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Free newspapers in London make sense

11 October 2006

The new London free afternoon newspapers have been around for some weeks now. Not by chance, they were launched within days of difference. If in Economics everything is rational, what is rational in giving away your product. And why not simply put a price? Is everybody getting mad?

It is a normal situation throughout Europe in the last years: you arrive to the underground, the train station or get out of it and find your free copy of the morning paper. London is no exception about it, but now, there are also two free papers in the evening, invading the market of the traditional London evening paper, the Evening Standard.

How is it possible that two newspapers, with its costs of paper, printing, computers and above all journalists, can survive giving it for free? The answer is in the Internet. Sites like Google are making vasts amounts of money out of advertising. The idea is that while we are browsing the Internet or reading our newspaper, we see the advert, and then the brand or the product gets “exposure”, meaning that we now know it and are likely to buy it. Luckily for us, advertisers do not know about “ad-blindness”, according to which we have got so used to adverts that our eyes do not see them. Do not ask me to tell you one advert in the paper two minutes after I have binned it. I have no idea.

This is how thelondonpaper has made itself a place in London. Its contents are quite similar to the Evening Standard, the traditional evening London newspaper, with the only difference that you have to pay to get the latter.

A couple of days afte the launch of thelondonpaper, another free paper appeared in the London afternoons. It was delivered by the very same way, by an army of youngsters shouting “free newspaper” at almost every corner, but its approach to news is less serious, creating a differentiated product. The name was London Lite, and were edited by the same company of the Evening Standard.

Some people compare business strategy with war strategy. I can imagine the editors of the Evening Standard with the fresh news on the table that Rupert Murdoch’s company, also editor of the Sun, was planning to launch a free paper that was clearly targeting their evening paper. So they decided to strike back cutting the supplies of the opposite site and forcing them to desist.

It’s been said before that the free paper survives thanks to advertising. The more people see the advert the more exposure the brand gets, and the company is willing to pay more. If there is a second free paper, which also gives a different content, people will prefer one rather than the other. Hence, the readers will be splitted, the exposure will diminish and so will the price advertisers willing to pay. If the income from adverts is not enough to cover the costs, thelondonpaper will have to desist, and the hill of the evening market will have again only one king.

While this explanation might make sense, there is still one loose issue which is that, if London Lite tries to squeeze the profitability of the free afternoon newspapers, then it can not survive itself: the siege is also cutting their supplies. That is true, unless they are happy to run losses. And they could do that by subsidising it with the profits of other newspapers (they are getting supplies through a secret tunnel). Which is a strategy that Rupert Murdoch’s can also follow if his objective is breaking the Evening Standard dominance… Who will be the king of the hill?

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