Pricing in the Press

I have a number of articles sitting on my desk that are worth a comment:

Time Warner CEO hints at online fees:  Time Warner is thinking about charging people for on-line content in their magazines.  Well, it’s about time.  Publishers seem to keep making a critical error in classifying their business.  They think they are in the printing business where you charge for a printed document.  The problem is that they are  in the knowledge business where they give people information.   That difference leads to a huge gap in the business models for publishers.  Just look at a huge success: The Wall Street Journal: they’ve spent the past five years developing their on-line content and have a successful business model for both sides.  And, they’ve developed adequate fences and pricing models so that one side doesn’t cut into the other–instead each side supports the other.

Printing is slowly by surely dying as a business.  It is inefficient.  It spends lots of resources distributing content rather than developing it.   In today’s world, more and more people want their content electronically.  Failure to make content available to people when and how they want it at a reasonable price leads to a competitive disadavantage.  I look at our Boston Globe, which is on the brink of closure.  They just raised their rates 33% and they don’t have a business model (aside from advertising) on the electronic side.  Even an old dog like me is thinking of drinking his morning cawfee in front of the computer screen.

P & G Looks Beyond Premium Goods:  Mighty Proctor and Gamble is getting beat up with the economic downturn just like the rest of us.  Their premium brands are slipping.  Fortunately, they had already introduced lower value flanking products in detergents (Gain) and diapers (Luvs).  The net result is that growth is still predicted to be 2-3% this year and while lower than expected, profits are still healthy.  Bottom line: when we say to “innovate for growth”, in a downturn it means that you’ve got to introduce lower value flanking products.

Xilinx Loses in Ruling:   Chip maker Xilinx has been embroiled in a battle with the IRS on how they cost their products and allocate expenses to various subsidiaries.  The IRS is taking the position that cost allocations have to relate to a “standard”.  The issue seems to be that the standard has to be consistent across all costs–in this case, R & D costs and the cost of options for workers.  Clearly the IRS is trying to keep profits in the US when they can.  The question I have is whether this will therefore limit a company’s ability to offer lower value flanking products within the legal limits of what costs are.  Should be a fun one to watch–the law of unintended consequences could be that this could make companies more competitive abroad but less competitive domestically.  Since this is the larger market–that could be a long term bad thing for global competitiveness for US companys.