As of today, many people are still paying for print newspapers but much fewer are willing to pay anything for online news. (And this seems to be true in most media markets — I did one study in Hong Kong).

Have you ever wondered why?

Also consider the following:

For most U.S. newspapers, most of their online readers also read the print edition during the same week, and this seemed to be universal too (I’ve conducted research on this in the U.S., Hong Kong, and Taiwan). Most newspaper publishers interpret this as: The online and print products go hand-in-hand.

Sounds like a happy ending?

But why would users not drop the print edition (which requires a fee) when they already are reading the same newspaper online for free?

In fact, research (including this study by the Online Publishers Association and several others) showed that people tend to perceive online newspapers as less likable and less satisfying when compared side by side with the print edition.

My take is that online news, like Ramen noodles, is an inferior good. And our research, based on Pew Center’s survey data, found just that. Print newspapers, on the other hand, is a normal good. (Full-text PDF available here)

(For those who need some background information: Economic theories distinguish inferior goods from normal goods. A classic example of inferior goods is Ramen noodles, while steak is considered a normal good. This is because, when you have more income, you tend to consume more steak, but less Ramen noodles.)

So what does this mean for newspapers?

1. It is important to understand the economic value of your products. Ramen Noodles should not be marketed as steak.

2. We should try to find out why online news is perceived by users as an inferior good.

Two plausible reasons:

• The computer screen is just not a great reading device. (If that’s the case, you’d wonder how newer devices such as the Kindle, the smart phone, or the iPad would server users better, or worse.)
• Simply because it is free! (Behavioral economists have recently found that pricing actually affects the perceived quality of a product — people tend to perceive something with a higher price as of higher quality.)

3. Reality-based research, rather than guesswork or wishful thinking should guide the newspaper industry when they make content, pricing, and marketing strategies.

[Abstract & Powerpoint] [full-text PDF] [featured on AEJMC's website as "research you can use"] [featured on Nieman Lab's blog] [featured on a blog on Dutch Journalism] [featured on a Japanese blog] [UT Austin College of Communication Faculty Research Award]

I have always been interested in the long-distance segment, primarily because I’ve been a long-distance user myself since the first Chinese-language online newspaper became available in 1996. In Hong Kong, Tucson, or Austin, I check news from Taiwan online almost everyday.

Based on a series of research, I know the long-distance group constitutes a substantial market segment for most newspapers.

What struck me as interesting (or unbelievable) is, for so long, no newspapers seem to be interested in monetizing these loyal users (yes they seem to be the most loyal group of users, according to our latest study). Many are reluctant to reveal the breakdown of local/long-distance users; some try to exclude long-distance users from the audience metrics. Why?

Here is why:

According to NAA, as much as 90% of advertising revenue for online newspaper sites comes from local advertisers, who, of course are not happy about delivering ads to irrelevant non-local users.

So yes, long-distance users (myself included) are inconvenient truth for online newspapers.

Without specific/extreme attention management strategies (like those utilized by Hong Kong newspapers, which are effective but horrible, in my opinion), U.S. newspapers would find it hard to compete with everything else, online and offline, news and non-news.

In this book chapter, I coined the term “information surplus” and used a very simple supply/demand chart to illustrate why “excessive information is available even at the price of zero.”

Information surplus is the cause of the unprecedented crisis facing content producers (e.g,. journalists, writers, musicians, etc.). But it is a reality and can only get worse in this Web 2.0 era.