THE MEDIA BUSINESS

A Cheaper Times of London Wins

Readers
By RICHARD W. STEVENSON
Published: June 13, 1994
In the rough and tumble of the British newspaper business, the decision by The
Times of London last September to lower its newsstand price by a third, to the
equivalent of 45 cents, was greeted with jeers from competitors who predicted the
move would win over few new readers and decimate the paper's profits.
Nine months later, the jeering has stopped, and newspaper publishers and analysts
in Britain and around the world are wondering whether The Times is on to
something. The Times's circulation, which had been declining steadily for years, has
surged beyond even the wildest dreams of its owner, Rupert Murdoch, and its other
executives. According to figures released on Friday by the Audit Bureau of
Circulations, the paper's circulation in May was 517,575, a record high, and 46
percent higher than in August, just before the price cut.
Part of the increase may be attributable to other factors, including a general
resurgence in the economy and a television advertising campaign by the paper last
month. But analysts and even competitors said the price cut, from 45 pence to 30
pence, was the primary reason for the surge in sales.
'Public Relations Triumph'

So far, the strategy has cost Mr. Murdoch and his News Corporation tens of millions
of dollars. Analysts, however, said the paper might be approaching the point where
the higher circulation and a resulting increase in advertising would offset the lost
revenue from the price reduction.
"It hasn't been a financial disaster and it's certainly been a public relations triumph,"
Mark Bielby, an analyst at S. G. Warburg & Company in London, said.
The move seems to have taken some readers from the largest of Britain's three other
general-interest broadsheet papers, The Daily Telegraph, which has since August
seen circulation fall 3 percent, to 993,395 in May. It also appears to have contributed
to a continuing decline at The Independent, the youngest and smallest of the
broadsheet papers. Its circulation in May was 276,660, down 15 percent since
August.
The fourth broadsheet, The Guardian, has seen circulation increase 2.6 percent since
August, to 401,831.

A New Look at Pricing
But the major impact may have been on the industry's assumptions about prices.
British publishers have long assumed that readers, being creatures of habit, are
relatively insensitive to price, at least when it comes to broadsheet papers aiming at
relatively affluent readers.
As a result, most papers have gradually raised prices in recent years -- Mr. Murdoch
bumped the price of The Times from 30 pence to 45 pence between 1990 and 1993 --
and have only rarely dropped prices, believing that a few pennies of savings would
not be enough to lure new readers.
On newsstands, The Times now costs at least one-third less than its main
competitors. The Independent costs 50 pence; The Telegraph, 48 pence, and The
Guardian, 45 pence.
"If you look back at what people said when we began this experiment, almost
everyone said it wouldn't work," Peter Stothard, the editor of The Times, said. "The
truth of the matter is -- and we've been cautious about making too much of it until
now -- that it has worked."
Mr. Stothard said it had become clear that price increases during Britain's deep
recession gave some middle-class readers second thoughts about buying a daily
newspaper. Many of those readers, he said, started buying The Times only a few
times a week instead of every day.
The Times cut its price after watching the experience of another Murdoch-owned
paper here, The Sun, one of London's anything-goes, mass-market tabloids. Tabloid
papers generally have less affluent readerships than broadsheet papers and are thus
more sensitive to price changes.
In July, The Sun began offering a temporary promotional price of 20 pence, or about
30 cents, down from the normal price of 25 pence. Circulation surged, and the
promotional price has been extended indefinitely. The Sun's circulation has jumped
nearly 21 percent since July, to 4.18 million.
Tabloids like The Sun derive about 75 percent of their revenues from circulation,
with the remainder from advertising, analysts said. Among the broadsheets, the
division is about 50-50, they said. In the case of The Times, Mr. Stothard said, the
increase in circulation has made the paper a more attractive vehicle for advertisers.
He declined to provide details.
"The advertising rates are firming very satisfactorily and the volumes are also rising
sharply," he said.
But there is no question that The Times and its parent company, News International,
a subsidiary of the News Corporation, paid a price for the strategy. Largely because of
the price cuts at the newspapers, the News Corporation's operating income in Britain
fell 30 percent, to $218 million (Australian), or about $160 million, in the nine
months that ended March 31, compared with the corresponding period a year earlier.
"This company looks at this as an investment, just as it would look at an investment
in plant or machinery," Mr. Stothard said. "It makes the paper more powerful and
successful."

QUESTIONS
1. What was the price elasticity of demand for The Times? (-1.393)
2. Did the price reduction increase or decrease The Times total revenue from
newspaper sales? (Increased)
3. Was this price reduction profitable for The Times? (No)
4. If not, why did it reduce its price? Under what situation, could this price
reduction be profitable? (To increase the market share and for new customer
acquisition.
5. How did this decision (price reduction) affect the sales of its competitors (Use
cross price elasticity)?
.09,
.078,
.45