Thursday, March 20, 2008

Free Newspapers

The marginal cost of printing a newspaper is minimal, yet the fix cost is huge. The marginal revenue of a newspaper is positive, both from sales and from ads. Thus, a newspaper needs a diffusion as large as possible. Now how could you maximize diffusion? One way is to give the newspaper for free. You lose the sales revenue, but you gain ad revenue, and retailing costs are minimized.

This is exactly what Metro does, and with tremendous success, being now the most disseminated newspaper in the world. The idea was born in 1995 in Stockholm: print a newspaper, distribute for free in public transportation stations, attract ads, etc. Now readership is at 23 million a day. There are even competing free newspapers in some cities.

The same principle applies to newspapers on the Internet, where the marginal cost is even smaller, as well as the fix cost. Now, I wonder why some newspapers still insist on charging a price for their product. For sure, a positive price allows some discrimination of readers. The New York Times would be very different if it were free. But it is the New York Posts of this world that should be free, even in paper form.

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