One way to save the news.

I worked for the last three and a half years for a newspaper called the Financial Review. Cover price is $3.30 and a full price online subscription costs $A680. That’s high.

The Financial Times’ equivalent subscription costs $A490 and the Wall Street Journal‘s $A240).

Ad revenue is not growing, and the historical link between news and ads may be over. Newspapers’ online product is good – it’s easy to use and quick to market – but they have not had success in getting lots of readers to pay for it.

I have a theory why:

Selling a subscription to just one online newspaper is like trying to sell a subscription to just one TV channel. Would you subscribe to Channel Seven?

Once upon a time, you relied on a masthead for life.

But with the internet, and especially newsfeeds that offer links recommended by trusted others, we are not bound to one masthead. Yesterday, my browsing history shows I hit 11 different commercial content websites:

The Age, Slate, The New Daily,  AFR, The Guardian, Mumbrella, Broadsheet, moneycircle, Sydney Morning Herald, The Australian, and The Conversation. Not to mention a bunch of blogs and company websites.

Readers are expected to visit 10-15 news websites a day, a senior ex-Fairfax person told me recently.

One solution that would make money from this mess is micropayments. Pay per click so readers only pay for what they want. But the transaction costs are high, and people hate to feel they are getting “nickel and dimed.” I can’t see it working.

Many of us have clicked, fearing it will take us to a paywall. It happens to me most often at the Economist (5 free articles a month), the Australian (no free articles but just Google the headline) and the New York Times (10 free articles a month).

Bundling access to a whole lot of news websites is a good idea. Not because it is the Utopian business model news organisations want, but because it meets a consumer need.

If I subscribed to every website I wanted to read, I’d be forced to pay thousands of dollars. My willingness to pay for most sites is below the subscription price, so I subscribe to a few things [Fairfax, Crikey] and am forced into an unhappy state where I can’t access the rest.

It won’t be easy for media companies to realise this, but bundling will make them rich.

“Bundling very large numbers of unrelated information goods can be surprisingly profitable. The reason is that the law of large numbers makes it much easier to predict consumers’ valuations for a bundle of goods than their valuations for the individual goods when sold separately. As a result, this “predictive value of bundling,” makes it possible to achieve greater sales, greater economic efficiency and greater profits per good.”

– Bakos and Brynjolsson, 1999, Management Science

What a good bundled subscription does is mimic the effect of price-discrimination. The concept makes business strategists’ ears prick up, because price discrimination maximises profits. If you price discriminate, you aim to charge every consumer the maximum price they are willing to pay. Bundling gets you a similar result.

Some people really need your product and will buy at any cost. Others not so. The newspaper can normally only set one price so it has to balance these groups.

For example:

Assume I like the AFR and am willing to pay $100 a year for it. I am also willing to pay $60 a year for the Age. My friend  loves The Age and is willing to pay $100 for it, and only $60 for The AFR.  

The company will experiment with pricing. If they set the price for each paper at $100 they sell one paper to each of us and make $200.

If they set the prices at $60 they sell two papers to each of us and make $240.

But if they bundle it they find they can price the bundle at $160, and make $320. Cha-ching! [See more on the joy of bundling here].

Unlimited subscriptions are the way of the internet. Spotify doesn’t just do subscriptions to the EMI Catalogue, or the Def Jam catalogue. It’s everything.

But.

If you are an ambitious newspaper business development manager and you went into your boss’s office this afternoon to propose bundling subscription with another local product, you’d hear this:

“We’re not going to f—ing help those useless f—wits sell their ri-f—ing-diculous paper!” Get the f— out of my f—ing office!”

Institutional rigidities will prevent this from starting with close rivals or from launching with a full set of everything you want to read.

Where it could start is with a newspaper that wants to make a few marginal sales. A lot of Aussies have lived in Hong Kong and enjoyed the South China Morning Post. If the Financial Review and the SCMP did a deal where they bundled digital subscriptions, both parties may find they picked up marginal readers in both territories.

Seeking marginal readers is the smart business model for big media as revenues fall. The Daily Mail’s incursion onto Australian shores (starting next year) is designed to mop up revenue that can keep it alive. The Guardian has also launched here within the last year.

I can imagine a very powerful brand – say the Wall Street Journal – identifying potential overseas markets where it has few subscriptions, and targeting them by teaming up with a local outlet that wants to burnish its brand by association.

And what Cable TV shows is that once the category of bundled subscriptions is proven, the bundles get bigger and bigger. Several vast networks of bundled online news products may end up in existence, providing competition.

How the newspapers share the subscription revenue from the bundling service will be a source of friction. The “anchor” product may be able to screw over smaller titles when revenue comes up for negotiation, but they should be free to leave.

Perhaps the biggest upside of all would be lower barriers for websites to charge for content. Rather than facing the difficult decision of whether to unilaterally raise a paywall at all, the question will be whether to join a bundle, and if so, which one.

Thoughts, comments or objections? Leave them below!