Business Update with Mark Lacter

L.A. Times; gas prices

KPCC's business analyst Mark Lacter talks about whether the Los Angeles Times decision to charge customers will work; he also talks about whether drivers should worry about gas prices that continue to hike up.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, the L.A. Times has decided to charge customers for online access, as have other major papers. Will it work?

Mark Lacter: To some extent, yes. This is really all about how to make money on the Internet Steve – monetizing content is the way the experts put it - and you see it being done by the TV networks, by the movie studios, by the music labels. They're all struggling to figure out how best to sell their content online - except for newspapers there's probably a greater urgency because they've been giving away their entire product on the Web, while at the same time their print circulation has kept falling (not exactly the greatest business model). And yet newspaper publishers have been reluctant to charge anything online because they figured most folks wouldn't pay for something they've been getting for free.

Julian: And that's understandable.

Lacter: But it turns out that people are paying for content. Last year, the New York Times introduced a system that allows access to a certain number of articles each month and after that a paywall goes up. If you want to see the article, you're asked to fork over some money. So far, more than 300,000 people are taking a full-year Internet subscription to the New York Times, which is more than many in the industry had been expecting, and starting next month the L.A. Times will be following with a similar system. But this is very much a work in progress.

Julian: Will the added circulation revenue from the Web be enough to offset the lost circulation revenue from print?

Lacter: That's a big question. But longer term, there's an even more basic question: Does the old-fashioned newspaper model even make sense anymore? It's easy to understand the original idea of bundling a physical product made up of sections for several areas of interest: news, sports,
business. Thing is, with the Internet you really don't need any bundling. You can go to a site that devoted to politics, and another one for sports, another one for entertainment, and so on. Folks under 30 who are barely familiar with a printed paper may not want to receive content from any one source. And that’s the ultimate concern if you’re in the newspaper business.

Julian: Gas prices keep going up. You don’t think drivers need to worry… why?

Lacter: Well, lots of reasons, starting with the fact that gas represents only three-and-a-half percent of household spending, (housing is at 26 percent, by comparison). If this were some other kind of expense that didn't get much attention - say your water bill - you wouldn't be seeing anywhere near the fuss that these gas prices are getting. That's because your water rates aren't plastered on every street corner. The other reason not to get too worried Steve is the longtime pattern of gas prices: They do indeed go up - but they also go down. Going back 10 or so years, you'll see that L.A. area prices have had a range of roughly two-twenty-five a gallon on the low side and four-twenty-five on the high side. At last check, an average gallon is going for $4.35, which of course is painfully high but is still about 25 cents lower than the all-time high in 2008.

Julian: We've heard all kinds of explanations for the recent run-up -

Lacter: Yeah, everything from a closed refinery in the Pacific Northwest to higher demand out of China to Saudi Arabia wanting to raise more money to give to their people. Lots of reasons - and to a greater or lesser extent, they all have some validity. But eventually the basic market forces reenter the picture: refineries get repaired, global tensions ease up, and demand starts to fall - and last but not least, speculators want to take their profits. Of course, whether all this happens sooner or later will determine consumer confidence, perhaps job growth, and potentially the election results next November. Frankly, it shouldn’t determine all this stuff, but this is a case where perception does become the reality.

Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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