Defenestrating Thoughts from the Bivouac

NEW YORK (AP) – The New York Times is raising its prices for the second time in less than a year to help the newspaper offset a steep drop in advertising revenue.

The newsstand price for the Times’ weekday and Saturday editions will go up to $2 effective June 1, up from $1.50. The 33 percent increase comes just 11 months after the third largest U.S. daily newspaper last raised its prices.

The price for the national edition of the Sunday newspaper will rise to $6, an increase of a dollar. In New York, the Times’ Sunday newspaper will cost $5, also a $1 more.

The company that owns the Times lost $74 million during the first quarter as its advertising revenue plummeted by 27 percent from the same time last year. (Source)

The NY Times is losing money and needs more revenue from customers, so it decides to raise prices on newsstand prices? Seriously?

Basic supply and demand tells us that raising prices will reduce demand. Depending on the slope of the demand curve, perhaps the increased price offsets the lost demand, but that’s doubtful given two factors.

First, with the worsening economy, people are looking to cut back. Is a Sunday paper really worth $6? Probably not.

Second, there isn’t a barrier to entry for the news journalism. I can easily get the same information for cheaper or free.

The logical thing to do in this case is to lower prices and attract new customers. In this case, we’re looking at newstand sales, so it should be very easy to cut the price.

Selling a newspaper at a newsstand has a very low marginal cost; meaning, if you need to provide just one more newspaper to a given newsstand you need to just pay for the paper and ink. All the other expenses (writers, editors, trucks, business contracts, etc) are spread out across all the papers sold. Reducing the price of the newsstand paper should increase demand sufficiently to have a larger profit (sell for less, but at higher volume).

Someone at the NY Times needs to take basic economics. Until then, I think I’ll take any economic and financial opinions of Times editorial staff with an even larger grain of salt.