Murdoch Reconsidering Paywalls? Delaying Implementation

from the so-much-for-that-plan dept

Is Rupert Murdoch flip-flopping on paywalls again? Way back when (i.e., two years ago) Murdoch was a big believer in the idea that news should be free online, and that he could more than make it up with other business models. But, then, earlier this year, he did a complete flip-flop, declaring that all his publications would put up paywalls, saying that free content is bad, and accusing aggregators and search engines of "stealing" content. Some speculated that it was all a ploy to get others to put up paywalls. Though, others just think Murdoch's getting a little senile. Either way, it looks like he's stalling a bit. Jay Rosen points us to the news that Murdoch is "postponing" the date for when he wants his papers to have paywalls. It's not clear if the delay is due to technical difficulties in implementing a paywall, or if he's actually reconsidering. Either way, it doesn't look like the great big paywall is going up any time soon.

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Murdoch Now Demanding Names Of Kindle Subscribers

from the this-will-end-poorly dept

Fresh off vague and undefined plans to put up a paywall on various news sites, it seems that Murdoch's latest misguided target for digital angst is Amazon. ikonoclasm alerts us to the news that Murdoch is angry and threatening to remove all News Corp. material from the kindle unless Amazon is willing to hand over subscriber names and info to News Corp., despite having just negotiated a larger share of revenue. Of course, the subscribers themselves might actually like the fact that Amazon isn't handing out their user info. Either way, it seems like Murdoch is suddenly hellbent on making it more difficult to read any of his content digitally.

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Rupert Murdoch vs. Rupert Murdoch On Free vs. Paid News Websites

from the which-rupert-is-rupert dept

Rupert Murdoch continues to shift his position on the value of "free content" but he seems to be going in the wrong direction, and not giving anyone much confidence that he knows what he's doing. You may recall that right before he completed buying the Wall Street Journal, he claimed that the WSJ would be better off going entirely free:

"We are studying it and we expect to make that free, and instead of having 1 million [subscribers], having at least 10 million to 15 million in every corner of the earth.... Will you lose $50 million to $100 million in revenue? I don't think so. If the site is good, you'll get much more."

That was just under two years ago, and his reasoning is actually quite sensible. However, after he took it over, there was apparently some back-and-forth and the Journal convinced Rupert to keep it behind a (somewhat porous) paywall. Of course, as many note, the WSJ is able to charge because of the reputation of its content (far above most other publications) and the fact that it's reporting financial info, where the direct value can be quite high to many readers.

Still, it was a bit of a surprise earlier this year when he started complaining about free content, saying:

"People reading news for free on the web, that's got to change."

And then he complained about Yahoo/Google "stealing" (he later changed it to "taking") content. Of course, that's not true. Both Yahoo and Google either link to content or have license deals. There is no "taking" of anything.

Either way, given those statements, perhaps it's no surprise at all that Murdoch is now planning to put paywalls across all his online news properties in the relatively near future. Apparently the plan will be based on the WSJ model, meaning that some stories were be available for free, but there will be severe limits. Given how many old school newspaper guys have talked about putting up a paywall, this isn't much of a surprise (though, it is still odd given his comments from two years ago).

That said, if newspapers are going to charge for online content, then let's see them go and charge. I think it will fail (miserably), but let's see him try to prove us wrong. Here's why I think it will fail:

1. Those other sites don't have the qualities that make some people willing to pay for the WSJ. The quality isn't as good and the direct monetary benefit is not nearly as clear.
2. Most of those other sites have much clearer (free) competition.
3. Nowhere at all does Murdoch talk about actually giving people a reason to buy. All he's saying is that if they put up a paywall, people will pay. Sure, a few might, but it's a small number, and doing so will stagnate any sort of growth, piss off advertisers, and allow competitors to take a giant leap forward -- all in one shot.

But... if he wants to charge and thinks that these points are incorrect, we're eager to see how Murdoch gets around these issues. In the meantime, if you work for a publication that competes with a Murdoch news site, start revving up a marketing/promotional campaign about how you don't charge, and see how much market share you can build. Unless, of course, Rafat Ali is correct in his thinking, suggesting that this is all a big bluff to get others to put up a paywall. I don't believe it though... because if I'm a competitor the fact that Murdoch is going paywall, gives me even more reasons not to do so.

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What Would Happen If Social Networking Sites Charged

from the a-thought-experiment dept

JohnForDummies alerts us to a suggestion from Dan Lyons over at Newsweek, saying that sites like Facebook, Twitter and YouTube should just start charging for their basic service. He brushes off those who think it's a bad idea as "the prevailing wisdom in Silicon Valley today is that everything on the Internet must be free." Except, that's not true. No one (NO ONE) is saying "everything on the internet must be free." This is just a silly strawman put forth by folks with little understanding of the business models people are actually discussing. Lyons also fails in recognizing that his "example" isn't even a very good one. He talks about PalTalk, who has built a business by offering premium features at a fee. That's the typical "freemium" model, but that's not what he then suggests for Facebook and Twitter, who he says should just start charging. Amazingly, he suggests that Facebook would only lose 50% of its users if it started charging (in fact, he seems to suggest that this is a conservative estimate: "Even if half of Facebook's members were to leave rather than pay...")

Well, there's a problem with both Lyons' math and his crystal ball. In cases where companies have gone from free to charging, the numbers I've seen (and, yes, it does range slightly, depending on the service) the rate of uptake is usually somewhere between 0 and 1% at best. Even if we grant Facebook some credit as being a "necessity" for students, I'd be shocked if they could get 5% of people to pay up to use the service -- and they'd find that number dwindle really fast. With only 5% of people using the service, it certainly becomes a lot less useful. Rather than communicating with all your friends, you can now only communicate with the 5% who ponied up. Or, you jump ship to someone else that doesn't charge.

And that's the real issue. The second that Facebook even hinted at charging users for basic service is the second users would start moving en masse to another (very, very happy competitors would be quick to offer themselves as an alternative). I recognize that it was still back in the days when Dan Lyons hated social media and thought social networking and blogs were evil, but he might want to familiarize himself with the history of Friendster. For a while, there were all sorts of rumors that Friendster was about to start charging, and MySpace kicked off a very well coordinated "grassroots" rumor campaign about how Friendster was about to charge, and everyone should switch to MySpace before Friendster put up a paywall.

In other words, not only will a lot less than 50% of people sign up for a pure fee-based Facebook, but everyone will move elsewhere, making that the place to be (for free). That's not to say that Facebook couldn't come up with some additional offerings of value that it could charge for, but the idea of charging for the basic service is really short-sighted and easily debunked if you think through it.

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History Lesson: Newspapers Haven't Charged For News In 180 Years

from the get-it-straight dept

It's been said here before, but Jay Rosen points us to a post at NewsFuturist that points out that newspapers haven't charged for content in 180 years. Before that, subscribers paid the full freight -- but since then, subscriptions have always been less than the cost of producing the physical paper and the cost of delivery. The actual reporting has been paid for by advertising, not subscriptions, for nearly two centuries. And there's a pretty basic economic reason for this, and it's the same one we've been making for years, but is nicely summed up here:

The price of a product in a competitive market falls to the marginal cost of creating and delivering one more unit.

For printed newspapers, the marginal cost was a little more paper and ink, maybe an extra block on the delivery route. Subscription fees never accounted for the fixed costs of producing the content: the building, staff, printing press, etc. That share of costs has long been paid by advertising and diluted by economies of scale.

The same economic forces apply online. And because the marginal cost of bits is nearly zero, the appropriate price becomes too small to bother tracking. Free is the result.

In fact, the principle of marginal-cost pricing is even stronger in the Internet economy because there are very low barriers to entry and nowhere near the startup costs of print. And the marginal costs such as bandwidth and storage decline every month.

Those who ignore the rule of marginal-cost pricing and try to charge users for content in a competitive market will be undercut by more efficient competitors who stick with free. They'll also face an endless fight against piracy, because economics says the product should be free and technology makes it easy to duplicate and spread.

The thing that seems the most difficult for some to get is that last paragraph. When we talk about the reasons why it doesn't make sense to charge for the content itself, all we're pointing out is that if you do it, you'll fail. All you've done is open up an opportunity for someone else. We're not saying "information should be free." Should has nothing to do with it. It's will be free, because the economics drive it there, and as much as you don't like it, or don't like the implications of it, it doesn't change that it's what is happening. So, you either learn how to embrace it (as many are doing, quite successfully) or you die.

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Cargo Cult Science In The Newspaper World: If We All Charge, People Will Pay

from the this-will-fail dept

Newspapers continue to insist that people will pay for news, but they never give any reasons why. Instead, they keep working on these vague threats of colluding and promising "you'll miss us when we're gone." The latest is that the editor of the Financial Times, Lionel Barber, is claiming that most news sites will be charging within a year.

I'm wondering if he's willing to bet money on that, because I'll take the other side of that wager.

First, as noted, very very very few online news sites give readers a real reason to purchase a subscription. Many could if they spent the time trying to figure out how, but very few do that. They just seem to think that charging for content is the answer. It's not. But, more importantly, you get the feeling that Barber is very narrowly defining what counts as a "news site." He does a bit of "damning by feint praise" thing on blogs, but seems to (once again) confuse blogging the platform with journalism the practice (apples and oranges, certainly). So, when he talks about "almost all" news sites charging, he's leaving out plenty of things that he doesn't consider to be news sites.

The big problem with that? Most of the reading public doesn't agree. Many are content to get their news from those other sources.

Furthermore, for every major news site that decides to charge, they have just opened the playing field wide open for others to come and scoop up their market with a better, smarter business model. And don't think some smart media execs and entrepreneurs aren't salivating over the opportunity of some major publications to go behind the paywall.

Still, Barber's talk was a lot more involved than just that one quote that's getting attention. You can read the whole thing, where he spends an awful lot of time talking up the importance of journalism, as if it's some sort of mantra. "Journalism is important, so of course people will pay us, because we're important." But as you read through the speech it becomes clear what the problem is in his thinking.

He puts "journalism" on a pedestal.

He continually talks up how important journalism is to the community, but doesn't do much to talk about how important the community is to news organizations. It's standard media elitism to assume that it's the news that's so important, and the clueless public is sitting there waiting to shovel it in -- but has no interest in actually being a part of the process or included in any sort of discussion. At best, he spends a little bit of time just talking about how consumers "consume" the news in a different way, and participate in stories in a different way, but he doesn't talk much about better serving them in terms of what they want to do. No, instead, he focuses on how important news is for that community, not about helping that community do more.

Meanwhile, along these same lines, David Simon, who's rantings on newspapers we've debunked before, has written a silly opinion piece for the Columbia Journalism Review, where he tells the heads of the NY Times and the Washington Post to both wall off all their content behind a paywall, insisting they can pretend they didn't collude, by saying they just read Simon's advice and decided to take it.

Simon's column involves strawman upon strawman, ignoring economic and technological realities. He (just like Peter Osnos in the same issue of the Columbia Journalism review) uses the same analogy of cable TV. Again, to say this misses the point is being unfair to the point -- which is somewhere a few miles away. Cable TV works because of certain limitations in television. Those limitations do not exist online. That's basic technology. How pricing works is economics, and when you have limits (lower quantity supply) price can be driven up. But when the supply is effectively unlimited (such as online), then price gets driven down. That's economics. Making arguments that ignore both technology and economics are not compelling. They're a waste of time.

It's as if folks who work in the old newspaper industry still can't be bothered with actually understanding the fundamental issue they're facing. They're using cargo cult science. They remember (somewhat incorrectly) a world that was before -- a world where people paid for newspapers via subscription and only went to that source. But like the cargo cultists, they're getting the wrong message. They think that if they just act in the same way as what they remembered in the past, they'll get the same results. So if they dress up like soldiers and man the airport (i.e., put subscriptions on news sites) they'll suddenly get food to drop from airplanes again (get people to pay again).

But this shows a fundamental misunderstanding of why people actually paid for newspapers in the past. At the time, it was the only real way to get that information and to be a part of that local community. The paper served the community without much competition. Yet, these days, there is plenty of competition, and these newspaper guys aren't talking about serving the community better than the competition, they're talking about limiting the value of newspapers by putting up paywalls, that make it harder for people to consumer the news, harder for people to discuss the news, harder for people to share the news and harder for people to be a part of the community.

And they'll wonder why the food doesn't fall from the sky?

Putting up subscription walls and assuming that the world goes back to normal is no different than the cargo cultists. It's totally misunderstanding the cause of what happened in the past, and thinking that if you just recreate a few superficial structures, the rest will magically come back. It won't.

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Odd Argument: Google Will Lose Out Once Everyone's Comfortable Paying For Stuff

from the wait,-what? dept

I think that Google has a fair number of weak areas where there are wide open opportunities to attack its business, but honestly I have a lot of trouble believing that Google's embrace of "free" services is its Achilles' heel as claimed in an article over at SeekingAlpha. The argument is that Amazon and Apple have figured out how to make paid content work, and that goes against Google's general culture:

Because it's not culturally disposed to charging fees and has few billing relationships, Google's online search clout has been limited to free ad-supported arrangements. Google's share of total domestic online revenues could be at risk as user payments begin to match or exceed advertising, Mitchell contends. Google claims more than 30 percent of online ad market and a smaller share of online content apps payments.

This is wrong on so many different levels, it's hard to know where to start. First, I'd argue that Amazon and Apple haven't really figured out how to make paid content work. Both still mostly use it as a loss leader (or very very low margin leader) to sell higher margin physical goods. Second, the growth projections for paid content are (a) questionable and (b) starting on such a small base as to be effectively meaningless when compared to a market as large as advertising.

But, furthermore, the idea that if paid content/apps actually do become popular, Google couldn't capitalize on that, is difficult to believe. Google has certainly experimented with various forms of paid content and software. The fact that they haven't gone all that well doesn't mean that Google couldn't quickly come in and enable the ability where it does work.

So, yes, there are plenty of places where an attack on Google could be successful. But betting on the success of paid content and paid apps to bring down Google? Sorry, it's just not believable. But, you have to hand it to some Wall Street folks for actually thinking that the way to beat a company that gives away most stuff for free is to charge for it. After all, haven't we been hearing for years that "you can't compete with free?" And, now suddenly we're being told that offering something for "free" can't compete with a paid offering?

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Newspapers' Plan For Survival: Charge Money, Beat Up On Craigslist And Keep Repeating To Ourselves That We're Needed

from the good-luck-with-that dept

There's been plenty of coverage about the potentially antitrust-violating meeting of newspaper execs in Chicago recently, and late last week reports came out about some of the recommendations put forth by the American Press Institute at that meeting. The API apparently handed out two whitepapers, both of which are amusing, only in that someone actually thinks they're useful. The first was effectively saying: "Craigslist really sucks, so let's try to beat up on Craigslist." The second, more thorough whitepaper, rehashes a bunch of debunked ideas about how newspapers should lock up their content in order to charge for it, including such gems as: "Establish that news content online has value by charging for it." Apparently someone at the API is unfamiliar with the difference between price and value. You don't establish value by putting a price on things. You are able to put a higher price on things by creating scarce value. But the industry isn't looking to do that. It's looking to pretend its content has value, by locking it up. Unfortunately for the newspapers (but good for everyone else), economics doesn't work that way.

Apparently part of the plan to get around anti-trust issues is to create an intermediary, sort of like an ASCAP for the newspaper industry, which suggests a near total misunderstanding of the differences between news and music -- but if that's where the industry wants to go, why not let them and watch smarter business folks mop up the mess for profit.

In the meantime, an absolutely fantastic teardown of the API's whitepapers comes from John Temple, the former editor, president and publisher of the now defunct Rocky Mountain News. If anyone were susceptible to the backwards looking "let's try to recreate the way things were" argument, you would think it would be him. But, instead, he responds to the API's reports by describing just how backwards looking it is and why it should scare anyone in the news business:

Imagine you're a young business school graduate trying to decide where you want to start your career. (OK, I know there are no jobs, but imagine it anyway.) You attend a newspaper industry summit and hear one of the big ideas from an organization at the heart of this world is to compete with Craigslist. What do you think you would think? Talk about an industry looking in the rear view mirror. Isn't that an idea that might have had legs, oh, maybe five years ago? How could it represent in the eyes of that young business school graduate any kind of exciting opportunity today? The advice boils down to, "Let's win back our business from the guy who's eating our lunch." How is the newspaper industry going to attract any of the best and brightest into its ranks if its ideas are stale, at best?

What might even be more troubling about this proposal is how newspaper people seemed to denigrate the Craigslist brand, when all they need to do is talk to people -- including in their own buildings -- to find out that most of those who've used the site seem to genuinely value it. Why? Because it gets results and it's free.

Temple also points out two big problems with the API's suggestions. The first is that it's suddenly trying to get people to pay for what they're used to getting for free -- without adding any additional value worth paying for. And, the second (though related) is that they're not actually looking to do anything really new or unique to embrace what the internet enables. While plenty of other websites and services are embracing the technological power of the internet, the best this report suggests is "people who work at newspapers should start experimenting with social networks":

Of course leaders should always be learning. That's a given. But are they serious? Isn't this a little late? If newspaper industry leaders aren't doing this already, do they really belong in their positions? Why should shareholders pay executives to learn all they can when they should be able to find ones who already know what they're doing? If people need advice like this, should they be running newspaper companies?

All in all, the meeting itself, and the recommendations from the API certainly show an industry that's not looking to compete or add value. It's looking for ways to rebuild the walls that let it exist without competition in the past. It's a recipe for suicide.

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Time Magazine May Join Newspapers In Committing Suicide By Charging Online

from the good-luck-with-that dept

So, say you're a general news magazine that's struggling to remain even remotely relevant in an internet era... what do you do? Apparently if you're Time, you think about charging. This isn't all that surprising, really, given that Time Magazine published that poorly thought out article arguing for micropayments for online publications. It just makes you wonder who these people are making these decisions and if they ever bothered to look at all of the attempts in the past to charge for such content online.

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San Jose Mercury News: No One Reads Us Any More, So Let's Start Charging

from the this-will-end-poorly dept

When I first moved to Silicon Valley, the newspaper of record was the San Jose Mercury News. Everyone read it. It did a great job covering the local startup scene, and had some fantastic columnists and writers. But, one by one, those top notch writers left for greener pastures or to start their own things (such as Matt Marshall starting VentureBeat, which came out of the experimental Silicon Beat that he and Michael Bazely created while at the Merc). Then, of course, Knight Ridder came under all sorts of Wall St. pressure and got sold (and some of the papers then were quickly sold again). In the last few years, there's been fewer and fewer reasons to actually read the Merc, and I haven't looked at the paper (or the website) in probably a year or two. That's quite amazing since it used to be one of my first stops every morning. But, these days, all of the news that I used to get from the Merc can be found online from better sources with better writers. Back in March, I was on a panel discussion with a business editor from the Merc, and he and I got into a somewhat heated discussion on the wisdom of charging for news online. I told him that it made no sense, and he insisted that it could work. Apparently, he knew what was coming.

Media News, the current owner of the Merc, has announced that it's now going to start charging for online access to the paper, which seems like a move destined to fail dismally (and quickly). Already it's difficult to come up with any good reason to read the Merc online when it's free, and suddenly they want people to pay for it? All of the info that the paper provides is better provided elsewhere. It's difficult to see how they think that any significant number of people will actually pay to subscribe to the online version that's a tiny shell of what was once a great newspaper.

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Notice That Murdoch Is Only Talking About Charging For Content... Not Giving People A Reason To Buy

from the good-luck-with-that dept

Yesterday, The Daily Beast "leaked" the news that Rupert Murdoch had a "secret plan" to start charging for content, and today the news is all over the mainstream press, as Murdoch officially announced the plan. Of course, I'm not sure why people think this is a surprise. Murdoch basically made it clear this was his plan a month ago (oddly totally contradicting his own statements from a year and a half ago, where he talked about how much more money you could make from free content).

Still, if you want to know why this (like pretty much ever other plan to charge for news) will fail, just look at the language Murdoch (and others who insist on charging) are saying. They talk about the fundamental "value" of content. But they never talk about actually increasing the value or giving the community a reason to pay. Instead, they seem to think that the content, by itself, is somehow reason enough. However, you can bet that the management at competing news publications around the globe are suddenly gleeful over the idea that Murdoch is about to take his publications out of competition for a large amount of advertising dollars. As soon as Murdoch puts up a pay wall, and traffic drops, that'll make it just that much easier for competitors offering free content to build up both audience and advertising revenue. Meanwhile, Murdoch will discover that some people certainly will pay, but that it'll be tough to grow that revenue stream at any significant rate.

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The Straight Dope On Why Charging For News Online Is A Bad Idea

from the don't-mess-with-cecil dept

We've had plenty of stories lately explaining why trying to charge for news online is not a very good idea, but Duane alerts us to Cecil Adams from the famed "The Straight Dope" and his take on the matter, after someone suggested that all newspapers should band together and start charging for online content. Cecil's response is so good that it's hard to know just which parts to quote. Since it covers a lot of similar ground to what we've covered in the past, we'll focus on the part that discusses TSD's own experiment with charging for its message boards. It's especially interesting because TSD's experiment "worked" in that they brought in a fair amount of money... but Cecil still thinks it's a bad idea, and explains why TSD dropped the subscription:

Impressive numbers notwithstanding, for years we couldn't figure out a way to make the SDMB generate a dime. Finally at a meeting one day, Mike Lenehan, my first editor, said, "We could charge!" My immediate thought was: I should have beaned this guy with an eraser instead of that brick. However, lacking an alternative plan, we tried it. To everyone's surprise, it worked. Several thousand people paid good money for the privilege of posting, and paid again when their subscriptions ran out. (The great majority of our visitors are non-posting lurkers, in case you're wondering about the numerical disparity; merely reading the board has always been free.) For years we pulled in a tidy sum of cash each month.

But here's the thing. It was a tidy but non-growing sum of cash. What's more, the previously steady increase in visitors flattened out. Tiring of convent life, we decided to rejoin the real world and discontinued subscriptions last August, shrewdly timing this to coincide with the current economic collapse. (Being the world's smart human is one thing; having a head for business is something else.) Visitor growth immediately resumed its upward climb.

In short, subscriptions are self-limiting. But that's only half the story. The other half is this: Your content -- that term is always going to grate -- is your own best advertisement. The Straight Dope, again, is a good example. (The Straight Dope is a good example of a lot of things.) My online archive, consisting of the totality of human knowledge distilled into convenient 800-word chunks, has always been available for free -- currently more than 2,800 columns. We make no effort to promote this, and why should we? Whenever people Google the questions that really bug them, inevitably we pop up. As a result -- I'm looking at quantcast now -- we drew 845,700 visitors last month. Chicagotribune.com pulled in 2.7 million, which, granted, is more. However, the Trib is part of a multibillion-dollar corporation that employs thousands (well, it used to be thousands; what it is after all the layoffs I hesitate to say). TSD employs a few steadfast disciples and me. Lesson: If you're producing a quality editorial product, put it out there gratis. You want the world to know.

This is why I'm still skeptical of the usual suspects trotted out as big "success stories." Let's see how it works in the long run. If you lock up your content -- even if it generates some revenue today -- you're cutting yourself off from the conversation, and making it that much more difficult to grow and be in position to reap the rewards of greater traffic in the future.

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Bad Business Advice: Always Look To Charge For Content

from the if-you-want-to-fail... dept

A few people have sent in the NY Times story supposedly about the "free vs. paid" debate that quotes some business school professors giving what appears to me to be awful advice:

Eric J. Johnson, a professor at Columbia Business School, said he had been amazed by media companies repeatedly adding free online services, like on-demand video. "Before you add something to your site, you should say that if consumers really want it, that should be part of a package that you could charge for."

That's looking only at one side of the equation and is doing so in a dangerously short-sighted way. Rather than saying "hey, if people want this, we should charge for it," why not actually look at the larger ecosystem? Why not recognize the added value that can be added if it is free and how that can enable other business models? The problem is that professors like Johnson are basically pushing the idea that a media company is a "content company," rather than a company that's building a community. It focuses on the belief that the content is the final product. It's not. It's never been the final product. If you have open and available content, that allows users to make it more valuable by sharing it, spreading it, annotating it, commenting on it and building off of it. You can't do that when you put it behind a paywall. Content behind a paywall is less valuable to most people. So why would people pay for content that is less valuable?

The problem is focusing so much on the product rather than on the real benefit. Having the content free enables so much else. And if you focus on charging, all it does is open up an opportunity for others to step in and provide that value, and sap away the "paying" users. Focusing just on the pay question and ignoring the value side of the equation is a recipe for trouble.

So, rather than the NY Times "debate," perhaps check out what the site Hypebot did, which was note that the "debate" is already over. It's not about whether or not there should be "free" content, but that the economics and the market are clear: it will be free. So, with that in mind, it put together a whole series of thoughts from different folks about ways to embrace "free" as a part of larger business models. There's plenty of good stuff to read there.

Glenn Peoples, at Billboard, also picked up on the discussion, which is great, though I'd like to challenge one thing he wrote, complaining about Chris Anderson's take on "free":

Anderson did not draw enough distinction between marginal cost -- which in the case of digital distribution is zero -- and average cost. When Anderson writes that "the marginal cost of digital information comes closer to nothing," what he means is the marginal cost of distributing that digital information. There are significant costs in recording music. The cost of creating a brand and inducing awareness, other considerations Anderson understates, are both unavoidable and considerable. An insignificant cost of creating and distributing one more digital file does not reflect the amount of investment to be recouped.

While I don't want to speak for Chris, he and I have certainly talked about these things, and I believe that Peoples is misstating Chris' point on all of this. As we've discussed here before, no one is ignoring the cost of creation or the cost of those other things. We're simply stating the economic fact that none of those things matter in terms of final price. This isn't how we want things to be. It's how economics works. Price is influenced by marginal cost. That's it. Price is not influenced by fixed costs (or average costs). That's not because of what Chris says or what I say. It's how a market works, no matter how anyone thinks things should be.

That doesn't mean you ignore the fixed costs or the average costs. Obviously, you do need to pay attention to those for the sake of making sure there's an ROI where you need it. But that's where you look at your overall offering rather than focusing so narrowly on just the content. So if you can take the content (as you can) and make it free, and use that to drive up interest and value in other scarce products you can sell, then that's where it matters. And, as for the question of "the costs in recording music," we (here at Techdirt) have certainly addressed that at great length: the creation of content is in fact a scarce good. And you can charge for it -- and many have. Jill Sobule is a perfect example of this, getting people to pay to create a new album. Other models work as well, including having brands help pay for the creation of music. There are lots of models that work -- and they don't conflict with or negate the fact (not opinion) that the content itself will have its price driven towards free.

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If You Want To Charge For News, Can You Answer These Questions?

from the please? dept

Want to know why the old school newspapers are failing one after another? Maybe it's because they're spending all their time rewriting the same column over and over again. The latest is David Carr of the NY Times who has written the same column that has been written about fifty times in the past 6 months by others, saying that newspapers should all collude, stop giving away content for free, force Google to pay to link to them, among some other nonsense that makes no economic sense whatsoever.

Steve Yelvington, however, has put up a good list of eight challenges that any newspaper or reporter who wants to charge for news should need to respond to in full. His list is focused on those who want to charge for "local" news, but I think it mostly applies to all news:

1. The painful lessons of experience. You might want to look into the history of attempts by general news sites to get consumers to pay for access. Did you actually think we hadn't thought of it, and tried it? Your ignorance of the field and of history is one of the things that makes the online guys reject everything you say. Do you need a list? The burden of research here is on you; it's your idea, after all. But I can tell you where to start.

2. The problem of scale (volume). It takes scale to make paid content work, and you don't have the volume you think you have. Quit making up wishful percentages based on your totally bogus monthly unique-user count ("well, if we get just 10 percent of our 85 zillion unique users to pay"). If you're going to engage in wishful thinking, base it on the cohort of individuals who visit your website more than three times a week. You will be shocked, and dismayed. I've been saying this for years: How can you get them to pay if you can't even get them to visit frequently when it's free?

3. The problem of scale (breadth). The idea of premium paid content (to generate reader revenue) plus free commodity content (to support an ad model) is alluring, but be honest with yourself. Local sites don't have the breadth of content to simultaneously support a paid premium content model, while maintaining enough free pages to harvest the advertising benefits of the open model.

4. Relative strength of the geotargeted advertising model. Ultimately the idea of paid content goes to war against the idea of ad-supported content. In local markets, the ad model is stronger than in global markets. There is, and always will be, a gross surplus of ad inventory on the Internet, and that drives CPMs into the sand. But actual deliverable geotargeted advertising -- and please understand that I'm talking about a reality that includes the entire sales support system, not theory -- is an entirely different matter. Local advertising sold by local sales forces is a substantial revenue stream, and if you're not tapping into that, it's your own fault.

5. Competition. There are plenty of competitors and would-be competitors just waiting for you to strangle your own website so they can step in and steal your future. The larger the market, the more this is true. In some relatively small, isolated markets you may be able to get away with it. For awhile.

6. Lack of unique content, coupled with a false sense of being unique. When you've had a virtual monopoly for decades, you grow arrogant and develop blind spots about your own weaknesses. From the viewpoint of the consumer, you're not nearly as unique and special as you think. And you've exacerbated this problem with your poor pay scales historically, and more recently your vicious cutting aimed at higher-salary veterans.

7. Support costs. If somebody drops 50 cents into a newsbox and it won't open, they just go away mad. If somebody is paying for access to your website and it won't work, they're going to call and suck up 12 dollars of staff time. You have no idea what you're getting into. Computers are evil, perverse devices aimed at driving humans crazy.

8. Your own staff. Your online staff hates the idea and they'll do everything they can to undermine it. Yeah, you can fire them. Why don't you get a table saw and cut off the fingers of your right hand while you're doing it? I've seen this happen time after time as newspapers consolidate print and online staffs, and the "formerly known as print" people conspire to expel the "formerly known as online" people. The result is a great leap backward. It's self-destructive.

I'd add another important factor to this list: What value are you providing that makes it worth paying you? That's the question I keep asking. Newspaper folks seem to think that their content is magically so valuable that everyone will start paying if they charge. There's no evidence that's true at all. So what value are they adding beyond all the other content out there that makes it worth actually paying for?

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Online Publications Still Think They Can Get Away With Charging For Access

from the not-unless-you're-something-special dept

As various news publications struggle to find new business models, they keep jumping back to the idea of "if we could just get people to pay..." And, then they look at the very, very, very few success stories online of charging for content (such as the Wall Street Journal) and think "hey, we can do that..." Except, they can't, for the most part. The WSJ gets away with it because the level of their reporting really is heads and shoulders above others on certain topics -- and it happens to be on topics which matter significantly to many people (i.e., they can make money based on that info). Unless you have both very specialized and highly valuable content that is not well covered elsewhere, you're going to have trouble charging. And, of course, even then you might have trouble. Cutting off people through a subscription wall presents additional problems, such as convincing any new readers you're actually worth it compared to all the free content out there -- and, most importantly, staying a part of the relevant conversation. These days, that's a lot more important than the content itself (though few newspapers recognize it yet). Also, focusing on charging simply opens up an opportunity for others to create similarly compelling and valuable content for free... and siphoning away your paying readership.

So, it's pretty surprising that anyone thinks that U.S. News and World Report has even the slightest chance of making it work, but folks at the magazine apparently think people will pay $20/year for an online subscription. It's difficult to see how this would work -- considering that there's plenty of (free) competition that covers similar material (and already has a better reputation for it). It seems like a last gasp effort by a U.S. News that has greatly trimmed back over the past couple of years.

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Charging Is Good... But Only If You Charge For The Right Thing

from the otherwise,-it's-a-disaster dept

With various companies trying to rush to put in place better business models thanks to the financial crash, Farhad Manjoo over at Slate has written an article suggesting that various free online services just start charging. Much of the article is based on the beliefs of the guys who run 37Signals, the online software company, who are strong believers in charging a reasonable price for simple software. To some extent, they're correct, but in many ways, it's exactly the wrong message.

For example, Manjoo suggests that Facebook should just start charging users who have over 200 friends something like $5/month. His admits that there will be revolts and anger, but some percentage will pay, and that will create a nice revenue stream. Manjoo is a smart guy, and I usually agree with him on stuff, but on this, he's way off. The problem is that this analysis is a static one, not taking into account what happens next. And, when it comes to social networks like Facebook, we know exactly what happens next. That's because a few years back, when Friendster was the biggest social network on the planet (during another "down" time in the economy), there were rumors that it was going to start charging, and those rumors fueled the growth of MySpace. I still remember getting Friendster messages over and over again, telling people to sign up with MySpace because Friendster was about to start charging.

Sure, Facebook might be able to retain some users who would pay, but many others would flock to the next big thing, which would remain free... and Facebook would look something like Friendster today. Perhaps it would be making money, but most of the users will have moved on to something else.

So while it's important to come up with real business models that bring in actual revenue, you can't do so by charging for things that no one expects to pay for (or that they've been trained not to pay for). Instead, you have to focus on real scarcities, not artificial ones, or your business model is going to go nowhere. Saying that you should "charge" is nothing revolutionary. But it's misleading. The real trick is in understanding what to charge for -- which is what we've been discussing here for years. It's too bad Manjoo didn't explore that angle, because that's where the really interesting business models of tomorrow will be found.

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