Online distribution hits magazine prices

Electronic distribution is impacting magazine prices. Below is a table of prices for a sample of popular magazines. Data were obtained for printed magazines delivered to your doorstep from and compared to prices from Zinio, which sells electronic magazines viewable on your  computer, ipad or other device. Annual subscription prices were normalized by dividing by the number of issues per year included in the subscription.

You can download the spreadsheet here.

The Dead Tree Premium

It generally costs much more per issue to subscribe to printed magazines than to the electronic version of the same magazine. For example, a printed issue of Macworld Australia costs AUD7.33, which is 1.6 times more expensive than the electronic version costing AUD4.47. This “dead tree” premium ranges from a low of 1.3 for National Geographic to an astronomical 44.8 for Elle. A single printed issue of Elle costs the same as 3.7 years worth of electronic issues! Moreover the electronic subscription arrives immediately while the printed version may take days or weeks to be delivered, especially for overseas magazines.

Printed magazines may continue to sell as an “impulse purchase” at supermarket checkouts and news stands, or to collectors. However, I cannot imagine that the annual subscription model is sustainable at such high premiums for the general public.

US versus Australian Electronic Pricing

An interesting pattern arises when comparing the prices of electronic magazines in the Australian Zinio store with that of the same company’s US store. Some online retailers have been known to discriminate on pricing for their Australian stores. However, for the most part magazine prices are the same whether you buy them from the US or Australian Zinio store. For those of us Down Under, there has never been a better time to consume such media.

Notable exceptions are New Scientist, The Economist and National Geographic, which cost 1.85 times, 2.23 times  and 2.36 times more in the Australian online store than in the US store, respectively.

National Geographic and The Economist

National Geographic and The Economist are both attempting to price discriminate. They are asking the highest amount for an Australian electronic subscription relative to the US one (AUD44.25 versus USD19.99 per year for National Geographic, and AUD266 versus USD126.99 per year for The Economist). Both are still cheaper than the printed versions, but not by very much (AUD 59 for the Geographic and USD365 for The Economist).

I wonder if they will continue to be able to extract additional surplus from Australian consumers. In both cases, the magazines are relatively unique, so perhaps there subscribers are less likely to switch to something else. Or perhaps their high pricing is temporary… there are lots of inexpensive magazines to read and a ton of websites and blogs to visit that offer interesting free content. One difficulty both firms will face is that their audience is relatively sophisticated and will become increasingly annoyed when they click the “renew” button to find that their subscription does not qualify for the much cheaper US price (sample screenshot). It was easier to justify higher Australian prices for printed magazines as being due to transportation and distribution costs. But in this case, they are distributing exactly the same electronic file, and via the same distributor. Too much of a gap between the US and Australian prices will lead to a temptation to find workarounds, as has been the case with other online retailers.


Assessing the benefits of the NBN

richardhayesMy colleague Richard Hayes is working on a project to analyze various methodologies that could be used for assessing the benefits of a national broadband network (a companion project exists on the cost side). Richard recently described key aspects of his project on ZdNet’s Twisted Wire program.

The main thing I’ve learnt from that podcast is that an accurate and precise measure of the NBN’s benefits will be difficult to calculate. There are two constraints, the first being the availability of data and the second being our difficulty in estimating externalities across economic sectors. For example, one approach would be to estimate a discrete choice model, asking people to choose between hypothetical bundles of broadband options. This would provide an estimate of their willingness to pay for specific characteristics. The approach would require data that does not currently exist, and even if such data were obtained (e.g., through surveys), it is unclear people can accurately assess their utility for some broadband-related goods/services that do not yet exist. A broader approach involves using a Computable General Equilibrium model which would yield an economy-wide estimate of the NBN’s impact on activity, but is especially difficult to implement where there are lots of interdependencies (such as with broadband). I also learned from the podcast that some benefits are easier to quantify than others, especially those that are already in use by large existing organizations.

It’s not entirely clear what this implies. However, it seems to me we can learn from parallel situations of how R&D projects are managed within large firms. Perhaps, we should stop looking at the NBN as an all-or-nothing investment. It is perhaps not realistic to do a complete analysis and match incremental costs to incremental benefits ex-ante. However, by breaking the project up into stages (geographically or by some other criteria), one could postpone the decision of whether to do later stages until additional information is obtained. Consider the example of Google’s decision to build a fiber broadband network for communities in the US. It would be difficult for Google to value the overall benefits of this network ex-ante. But that hasn’t stopped it from trying out this “experiment” with a few communities initially with the possibility of scaling up later. Shouldn’t we take a similar approach with the NBN?