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 magshop.com.au 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.

 

Bait and Switch

News from Singapore this week made it all over the internet. A group of five diners were charged S$1224 (AUD1039) for a steamed fish at the new Resorts World casino. They had earlier ordered a different fish (which was presumably less expensive) but the waiter suggested a substitute without identifying the price. The diners later complained and received a 15% discount. But there are lots of people complaining online that the fish usually costs $6 per 100grams instead of the $60 per 100g charged by the restaurant.

It may sound a bit harsh, but in my opinion the diners exhibited a lack of bargaining skills. I would have refused to pay any more than for whatever fish it was the substitute for, after all it was the restaurant’s fault for running out of stock. It is also evident that the restaurant manager needs to do an MBA. It is a failure in marketing if people are complaining about your firm’s prices based on the cost of the raw materials used. My former MBA students would have learnt that in a well-run restaurant, customers would be happy to pay for the skills of its chefs, quality of the dining experience, and the ambiance. After all, if you’ve dropped by a high-end restaurant in Japan and eaten fugu (poisonous pufferfish), a price like US$100-200 per head is not unreasonable.

Singapore, June 30, 2010- THEY feasted on a fish named sultan – and were made to pay a king’s ransom for it. Well, not quite a king’s ransom, but a whopping $1,224 for that single steamed fish dish. And the bill left a sour aftertaste. The diner, who only wanted to be known as Mr Liu, 35, had taken his four friends to Resorts World Sentosa’s (RWS) Feng Shui Inn restaurant on June 12. The group had initially wanted marble goby, better known locally as soon hock, but the waiter said there was no stock for the fish. The waiter suggested the white sultan fish instead. The group agreed, without asking how much the dish would cost. They were stunned when the bill arrived. The single sultan fish, which weighed 1.8kg, set them back by $1,224. Source: http://soshiok.com/article/12333

ps: remember to ask the price before ordering at a restaurant.

How attractive is pricing for the proposed National Broadband Network?

Today the Government released a report by McKinsey and KPMG suggesting it could build a National Broadband Network — without Telstra — for about $43 billion. There are potentially strong benefits of widespread public access to the internet, even if these benefits are hard to add up and may not be realizable today, especially for faster broadband speeds. One of the features highlighted in the new report is open access at a low price, around $30 wholesale for the cheapest tier, which would translate to about $50 retail. In an interview with ABC News Radio this afternoon, I was asked if this really is an attractive price. By today’s standards, it does seem low. However there are two important assumptions being made. First, there will be no cost blowouts beyond the mild scenarios outlined in the report (try not to think of Myki). Second, that $50/month will still be attractive when the network is ready in about a decade. Let us not forget that even over the past few years prices have fallen dramatically. OECD data shows that a broadband plan in Australia costing $130/month in 2005 only cost $70 per month in 2008. Prices are falling across the world and this trend is likely to continue: telecommunications technology (both wired and wireless) is experiencing rapid innovation. I’m not saying that the Government should not proceed but that we should view these projections with a bit of caution.

A separate issue is whether Telstra is likely to partner with the Government on this project. They have to decide by June. While there are potential cost savings involved, I suspect it is unrealistic. Leaving aside past personality issues and legal threats, the reality is that both parties have different objectives. The government wants to offer broad-based access at a low cost, including to non-metropolitan areas that are expensive to serve. Telstra would probably find it profitable to offer fiber in metropolitan areas and at a higher price. Would they really want to go all the way up to serving 93% of the population with fiber as the Government intends? In the report, costs are a lot higher for serving the last 10%. This may matter to voters, and politicans, but to Telstra the remaining 10-20% of the population may be adequately served if they had NextG coverage, or less. Plus there is the matter of Telstra’s existing copper lines to complicate matters…