertainment products to consume! The news & entertainment cartel would learn what consumers like by monitoring their actual use of the different elements of the ultimate bundle, and negotiate suitable prices with “content providers.” Oh, the rapture! And anyone who wants to enter the “content-providing” business can make a deal with the cartel, sort of like supermarket slotting fees– after all, if a would-be provider doesn’t have the confidence in his new product (and the strong capitalization) to pay for access to consumers, he must confess that his proposed new product wouldn’t attract many customers anyway!

  9. Jim Glass

    The WSJ has a very lucrative and profitable paywall operation dealing with business and financial information.

    The NY Times paywall attempts to get people to pay for Maureen Dowd and Frank Rich and the gardening section has proved one costly, embarrasing failure after another.

    Why doesn’t the WSJ combine financially with the Times? Why don’t the Steinbrenners have the Yankees combine operations with the Kansas City Royals?

  10. This is such a good idea that we already started working on it a year ago and launched the pilot project in first country 3 weeks ago :)
    See for example
    http://www.nytimes.com/2011/04/25/business/media/25cache.html?_r=1
    http://news.bbc.co.uk/2/hi/programmes/click_online/9476374.stm
    http://www.pianomedia.eu

  11. Chad

    This idea on a larger scale is interesting. It is already being done with movies (Netflix), starting to be done with music (a bunch of small services with Amazon and Apple circling the idea), and very early on with TV (Hulu). Obviously, the idea would change some for periodicals, but the very basic theme would stay the same.

    A change is inevitable. As someone who has never had a newspaper subscription and never will, but reads voraciously; I would pay for multiple subscriptions at a reduced price, but never full price for either of the two big papers…let alone the smaller ones. And, I’m 38. 25 year olds will have even less interest than I do in subscribing.

    Basically, the current perodical model has turned into an Oldsmobile. Average age of the user is 65. Those people are going to die sooner rather than later and the younger people aren’t going to be replacing them. If they don’t make the change themselves these newspapers, including specialty ones like the WSJ, will be irrelevant and fade away…sooner rather than later.

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