• by Daniel Ambrose , January 28, 2010

Rationing has been made a dirty word in the healthcare debate.  But appropriate and successful rationing has been in effect for years in the publishing world, only we haven't expressed it that way.  

Most of the commentary on the New York Times announcement about its so-called "metered service" set for launch in 2011 has been focused on the need to have readers pay for content online "like they do offline."  Observers like Tech Crunch, Ken Doctor,  Mashable,  Paid Content, and the Wall Street Journal, have all focused on whether "enough" readers will pay.  But that's only half the story.

Newspapers and magazines have used paid circulation as one of the approaches to effectively ration who gets a copy of their publication and who doesn't  --  in order to bring circulation costs into line with advertising revenues.  I call it a form of rationing, because the price of a copy in no way reflected either the value or even the cost of delivering that copy.  There are exceptions, of course, but the bulk of consumer magazines and newspapers charge less than it costs to print and deliver the subscription.  When the cost of marketing a new subscription to replace an expiration is added in, even more publications drop to the circulation-losses side of the ledger.   

Every market and media has a sweet-spot where the price advertisers are willing to pay, is profitably balanced with the costs of delivering more and more reach -- in print, measured as circulation. 

To be sure, there are other successful rationing approaches. In the B2B sector, many use free circulation rationed by job function or business size.  And there are many free circulation consumer periodicals, like "alternative newsweeklies," in almost every market.  Among healthcare publications, for example, copies of professional magazines are sometimes rationed to go out to physicians who prescribe a certain volume of "scripts" for patients.

When circulation volume gets out of line with advertising revenue, it drives losses.  Surprisingly for many paid circulation magazines and newspapers today, more paid circulation means more losses.  This counterintuitive scenario may have first happened back in the day when Life and Look's advertising base began to be drained away by television.  Their high circulation at low prices began to be a liability rather than an asset.  The same thing is happening now with the many magazines and newspapers that have seen their advertising base decline.

Let's be clear: circulation revenue for most newspapers and magazines has never been a profit center.  Circulation has been run as a loss leader because so many advertisers were willing to pay so much.  Circulation was pushed as high as possible based on bigger and bigger marginal losses on the extra thousand or ten thousand or hundred thousand "paid" circulation.  When -- suddenly -- advertisers are no longer willing to pay as much, or only a smaller number of advertisers are willing to do so, more "paid" circulation only leads to larger losses.

The same balance is important in Internet publishing.  Too much "circulation" measured in unique users, and especially in page views, creates an oversupply that can't be sold.  That drives down the prices on what can be sold.  Meanwhile, advertisers - generally - want to maximize their "reach" of unduplicated individuals, while limiting excess frequency.  An advertiser simply doesn't want to pay to reach a prospect for a fifth, sixth or seventh time on a single day.  Advertisers are well served by adhering to the Goldilocks Principle: to reach their prospects not-too-frequently and not-too-infrequently, but just the right amount.

The Goldilocks Solution

So the New York Times plan to ration its content by introducing "metering" is an elegant solution.  Allowing a limited number of pages to be viewed free by every Internet user maximizes the "reach" of Times inventory, while ensuring that the publication doesn't give free rides to the readers who value it most, as shown by how frequently and in-depth they consume the content.  This not-too-much-and-not-too-little, but just-right, solution allows the Times to intelligently ration access to its content to maximize revenue opportunity and minimize the oversupply that makes the content seem not as premium as it should be.  It puts the Times  in a better position to be able to earn back revenue through pricing more on value, and less on the low (Internet) cost of delivery.

This elegant, just-right solution has another advantage for the Times' print business.  It makes the print subscription more valuable, at a near-zero cost to the Times.  Since the added value of the unlimited access can be delivered at a very low cost of serving, it supports the other clear strategy the Times has adopted: aggressively raising prices for single-copy buyers and subscribers.