Conculsion on pricing in the UK National Press

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Conclusions on pricing in the UK National Press.

This document concludes:

 Newspapers are unnecessarily losing both readership and advertising revenues, from over-
aggressive, un-strategic cover pricing policies.
 Circulations are declining faster, in part because of price increases.
 These are impacting on advertising revenues, perhaps destructively for some titles;
 Price is having less of a tactical role in terms of cross title competition.

Following the previous note explaining international comparisons on pricing, this note
reviews the issues for UK national press. I have confined my circulation analysis to UK daily
press. As explained there are two measures of price elasticity:

 The first relates to the overall market, where there are other factors affecting overall sale,
such as the structural and cultural changes we are facing. So we are examining a market,
within which there is a general context of slow decline. Since consumers, particularly in
the UK, move from product to product, their impression of cost plays an important role.

 The second relates to the impact that individual titles pricing strategies have on the
competitive framework and in particular market share. So if one newspaper increases or
decreases price this historically has a strong impact on shifting of loyalty and purchase
frequency and therefore share within the market.

I’ve analysed the ABC data back to the 1970’s and drawn the following conclusions:

The Macro Market – Consumers’ overall response

The newspaper market continues to be price elastic, and the UK specific analysis confirms
that UK newspapers are generally suffering circulation loss due to a more aggressive pricing
policies in the last four years. This is shown in the graph below:

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Conculsion on pricing in the UK National Press
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Here you can see the wiggly line of price in red, is inversely related to that of circulation. The
points are the actuals; the curves are the trends. Note how the price line has been steadily
rising since the price wars of the ‘90’s, and circulations declines have been accelerating.
(Ignore the sudden drop recently that is partly a function of the modelling software).

This second chart compares the two, in a different way:

It shows price horizontally and sales variance vertically. The results are very similar to those
in the previous International chart, though not as extreme. But you can see the impact of the
93/94 price war on the top left, compared with the more recent years. Note that 07, 08 and 09
are below the line, suggesting that things are worsening. 06 was a particularly aggressive year
in terms of price, and sales fell in line with the expectation.

Affect of pricing policies on individual titles, and their market competitiveness

However one thing has radically changed. Price is no longer a primary tactical tool for
impacting on sale.

In the ’90’s, as the Times in particular demonstrated, there was a clear correlation between
pricing and circulation. But as is always the case with UK newspapers, the tool was overused.
In this decade there is little evidence that pricing per se has had a demonstrable effect
tactically. There is little notable correlation between newspapers short term pricing policies
and their impact on circulation. Of course other factors are at play, both positive and negative.

 Firstly both The Times and Telegraph, have aggressive and successful subscription
programmes;
 Secondly bulks have been removed from the system;
 Thirdly other forms of promotion and good content do have an effect. The Telegraph have
had a great run re the MP’s expenses. When the Times went tabloid, I calculated that
every additional figure on their ABC, cost around €1,000 in TV airtime.
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Winners and losers

So who have gained value over the last twenty years through their circulation pricing policies
and business strategies? Here another whacky graph….. The size of the circles reflects that
increase in circulation revenue – market value – over the past ten years.

The undoubted winner has been The Times, which has successfully grown both circulation
and cover price over time, and increased its share of market value significantly.

Next is the Daily Mail, which has also increased value, largely through circulation growth
rather than pricing. Both the Telegraph and the Guardian have also shown good increases,
largely through pricing.

The losers have been the Express – which has been weak in both pricing and circulation, and
the Mirror which has held it’s own in price, but not in circulation.

Impact of circulation pricing on advertising revenues

The final point, as previously speculated, is whether the aggressive cover pricing policies
have been counter productive in terms of their consequential impact on advertising share. My
conclusion is that the picture is mixed but they undoubtedly have had an impact on some
titles. Just as the pattern of price acceptance from title to title has changed, so, I believe it has
on advertising. It is also the case that newspapers decline in share of advertising is
accelerating. However I believe that for every pound National newspapers have gained from
cover price revenues, they have taken a consequential loss of up to £4 of advertising
revenues. PLEASE NOTE THE WORDING “UP TO £4. Some will have taken more.
Others none at all.

© Jim CHISHOLM
December 2009.

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Conculsion on pricing in the UK National Press
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APPENDIX 1.

Explanation of Macro level price elasticity

Peter, Here is an explanation of the Macro econometric comparisons of cover price,

circulation and consequential impact on advertising. Please excuse 1. It’s scruffiness and 2. If
I am patronising you in terms of language. I get complaints all the time about these types of
charts, but they explain a lot and I hope my explanations are of value, and not too simplistic

The chart below shows the relationship between cover price variance and variance in paid
newspaper circulation. The horizontal axis shows price variance over four years. The vertical
axis sales variance.

The graph shows that at a national industry level there is a very strong link between the two.
UK Newspapers have put up their prices the most. And circulations have suffered the most.
(Ireland is slight odd – ignore it).

The Statistics bolox in the bottom right shows three things. Firstly with a correlation
coefficient (R2) of 0.80, the linkage is very strong. Secondly it shows that that if pricing were
flat, then circulations would ries (that’s represented by the 3.07 figure, which shows what
happens to sale on the Vertical Axis if revenue per copy variance is zero. Thirdly it shows that
for every 1% rise in price there is a 0.93% fall in sale. Back in the ’90’s there was what I
called a one for two rule, in other words for every 2% variance in price, there was a 1%
variance in sale. So it would appear that the market has become for more price sensitive.

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Conculsion on pricing in the UK National Press
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This second chart shows the relationship between falling circulation and newspapers’ falling
share of advertising.

So in those markets where circulations have performed well advertising shares have done
better. But again the statistics bolox is critical

First of all note the R2. It is lower at 0.39 suggesting the correlation is less convincing.
Having been producing this chart for ten years, I know that correlation used to be very strong,
but has been changing. Other factors are now at play, including the role of free dailies, and the
different strategies of different newspapers.

Also the point where the zero affect falls is -8.15, in other words, even if circulations were
flat, newspaper ad share would still be falling.

© Jim CHISHOLM
October 2009.

CHISHOLM