The big challenge comes when the business’ cash-cow is not longer relevant for the market. Then, new strategies should arise. Media companies need to think of new bold strategies. Playing in the middle ground is not efficient, the organization has not focus on where to play, cost structure is not efficient, consumers start disengaging, etc. At the end, as in any economic model, inefficient players are eventually kicked out of the market.

The strategy is simple: Listen, listen, listen… to the market trends and play to win with the trend.

I think we may be in violent agreement. I think we both agree that taken by themselves, it costs less to publish a digital edition (any kind of digital) of a newspaper/magazine than the very same print version. NOTE: There are some cumulative publishing costs if you’re publishing to different digital endpoints as feed structures, DRM, rendering technologies, etc. aren’t standardized across the different endpoints yet, but that’s still primarily setup cost though it’s an expensive one for the papers as they typically don’t have this expertise in-house.

I think we also both agree that you can’t just wish away the sunk costs around printing, since even if you stop printing you still have these capital expenditures hitting your G/L.

What I *think* you’re saying is that subscribership is essentially a zero-sum proposition, and that’s why digital subscription costs must be kept artificially high so that regardless of whether someone is a print or digital subscriber, they’re still cover the cost of printing the physical paper. Is that right? That’s what I was saying above, which is why the Walled Garden Tax is such a big hit to the publishers because you can’t wish away the costs of printing the physical paper and (I contend) that subscribership *is* essentially a zero-sum game right now because a lot of people are used to getting “good enough” news for free and they opt to spend their entertainment/edutainment dollars elsewhere. So people inclined to subscribe to the paper/magazine will do one or the other, whichever is cheaper.

http://www.electronista.com/articles/10/02/16/nyt.print.digital.staff.argue.on.price/

Meanwhile, ad revenue continues to fall. Though not as steeply as in the worst of the recession, it’ll continue to be a moving target going forward (and you can figure the movement’s more or less in one direction):

http://seattletimes.nwsource.com/html/businesstechnology/2011029030_apusearnsnewyorktimes.html

And worst of all, there’s the challenge of overcoming the public’s “something-for-nothing” expectations …

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/02/17/BU591C2C99.DTL&type=business

Hopefully, the cost of converting the “daily paper” from its newspaper zeros-and-ones to its iPad zeros-and-ones will be nominal. From that perspective, each subscription sold after those nominal costs are covered is “icing”.

The trick in pricing any information good is estimating how many units you will will sell, since all the costs are bound in the production of the /first/ unit. You need to set a price that will recover those costs — once you pass that N, you’re looking at close to 100% profit (except i the case of iTunes sales, where you are looking at 70% profit — but there is also a cost reduction: the iTunes 30% is in the ballpark for my estimate of overhead associated with administration, promotion and circulation). For a “middle man”– that 30% is pretty darn low.

There’s also additional advertising revenue that might be made via these digital editions.

The budget I outlined above — based on expense info from Media Economics — is not a traditional “variable v fixed cost” model. It was actual expenses. Reporters are in the 10% not the overhead. All the things you list are not overhead in this budget – it’s the 50% that is printing/distribution. If you could stop publishing a print version tomorrow, you’d be in a much better place as far as costs …. but you would also have just lost the bulk of your revenue. It’s a serious catch-22.

http://www.ft.com/cms/s/0/6530db6e-1a70-11df-a2e3-00144feab49a.html

I suspect one of the reasons why (the article doesn’t specifically call it out) is that subscription publishers operate on considerably lower margins than book publishers do. But since they generate new content far more regularly, they “make it up in volume”. And even some of what is traditionally considered Variable Overhead really isn’t (e.g. Reporter staff) because you can’t dip under the threshold of what would be normally acceptable content. If you could automagically wave a wand and make all that warehouse space, printing presses, trucks, drivers, operators, etc. go away, maybe the margin could accommodate the Walled Garden Tax better.

Elasticity of demand for digital subscriptions is not part of this analysis and would play a large part in per unit pricing, but not in the need for subscription income in the wake of declining advertising income.