Revenue Management for Online Newspapers

The NY Times has confirmed reports that it will begin charging for frequent access to its online newspaper in January 2011. Readers will be able to read a certain (as yet unspecified) number of articles for free each month and will be asked to subscribe once that limit is met. This is in contrast to the Wall Street Journal’s subscription method where certain articles require a subscription to read them but other content is free to all users.

Reading about this change, as well as the Punk Rock Operations Research post by Laura McLay about whether NBC executives are using OR in their decision making, makes me wonder if online newspapers are using OR and revenue management when making the pay/no-pay decision.  Glancing through today’s online edition of the Wall Street Journal, there are significantly more subscriber-only articles in the Business and Markets sections than in the Personal Finance and Life & Style sections. This seems to imply that the WSJ is targeting specific customer segments, like business readers, based on the types of articles they are likely to read. The NY Times’ policy will instead target frequent readers of any customer segment, focusing more on quantity of articles than type. Given how much success the airline industry has had by implementing operations research techniques, it is interesting to see how the WSJ’s and NY Times’ policies compare to the airline industry’s strategy for maximizing their revenue.

By segmenting their audience and varying the amount of free content per audience (if that is indeed what they are doing), the WSJ has tapped into a key pricing aspect of the airline industry: demand-based pricing. Ticket prices depend not only on the popularity of the route, but also on how far in the future the ticket is purchased and even how many other tickets for the same flight have already been purchased. The WSJ can provide more free content to “personal travel” customers who would be flying “low-demand routes”, like the Life & Style section, and keep the majority of the subscriber content for the “business” customers flying “peak routes”. Conversely, the NY Times’ policy would equate to airlines pricing tickets based on the number of previous tickets the customer has purchased. Rather than rewarding loyal customers with frequent flier miles, special fares, and free upgrades, they are instead providing perks to less frequent customers who will never reach the article limits.

The Wall Street Journal’s segmentation method also matches another key aspect of the airline industry’s pricing model: value-based pricing. Airlines offer various types of fares, with more desirable fare classes priced higher. If customers see the value of higher-priced first class seats, then they will be willing to pay more for them. If customers don’t see that additional value, they can purchase economy seats. Similarly, the WSJ has placed a higher value on certain articles which can only be read by subscribers. If readers do not see the value of these articles, they can choose not to subscribe and therefore not read them. This is not the case with the NY Times’ policy.

Finally, each airline tries to establish and maintain their brand partly through their pricing. One airline might offer low-cost, no-frills trips that will get you where you need to go cheaply. Another airline might offer the same routes at a higher price, but also with a higher level of service and therefore potentially more value. With its subscription strategy, the WSJ seems to be establishing its brand as a newspaper of high value to executives and business readers.  By not factoring in the value or demand of specific articles, the NY Times is missing an opportunity to expand its brand. What does this new subscription strategy say about them and how they provide value to their best customers if other customers can get the same content at lower volumes for free?

We will have to wait until 2011 to see if the New York Time’s subscription policy outperforms that of the Wall Street Journal, or even if either policy is viable in an age where the way users interact with the internet changes almost daily. It may be that even with top-notch Operations Researchers doing outstanding work, there is still no way to get people to pay for something they can get free elsewhere. In the meantime, I hope more industries will begin to use OR in their decision making processes.

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