THE TIMES PRICE CUT FROM 45p to 30p in July 1993 shook the United Kingdom quality newspaper industry. Rupert Murdoch's News International, whose Times newspaper had a circulation of 360,000, had declared war on the other quality daily newspapers: the Daily Telegraph (circulation 1,017,000), the Guardian (403,000), the Independent (336,000) and the Financial Times (288,000). It was not the first time News International (Ml) had started a price war. NI, which owns five of the UK's national papers as well as many others around the world, had already cut the price of its Sun tabloid newspaper from 25 to 20p. The move had consolidated the Sun's position as market leader, pushing its circulation up from 3.43 million to 4.10 million, within a year. Sales of the Sun's chief competitor, the Daily
Mirror, dropped from 2.67 million to 2.50 million over the same period. People have very strong relationships to their daily newspapers and, given the papers' different political leanings, many in the industry thought the quality papers were not price sensitive. NI clearly thought otherwise. 'Obviously we would like to push it [The Times] to the same (circulation] level as the Telegraph and beyond,' said Gus Fischer, chief executive of NI,
Very soon NI was proved right. By April 1994 The Times' circulation had grown to 478,000 while most of the others had gone down: Telegraph, 999,000; Guardian, 397,000; said Independent 271,000. The specialist and expensive (65p) Financial Times was not affected at all; the left-of-centre Guardian and right-of-centre Telegraph saw sales drop a little, while the Independent, which had increased its price to 50p in response to The Times' price cut, had a 20 per cent sales drop. After an initial short-term sales decline, the mid-market dailies, Today, Daily Express and Daily Mail, were unaffected by the low prices of the Sun and The Times.
Refore the priee cut, the quality newspapers had competed in other ways. Throughout the 1980s their strategy was to improve the product by adding sections. According to one senior executive, 'The daily market has been contracting every year. We have been almost excessively focused on sales promotion to encourage trial from rival papers. We hoped that the added value products would keep our readers more loyal.' But to the consumers, more did not mean better. Most of the brand extensions (supplements) were created to attract advertising revenue; not to keep readers' loyalty. By offering advertisers 'high definition, high quality' targets, publishers had taken their eyes off the circulation figures. Wooing new advertisers did not keep customers happy. Increased pagination meant paper bills went up and consumers were frustrated at not being able to 'get through the paper' at one sitting. Loyalty was declining before The Times'
price cut, but its true magnitude only became known later. Analysis of Taylor Kelson AGB's Mediaspan panel showed that newspapers lose and gain at least 20 per eent of their 'loyal readers' each year. This switching excludes casual readers, since loyal readers are defined as those 'almost always reading' a paper. Following the price cut, The Times' users showed much lower loyalty than usual. The paper boosted its regular readership by two-thirds, but one-third of the regular 1993 readership was lost by 1994. Further analysis in May 1994 using RSGB's Conversion Model showed that about half the readers of all quality newspapers were 'safe' (entrenched or average loyalty), while the rest of the readers were Vulnerable' (shallow or convertible). The study also showed that The Times had fewer entrenched readers than the other quality newspapers.
After The Times' price cut, the quality newspapers had fought hard to keep their customers. The Telegraph offered free books to people who collected tokens printed in the paper and the cash-strapped Independent ran a promotion competition with the prize equal to the winner's income tax bill. But the Independent's lost circulation hurt and cash was running out. When newspapers lose circulation, two forms of income drop: income from the cover price, and advertising revenue. The fewer the readers, the lower the advertising rates. The Independent was the newest of the quality newspapers and also financially the weakest. Founded by the brilliant entrepreneur and editor, Andreas Whittam Smith, the Independent's biggest shareholders were Italy's La Repubhlicu and Spain's El Pais newspapers, neither very rich. After initially taking the market by storm, the paper overextended itself on an expensive launch of the Independent an Sunday and a failed attempt to take over the Observer, another Sunday paper.
If it was to survive the circulation war, the Independent needed more money. Surprisingly for a newspaper facing a price war, there were three prospective new partners. One was Tony O'Reilly, Irish chairman of Heinz and owner of Independent Newspapers; another was Conrad Black, Canadian proprietor of the Telegraph; the third was Newspaper Publishing, publishers of the Daily Mirror. After reassuring the Independent about editorial independence, Newspaper Publishing bought the Independent and the battle continued.
After holding the price up for eight months after The Times' first price cut, on 22 June 1994 Conrad Black cut the Telegraph's price from 48p to match The Times at 30p. The Times quickly responded with a cut to 2()p two days later, determined to hang on to the 150,000 extra buyers from its first price cut. On that day the Independent's Whittam Smith moved his editorial to the front page accusing The Times of predator;' pricing. 'Two right-wing ideologues, Rupert Murdoch and Conrad Black, have set about to destroy the quality newspaper market,' he thundered. NI was thought to be losing £45 million from its earlier price cutting of The Times and the Sun. Lost profits at The Times were thought to be about £17 million. The extra cut to 20p would cost £12 million more a year if retailers were to maintain their current 17p a copy, and with printing costs running at t3p a copy. Shareholders were also unimpressed by the Telegraph's action: £800 million was wiped off the share value of the newspaper as a whole and it lost £200 million in value. The City was particularly angered since Conrad Black's Hollinger Group had sold 12.5 million shares, raising £73 million, barely a month before the price cut.
In August 1994 the Independent caved in and reduced its price. Sales by then were as follows: Telegraph, 1,010,000; The Times, 510,000; Guardian, 400.000; and Independent 280,000. After market testing prices of 45p and 40p. the Independent exceeded City expectations and cut its price to 30p.
NI stressed the newspaper would not remain at 30p indefinitely - a move that would cost the newspaper £14 million per year in lost revenue. 'It is felt that the premium quality that the Independent achieves will, in the longer term, warrant a premium cover price,' said its editorial.1
1. What was the impact of the priee war on the sales volume (number of newspapers sold) and sales value (monetary value of the newspapers sold) of the competing newspapers?
2. What did The Times hope to gain from starting such a costly price war?
3. Why did the other competitors follow the price lead of The Times'?
4. When does it pay for a company start charging prices below industry rates?
5. What industries do you think are prone to price competition?
6. Should governments intervene to prevent aggressive priee competition?
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