According to Business Insider, the print circulation execs want the iPad edition of the NY Times to be priced at $20 to $30/month, while the digital operation is pushing for $10/month.
Which is right?
Arguably, both numbers are much too high. The direct marginal costs are almost zero for delivering the NY Times electronically. On the margin, the main costs are the print subscribers that will get cannibalized, but many of them are being, and will continue to be lost anyway to other electronic publications that charge zero. The Times is a differentiated product, but not that differentiated for most customers.
On the other hand, advertising revenues will increase with each additional reader. With the large form factor of the iPad, the NYT could devote up to 1/3 of the screen to customer-specific, location-specific, context-specific ads. Coupons, which were a mainstay of local newspapers could be reinvented in this medium with a dramatic increase in effectiveness (and value). Advertisers would pay a lot to get in front of the NY Times customer base every morning, and again throughout the day. Done properly, online ads and coupons could easily be worth more than the foregone revenue from subscriptions.
Furthermore, by pricing aggressively from the start, the NY Times can head off competition and foreclose some entry. Last, but not least, the publishers may care about their influence, and that also grows with greater circulation, even beyond the profit-maximizing levels.
So the optimal price for the iPad edition may well be zero, or less.