We're in the Grips of a Media Pricing Frenzy

From movie tickets to Kindle books to the New York Times, consumers are facing creeping prices at every turn

Welcome to the age of re-priced media.

From the theatrical box office to every new platform of digital publishing and video entertainment, signs of  fundamental pricing change are increasingly evident across the media economy. And if the frenzy is unprecedented, the catalyst for it is also without parallel—a wave of new media-friendly e-gadgets and e-devices, a near historic recession that devastated the ad-dependent publishing sector and the stark recognition of the existential threat to an industry in digital transformation.

“There is a re-balancing, a re-calibration, going on, and it’s a healthy one,” John Loughlin, executive vice president and general manager of Hearst Magazines, tells TheWrap. “In part, it was given a real nudge with the ad recession. We must bring our revenue streams more into balance.” So these days, media products from Hulu to the New York Times to 3D movies are introducing payments that will bring “balance” for producers — and for consumers, sticker shock.

In a world exploding with media options, consumers will face creeping prices at almost every turn. The free ad-supported video-streaming phenomenon Hulu became more than just a cheap thrill with the June introduction of the $9.99 monthly Hulu Plus. Meredith Corp. says it’s considering higher cover prices and subscriptions for Ladies’ Home Journal and Traditional Home.

Earlier this year, book publishers gained the upper hand to boost e-book prices in a showdown with Amazon, whose Kindle e-reader is helping to jump-start a mass market for electronic publications. The e-retailer, which had sought to set e-book prices at $9.95, capitulated in a battle ostensibly with MacMillan, which charges $13 to $15.

Meanwhile, the New York Times will have a pay wall erected by early next year at its website to fence off news that used to be free. The newspaper already has raised prices for digital iterations available on portable platforms, including a recent 43 percent jump to $19.99 for its e-edition on the Kindle.

Not that consumers are buying into the uptick in pricing meekly. “Way too high,” a recent visitor commented at Barnes & Noble’s website, reacting to the $19.99 e-edition of the New York Times available there. Late last year, Columbus Dispatch subscribers began a virtual revolt after the publisher doubled subscription rates in some cases.“Time to let the subscription run out,” wrote “Cameron” in the Facebook discussion. “Yes, they will be out of business pretty darn quickly.” But publishers see little choice but to charge or perish.

Generally, it’s much too soon for media executives to gauge the long-term impact on industry growth prospects and bottom lines. They do hope to see higher profit margins, as shrinking customer bases become more economical to maintain and serve. For some– Hulu and newspapers — charging for content represents a new revenue stream. If nothing else, industry leaders now have a firm grasp of the imperative to overhaul their attitudes about the value of content in the evolving marketplace.

With the  recession receding by fits and starts, publishers in particular recognize that the era has ended in which advertisers subsidized the media appetites of consumers who gorged on expensive content through dirt-cheap subscriptions.

Nowhere is the evidence of the pricing upheaval more evident or fresher than in publishing, where the business model appears to have slammed abruptly into a brick wall after years of slow-motion breakdown. So, for example, what are newspaper publishers to do to resuscitate their businesses, with circulation in free-fall as readers defect to the blogosphere and aggregators? Boost cover prices, of course. The trend foreshadows the end to the days of the 50-cent daily.

In September 2008, the number of half-dollar dailies exceeded the number of 75-cent dailies by almost three to one. By September 2009, the gap had all but vanished, according to the most recent survey of the Newspaper Association of America, trade group for newspaper publishers.

“That is a dramatic shift from 18 months earlier,” says John Murray, the NAA’s vice president of audience development. It means, he adds, that “reader-generated revenues are going t be a larger portion” of the industry total, rising from 25 percent to at least 35 percents.

The results are encouraging for some. Last week, A.H. Belo Corp., which publishes the Dallas Morning News and the Providence Journal, grabbed Wall Street’s attention with quarterly earnings highlighted by a 6 percent rise in circulation revenues. The gains  reflected higher newsstand prices.

The transition away from free online news to paid content also is proceeding at a cautious pace and not just at a major outlet such as the New York Times. Earlier this year, for example, Gannett began charging $9.95 a month for web-only access at three of its 85 local dailies this year—the Tallahassee Democrat, the Greenville News and the Spectrum.

At the cinema box office, a swell of 3D-premium-priced tickets since last winter apparently have been lifting the cost to see a film at a rate moviegoers haven’t experienced since the 1960s.

For more than four decades, the average ticket price generally inched up less than inflation, making a night at the theater one of the top out-of-home entertainment bargains around. And so it remains, but the pressure is now rising on your wallet due to the $3-to-$5 premium per ticket that 3D movies command over 2D.

“The average ticket prices are going to increase faster than inflation” this year, Gabelli & Co. analyst Brett Harriss tells TheWrap, adding, “we are already seeing it, absolutely.” The rise on average could sharpen if, as Harriss estimated for Reuters last week, the 3D proportion of overall box office revenues climbs next year to as much as 30 percent from 10 percent 15 percent this year.

The newest frontier for media re-pricing is apps and digital issues of magazines for tablets. (See accompanying article, "Who's Gonna Sell to Our iPads?") Apple’s introduction of the iPad in April has electrified the publishing world, offering fresh hope for a robust industrial resurgence—though the fresh tension between Apple and publishers over subscriptions may dampen the optimism.

After missing the opportunity to cash in on online content, “it’s a chance for a do-over,” says industry consultant Rebecca McPheters of McPheters & Co. Of the 300 magazine and newspaper apps that she tracks, 64 percent come with a price-tag.

In terms of pricing, the industry’s biggest publishers are doing something that once might have seemed unimaginable: charging as much or more for the digital format as the print edition.

Time Inc., the largest magazine publisher, matched the newsstand cover price on its digi-mags of Sports Illustrated and Time and is likely to maintain the pricing pattern for People, Entertainment Weekly and other major Time Inc. titles.

Hearst is resolute in its pricing strategy. “We’re being very thoughtful about going out into the market place and establishing a reasonable level of value for the experience we are providing,” says Loughlin. The closely-held publisher is currently preparing to introduce digi-mags of Esquire and O: The Oprah Magazine, with each priced at no less than the newsstand price for the printed magazine.

“We may face some consumer blow back, but at end of day, if we can’t make it work as a business, then it doesn’t make a lot of sense,” he says.