Why should newspapers cost less money than a coffee?

With quality papers under pressure from free sheets and the internet, some editors believe readers will pay more for a premium product. Is this a brilliant marketing ploy or a suicide note?

There's not much good about being a commuter in London. So it should make a pleasant change for down-trodden Tube travellers next month to find themselves the target of a lavish all-out battle for their attention. As Rupert Murdoch's new free newspaper, thelondonpaper is launched, Associated Newspapers responds with its free version of the Evening Standard - London Lite - meaning that as well as Metro in the morning, commuters will now have two free papers thrust at them on their way home, all without putting their hand in their pocket.

But the art of newspaper war is a cunning one, and at the same time as its new freesheet was announced, Associated made a seemingly paradoxical move. While 350,000 to 400,000 copies of London Lite will be handed out free to those within transport Zone One, buyers of the Evening Standard outside the freebie zone get to pay more - rumours suggest a 10p price rise to 50p.

Is this a paradox? Or a brilliant marketing ploy? On the face of it, with Londoners drowning in free newsprint - not to mention easy access to 24-hour news from other outlets - isn't an Evening Standard price hike more like a suicide note? Or could it be that strategists in Associated's war room see charging more - and focusing attention on the distinctive nature of their product - as the salvation of print media?

Certainly radical strategies are called for in newspaperland. With the rise of freesheets and online advertising set to overtake newspaper ad revenue this year, circulations are in tailspin. Last month all five popular and mid-market titles recorded year-on-year falls and the Standard's figures were especially painful. The latest ABCs revealed sales had dropped by nearly 20 per cent year on year, leaving the paper hovering above the 300,000 mark in July, though that nose dive was partly explained because July sales last year were boosted by coverage of the 7/7 bombings and news that London had won the Olympics.

So how could asking for 50p instead of 40p sell more papers? Well, perversely, it may just do that. When the Standard increased its price from 35p to 40p sales actually increased because people in a rush found it easier to grapple with just two coins. With a single 50p, the newsstand transaction should be swifter still. Besides, arguably, Standard readers can afford it.

As Veronica Wadley, the Standard's editor, says: "The paper has the highest number of AB readers of any newspaper in London, and the largest circulation of any national paper in the capital with the exception of the Daily Mail."

While the tactic of News International, the parent company of thelondonpaper, is to paint the Evening Standard as gloomy, whingeing and obsessed with immigrants, muggers and Red Ken, Wadley is determined the Standard will appear as a premium product - more substantial, less lower-class and flimsy than its freesheet rival, and a very distinct product from its sister, London Lite. If all goes according to industry forecasts, an extra £7m will be raised, to be ploughed back into marketing.

The Standard is not alone in attempting to boost revenue from circulation to offset the current advertising decline. "Most quality newspapers derive only 25 per cent of their income from the cover price and the rest from advertising, but with advertising revenues plunging, that ratio will change." says Dominic Ponsford, news editor of the UK Press Gazette. "The future definitely lies in paying more for editorial content." Already strategies to raise sales are mushrooming: 130 million DVDs were given away with British newspapers last year, according to Screen Digest, an average of five per household. But such gimmicks rarely produce more than a momentary hike in sales. More important is building loyalty through editorial with favoured columnists and regular features, and that is exactly the strategy that appeals to readers who are prepared to pay for it.

"I think in the future you will sell less, but people will pay more, which will be a virtuous circle because people willing to pay more are likely to be more affluent and interesting to advertisers," Ponsford says.

Certainly many in British newspaper circles are beginning to think that way. Already smaller format sizes have boosted sales and revealed a willingness to think radically and break taboos. And one of the biggest remaining taboos is price. Senior industry figures argue that newspapers are absurdly cheap in comparison to other everyday "luxury" items, and that readers would actually be prepared to pay far more.

"Newspapers are dramatically underpriced," says Ivan Fallon, chief executive of Independent News and Media UK. "Especially given the cost that goes into making them - the material and the effort - they are incredible value. You couldn't get a decent cup of coffee for under £2, after all. If advertising revenue continues to come under pressure then newspapers will have to find other sources. Some are already increasingly being used as a cost centre for other sources of revenue - The Sun does online bingo and ringtones. We all have to think, can you add other things to build the brand?"

So are the days of the cappuccino cover price, where newspapers cost the same as the coffee you drink while reading them, that far away? And if one quality newspaper did break cover and charge more than £1, would others follow? Certainly Rupert Murdoch, who instigated the bloody battles of the 1990s by slashing The Times to 10p, claims he has ruled out the chance of further price wars in the quality market. "The reality is that we've seen the last of any serious price wars for a long time," he said last year. "I don't think any of the others could afford it, certainly not on a long-term basis."

Ivan Fallon cites the example of The Economist, which increased its cover price and managed to double its sales into the bargain. "The five quality papers taken together lose around £120m a year," he says. "If they sold at £1 a copy, that deficit would become a £50m surplus."

According to Jim Bilton of Wessenden Marketing, the independent media research firm, given the problems faced by all mass media in the face of fracturing audiences, targeting a newspaper more tightly makes sense. "In effect you're making a decision about niching your audience, saying people will pay for quality and commentary from a definite angle. But if you do become a premium product, you've got to do it with conviction. You need to deliver a very clear added-value proposition."

Meanwhile, while commentators blithely predict a bloodbath in the newspaper market, the Standard's venture will show whether paid-for and free newspapers really can co-exist. Paul Horrocks, editor of the Manchester Evening News, which has recently begun to operate both a free and paid-for edition, says there have been "amazingly few" complaints from readers about the discrepancy.

He believes that cultivating loyalty pays, even in the free market. "I would much rather someone picked up a free copy of my paper because they wanted to read the Manchester Evening News, than because it has a CD on the cover."

Jim Bilton says: "Free newspapers are the only way of getting to the younger, non-newspaper readers and introducing them to the reading habit." But Ivan Fallon cites free newspaper models in Boston, Chicago and Dallas, which have had little impact on the paid-for sector. "It is quite difficult to make it work economically. The impact on the paid-for market is almost unmeasurable. Freesheets tend to create a new readership of their own rather than take away from the established sector."

The next few months will tell whether the Standard, so often characterised by its rivals as the harbinger of bad news about the capital, has a chance to impart an upbeat message instead.

VIEW FROM THE TOP: SHOULD WE PAY MORE FOR OUR PAPERS?

"Newspapers are dramatically underpriced - you couldn't get a decent cup of coffee for under £2, after all"

Ivan Fallon CEO of Independent News and Media UK

"The Evening Standard has the highest number of AB readers of any newspaper in London..."

Veronica Wadley Editor, 'Evening Standard'

"I would much rather someone picked up the Manchester Evening News because they wanted to, than for the CD"

Paul Horrocks Editor, 'Manchester Evening News'

MEDIA DIARY

Pre-Murdoch tension?

What could lie behind the Evening Standard's recent bilious diary story mentioning that "questions are being asked about the future of Claire Beale", editor of Campaign magazine? According to the London paper, the mag "continues to lag behind its rival, Media Week", and it suggested that Beale may soon be looking for other work. Can this have had anything to do with an article in Campaign by Beale the previous week which accused the Standard of consistently failing "to capitalise on its franchise in one of the world's most vibrant and important cities", and of having become "unutterably bland"?

The war on humour

Is the BBC backing down in the face of terrorism? Two weeks ago the corporation mounted a gutsy defence of Armando Iannucci's new satirical series, Time Trumpet, after the Daily Mail began breast-beating about its terrorism awards skit being in poor taste. But last Thursday, episode three, which focused on the war on terror, was pulled and hurriedly replaced by episode four, which stuck to a more general satirical beat, to the disgruntlement of some of the programme makers. The BBC originally defended the series, saying that "the scenarios are so ludicrous that viewers will immediately recognise them as satire". However, now the BBC says that "our concern, at this state of heightened alert, is for viewers who do not know what to expect and misunderstand the show". What backbone.

Skidelsky skedaddles

When reading the New Statesman book pages, one can begin to believe the world is being taken over by Skidelskys. As well as young Will being the books editor, his philosopher brother Edward and historian father Robert often pop up on the pages to opine about worthy tomes. However, such familial largesse will be finding a new home. Will has just been appointed deputy editor of Prospect magazine, a position he will take up at the end of September.

People person Parry

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Patience runs 'em out

The great Sunday Telegraph clearout continues. Editor Patience Wheatcroft, who arrived in April, has decided that Mary Wakefield's column is no longer required. Wakefield joins two of her predecessor Sarah Sands's other columnists, Griff Rhys Jones and Matthew Norman, in not fitting the Wheatcroftian bill. "Wakefield doesn't write about crime or tax so they wouldn't like her," says one fan.

Online Queen Clare?

The Guardian is planning an arts version of its Comment is Free website. The paper's arts editor-in-chief, Clare Margetson, is hotly tipped to edit. Comment may be free, but it's hard to extract from The Guardian, which declined to confirm internet plans.