Free Is Not An Aberration; It's Basic Economics

from the understanding-free dept

A few folks have sent over Andrew Zolli’s short opinion piece over at Newsweek, suggesting that free content can’t possibly last. Normally, I wouldn’t even bother with such an opinion piece, since similar ones (nearly identical ones) have been debunked a hundred times over already. But Zolli runs PopTech, which is considered one of the better conferences out there, and if he’s spouting such nonsense, it deserves a response. Let’s start with the basics:

Unfortunately, as we’ve seen since, for companies whose core product is content–like every newspaper and magazine you read, including this one–the idea that we Internet visionaries sold is a total load of crap. We persuaded executives to compete with themselves online by setting up Web sites that offered for free the same content their staffs labored so strenuously to produce and sell in their print publications. The theory was that companies were supposed to make back the money by, uh, “monetizing the attention economy,” or some other similarly vaporous concept, that meant either charging customers later on, or selling advertisements, or both.

Compete with themselves, huh? First, this is hogwash. Most newspapers and magazines make the majority of their money from advertisements anyway, so putting their content out there for free is hardly taking away serious revenue. Newspaper subscription fees don’t even cover the printing and delivery costs. Magazine subscriptions are just as cheap. You know all those “deals” that give you magazine subscriptions for next to nothing? That’s because subscription revenue is meaningless. Ad revenue is what matters.

Second, being online doesn’t mean they compete with themselves. If these magazines and newspapers didn’t go online, then people would gradually come to ignore them, and favor the smarter publications that did go online, or which simply started online. Keeping yourself away from where people are is not a smart media strategy, but it seems to be the one Zolli is suggesting. So it was never “competing with themselves.” It was always about understanding fundamental economics.

Supply and demand. If the supply is abundant, prices go down. That’s not some techno-utopian “load of crap.” It’s what you learn if you pay attention in econ 101. If supply is effectively infinite, prices go to zero.

When I buy the dead-tree version of my local newspaper, I have no expectation that it should be free. If I pick it up and walk out of the coffee shop without paying, that’s stealing. But when I walk upstairs to my office and log on to the Web site for the same paper, I feel a divine right to access the entirety of that paper–and 10 years of its archives–for free. Yet when I use another little computer invented more recently (Amazon’s Kindle, say) to access that very same newspaper, I do pay. And I expect to pay. When the market floods this year with the iPad and its inevitable clones, I’ll expect to pay on those as well.

You may expect to pay, but it won’t be long until others recognize that it’s more valuable to give away that content for free, and then those who still put up a paywall will find it quite difficult to compete.

In the long run, the first decade of the Web could come to be seen as a momentary aberration–an echo of ’60s free culture when we all took the bad, digital acid.

Here, I’ll let Jeff Sonderman respond to this one clearly and concisely:

The assertion is that free was clearly a mistake, an aberration, is usually not explained or backed up with any facts, it’s just out there.

But any fair assessment of the facts shows that forcing payments for news is barely possible, and certainly not inevitable.

Begin with the fact that for the past two decades people largely have not paid for online news content. That’s not an accident, as Zolli suggests. That’s the status quo of a functioning online economic system. If someone says it’s going to change, it’s their burden to explain why. And so far, I don’t hear any good reasons. The most common is that because the news industry is in financial trouble, consumers must bail them out by paying — an insular, backwards view of the consumer relationship.

Along with the lack of evidence for “inevitability,” there is significant evidence against it.

The spark of the whole paid-content discussion was the realization that display ads online aren’t nearly as profitable as in print. The theory arose, if ads don’t work we have to charge the user directly. Here’s the problem: The same reason that the display ad model is failing is the reason paid content doesn’t work — there’s no scarcity online. There are infinite other places to buy ads, consume content or even watch kitten videos, for free.

Filed Under: , ,

Rate this comment as insightful
Rate this comment as funny
You have rated this comment as insightful
You have rated this comment as funny
Flag this comment as abusive/trolling/spam
You have flagged this comment
The first word has already been claimed
The last word has already been claimed
Insightful Lightbulb icon Funny Laughing icon Abusive/trolling/spam Flag icon Insightful badge Lightbulb icon Funny badge Laughing icon Comments icon

Comments on “Free Is Not An Aberration; It's Basic Economics”

Subscribe: RSS Leave a comment
pixelpusher220 (profile) says:

Re: YES and free is good

The argument is not that ‘free’ will win over ‘paid’. It depends on what you can get for your money. If the ‘free’ content is as good as the paid sources, it will survive. If ‘free’ becomes a 20″ water main of information, it will be useful to pay someone to filter that a bit to useful volumes.

As Mike always points out, it’s not the content, but the value being provided that deserves compensation.

The changes coming are that before the internet, content had a value because just getting it had a significant cost, now getting the information has little if any cost. Getting ‘useful’ information is a different story and that’s where the money will be made. Though less money than in the past. The difference may be made up in a much wider possible audience though.

REM(RND) (profile) says:

I have to agree. Case in point: I subscribe to a computer magazine (name withheld, world is sue-happy remember?) I get the magazine. It costs $1/month. Yes, $12 per year. Yes, they have the same thing online and sometimes I do go there. I feel it to be a small, personal version of CwF+RtB. CwF: free content online including ability to download back-issues as pdfs. RtB: sometimes it’s nice to be able to sit somewhere with a physical magazine and read the articles and cut/paste certain things I need in a handy location.

Now, back to the subscription. They have a lot of ads. They are targeted at a certain demographic. Sometimes the ads work, sometimes not, but they usually at least get me to thinking about their product and might even cause me to do some research on it. The magazine gets ad revenue, the website gets ad revenue, I potentially and sometimes do click on the various ad links thus generating more revenue for them. And all I’m out is $1.00 and some minor space for the magazine. I’m happy, the advertiser’s happy (well, would be if I bought more), the magazine is happy.

I think it just boils down to fear. The concept of giving away your product in order to make money, to the major business world, is new. Anything new to someone who’s never changed is scary. Fear of change vs. fear of dying out. You either choose to overcome the first, or you’re forced to overcome the second.

Edward G. Talbot (user link) says:

Free is inevitable

Even beyond the very good points you make in the post, the people who say free is unsustainable always imply that this is due to basic economics. They obviously do not understand basic economics, which is more than just the invisible hand of the market. In basic economics, there are all kinds of things that interfere with what most people think of incorrectly as “market forces” – one of them is the willingness of an individual to work for free.

So forget advertising or other “monetization”, many people are simply willing to deliver content online for free. Their marginal cost is close to zero. That’s where people are in denial when they say free is not sustainable. And even the argument that the quality of free stuff is not as good breaks down. One because the quality of paid stuff has gone down and two because in the great sea of free content, there is certainly stuff as good as the paid stuff. I’m not suggesting that editors and other professionals add no value, but I’m not sure they add enough value to sustain themselves in the face of huge numbers of people competing with them and charging nothing.

Anonymous Coward says:

Re: TV and Radio news

It was stated in the article: ”Most newspapers and magazines make the majority of their money from advertisements anyway, so putting their content out there for free is hardly taking away serious revenue.” He is saying this is how TV and radio started and how it will continue online.

Coco Was Screwed says:

Let them all die

Go ahead charge for content, I dare ya. At that point the argument would be moot, because you would be out of business.

Newspaper Magazine biz 101:

Circulation + Readers = Ad Rates
Ad Rates * advertisers = Revenue.

See the part thats lacking? Now maybe we can get past the fact that I am not paying your bills, I never have, even when you charged me.

Paul (profile) says:

Something IS Unsustainable with Free...

… It just isn’t the product. Or the producers.

I know someone that works for Sun. Sun was giving all kinds of stuff away (Java, Solaris, even their chip designs) and having a hard time making money.

I run an open source project. The Sun person has the view that giving your stuff away killed Sun and made them into fodder for Oracle. They think my open source project can’t make me any money for the same reasons, that free is unsustainable….

But it is sustainable! I mean, for me! And that is because I am not carrying the corporate overhead! It is me, my source, my project, and others that produce for the project! I don’t have to figure out how to cover Jonathan “pony tail” Schwartz’s multi-million dollar compensation… I just have to have enough consulting, work, and licensing fees to make the living I want to make!

What I produce is a Rules Engine. *I* don’t care what it does to IBM’s ILog market (a competing project!). I don’t even care that my technology supports a billion dollar project for Texas that doesn’t pay me a dime. I don’t care how hard it makes it for IBM to try and edge my free product out of Texas in exchange for their “per cpu” license fees!

I expect that *free* makes it really tough for companies to play the same game as yesteryears past. What is unsustainable then is yesteryear’s game plan. Gotta be leaner, gotta cut your overhead costs, gotta come up with more value than simply an installation disk for your way overpriced, buggy software.

The same goes for music, news, and all other things digital. If Corporate Content can’t figure out how to make a dime in the face of cheap, instant, world wide digital product delivery, then Corporate Content can just die as far as I am concerned. Plenty of folks like me know how to produce in this world, and are happy to do so.

Another AC says:

Re: Something IS Unsustainable with Free...

I couldn’t agree more.

If these people cannot figure out how to make money in their line of business, they should find a new line of business. Plain and simple. if they go out of business, they will not be missed. This goes for film, music, books, news, etc.

Figure it out or get out and let someone smarter than you figure it out without being sued.

Anonymous Coward says:

Dead Trees

I receive a “dead tree” paper three times a week. I have not paid for it, and I’m actually trying to find a way for them to stop sending it. I have asked nicely, but they keep sending it.

I can only assume they get more money from advertisers by counting me as a reader and throwing the paper away, then not printing it at all.

Derek Kerton (profile) says:

Re: Dead Trees

Same here.

In fact, I called to complain, because the paper drop on my front stoop woke the dog at 4:00am, dog barks, wakes the whole family. Kids want to know what’s going on. The whole family loses 15-30 minutes of sleep. They said, “but it’s free, sir” I said, no it’s not. It costs my family sleep and intrudes on our property. That’s not free. And I get no value from the paper at all.

But the paper kept coming. I called and said that they were disturbing my family, and since I don’t read the paper paper, the were essentially throwing their garbage on my front stoop. I’m sure the paper is fine, but just don’t want it, thus it is garbage to me. Should I drive by their house and throw MY garbage out my car window? But the paper still came.

So I waited for the delivery guy, told him to stop throwing the paper at my house. That worked for 3 days until they changed delivery guys.

The dog kinda got used to it, as did we. It stopped after a couple of months.

So, just try and @#$# tell me that the dead-tree newspaper hasn’t always been “free”. The publisher lied and counted me as a reader, and then sold me to his advertisers, which is where he made his money.

eclecticdave (profile) says:

Newspapers should try harder with ads

It constantly amazes me that newspapers complain that ad-supported doesn’t work on the web, when they barely seem to have given it a proper attempt.

When you go to a front page story online about how the global recession is really starting to bite – and next to it is an advert offering to sell you a new car or a holiday home in the Bahamas – is it any wonder that the model doesn’t seem to work too well?

I realise there’s scope for problems here (advertising funeral services next the story about the latest murder – probably not such a good idea), but they must able to do
a better job than they seem to do at the moment.

Russ (profile) says:


When I catch the train in the morning, I pick up a free dead tree newspaper. It may not be the NYT but for it’s purposes it works.

When I pay for a newspaper,I consider that I am paying for the newsprint and distribution (with some money going to the seller) The news, sports, etc. are all advertising paid IMO.
when I get the news online, no trees are killed and no distribution but I still get the advertising paying for the articles.

If they can’t figure a way to get enough money from advertising, they aren’t offering a sufficiently desirable product.

I whole heartedly agree with the multiplicity of sources. I don’t need the WSJ if I can get the same information from BW, NYT, Forbes or the FT. Do I appreciate the WSJ analysis, yes. Is it worth the paywall? not to me.

Brian says:

Most newspapers and magazines make the majority of their money from advertisements anyway, so putting their content out there for free is hardly taking away serious revenue.

Advertisement revenue on the web garners far less than it does in print or television. Just as television dollars equate to online pennies, print quarters equate to online pennies…either way, you’re making far less on the internet for the same content.

Derek Kerton (profile) says:

Re: Re:

Yeah. But electronic copies have a near-zero marginal cost, so your can economically “print” copies for a wider audience at a lower cost.

If print quarters equal online pennies, then you just need to distribute 25x as many copies to get the same revenue.

The challenge is that there are many suppliers, and you’ll need to be very good to succeed at gaining that readership. It’s a brutal market, where only those that compete hard to meet market demand will succeed. This outcome is terrib…hey, wait, that’s a good thing, isn’t it?

Richard (profile) says:

Re: Re:

“Advertisement revenue on the web garners far less than it does in print or television. Just as television dollars equate to online pennies, print quarters equate to online pennies…either way, you’re making far less on the internet for the same content.”

BUT the revenue is NOT zero.

So in the end it is just a matter of using the technology to be more efficient.

It’s no different from Ryanair/Easyjet killing British Airways.

BA, saddled with a historic high cost model, just can’t compete – so it will have to downsize and restucture.

Newspapers are in exactly the same position vis a vis the Web.

Daddy WarBucks says:

Read All About It - for free

His argument is that news, a public domain item, should not be free. News, the thing that happens without “them” even existing, is somehow theirs to claim as theirs? Not the editorials or color commentary, but events that happen without any newspaper, AP or Rupert Murdock existing.

If a tree falls in the woods and no one is around to report about it, will advertisers still pay to have it reported? Yes. Advertisers pay the salaries of all those who would be dispatched to cover said tree in the throws of death because death is the biggest seller next to sex (perhaps arguable).

Anonymous Coward says:

When I buy the dead-tree version of my local newspaper, I have no expectation that it should be free. If I pick it up and walk out of the coffee shop without paying, that’s stealing. But when I walk upstairs to my office and log on to the Web site for the same paper, I feel a divine right to access the entirety of that paper–and 10 years of its archives–for free. Yet when I use another little computer invented more recently (Amazon’s Kindle, say) to access that very same newspaper, I do pay. And I expect to pay. When the market floods this year with the iPad and its inevitable clones, I’ll expect to pay on those as well.

The writer is wrong. The last time I looked up anything about the Kindle on Amazon, many major newspapers were offering free versions of their papers customized for viewing on the Kindle.



one day our understanding of science WILL allow for replicator like devices to change matter into other things.

THEN WHAT? and androids like data doing the work?
What work will need being done and what need for money will there be?

ACTA and copyrights attempts to slow and stall this singularity of human event of culture.

TtfnJohn (profile) says:

Re: Re: Scarce

In Canada you’ll find tons of them cause no one in their right mind buys popular electronic devices before December 26th and the Boxing Day (or Boxing Week a nice advertising invention) and the prices on such things drop like a stone.

Anyone buying these things before Christmas here would be considered something of a spendthrift idiot.



Isaac the K (profile) says:

the difference between consumers and fans

What seems to be a big problem in most “modern” industries is recognizing the difference between a consumer and a fan.
Nearly EVERYONE is a consumer of news.
Almost NO ONE is a fan of news itself.
There are vanishingly few people who would willingly pay for free content just because they value supporting the concept of news.
MOST people are a fan of a particular news site or blog. It isn’t the news itself, which is just information, but the presentation of that news, the style of the writing, and other qualities that engage us to connect with a particular site.

The bottom line is that most newspapers (and content providers in general) wrongly assume that their CONSUMERS identical to their fans, but most consumers will move elsewhere when a paywall gets erected. A paywall will only be supported by fans of NEWS and locked-in consumers of that particular site (a la WSJ) and discourages all others who can consume news in a variety of formats.

Nick Coghlan (profile) says:

Ad-supported and subscriber-supported

Both models can work. I can think of 4 free physical papers/magazines I encounter on a regular basis (2 dropped on my driveway every week, 1 weekly handed out in the city to people heading to work, 1 afternoon daily handed out to people heading home from work). The last one is actually provided by News Limited (as “mX”, an arm of the Courier Mail, Brisbane’s regular daily newspaper).

The subscriber-supported newsletter I pay for is an investment one (one which I regularly bring up when this advertiser vs subscriber supported content discussion comes up). In that case, we’re paying for the knowledge that the analysts aren’t beholden to anyone for their paycheck except us, the subscribers. That independence and alignment of incentives is a valuable scarcity that is worth paying for. They aren’t always right (nobody is), but when they screw up they’re honest about it with their readers and try to figure out how to learn from it. It’s much better than “free” (or lower cost) advice which is designed to benefit the advisor more so than the client.

dwind (profile) says:

The day of the newspaper as such is over

Why does everything – news, sports, business, etc. – have to be consolidated in one place, under one roof and under one banner? Once upon a time it made sense to have newspapers where everything, news, sports, ads were all under one control and put out daily. But not anymore. Newspapers and newspaper publishing companies are the buggy whips of the 21st century.

Ronald J Riley (profile) says:

The "FREE" Con Game

Free is virtually always a con, a setup to talk the mark into paying far more than whatever is being offered.

So way am I not surprised that TechDIRT is always pushing free? Marketing hucksters always have putty like ethical standards.

There is nothing that is really free and there are no infinite goods. It is all marketing drivel.

Even when the cost to reproduce copies is low there is still the capital cost to produce the product in the first place and a staggering cost to support and constantly upgrade.

Ronald J. Riley,

I am speaking only on my own behalf.
President – – RJR at
Executive Director – – RJR at
Senior Fellow –
President – Alliance for American Innovation
Caretaker of Intellectual Property Creators on behalf of deceased founder Paul Heckel
Washington, DC
Direct (810) 597-0194 / (202) 318-1595 – 9 am to 8 pm EST.

sdpate (profile) says:

Why does information have to be free

I can’t speak with the certainty of a Web 2.0 zealot since I see both side of the argument. If the internet is about content and if we don’t have some way of compensating those who create it, we won’t get more than mashups after awhile. Right now we’re living in someone else’s house. They bought it and paid the lights and filled the cupboard with books, music, videos, pictures, and other information.

Google is digitizing out of print books which sounds like a wonderful project to free the books until you realize those books aren’t old, only out of print. Out of print can happen withing a few years of publication. Don’t the writers deserve to be paid, or should they tour? Should musicians only get paid when they tour? Should songwriters only get paid if they tour?

Jaron Lanier said “Information doesn’t deserve to be free.”

The issue is complex and those who speak without doubt or equivocation may be flat lining a complex issue.

:) says:


Google enable others to do the news and get all the eyeballs.

YouTube Reporters Channels
Why would I ever pay for news I can have in forums, blogs, tweeter and other places?

Why do we have “professionals” when we can have locals report and send anything and will do it for free?

The answer to the first one is I wouldn’t, to the second one is trust, I don’t need a professional I need someone I trust to inform me and for that I could even pay for it.

For me this is really simple. Google and other companies will be the new news machine(Microsoft, CISCO, IBM, Verizon, Comcast and others) because they have the expertise and physical infra-structure to deliver things, they are the enablers and other will get paid because people trust them and they feel a real need to have them around for some reason or another, some will be community paid others will be corporate paid. It may be cruel to say this but reporters are mouth pieces for whomever pays them, just like bloggers in a sense we are all mouth pieces to something.

This blog for example takes 2 to 3 days to report on things I saw elsewhere, CNN is just the same, technical novelties I get news from other places that are not even close to a newspaper like universities webpages, medical forums, engineering forums and when I see the news about it, is always a dumbed down version of what was being discussed in those forums even movies showing some new tech seems old.

Why should I trust a newspaper? what value their are giving me that I can’t get elsewhere?

Do they care about electronic engineering, hydroponics, steampunk art, software engineering etc? nope, the only thing I read them for today is to look at politics and that I can get from blogs if they ever disappear.

I can get local information about criminality,traffic and weather forecasts instantaneously why do I need a newspaper for that?

But I do pay to watch KopBusters nabbing corrupt cops live.

Add Your Comment

Your email address will not be published. Required fields are marked *

Have a Techdirt Account? Sign in now. Want one? Register here

Comment Options:

Make this the or (get credits or sign in to see balance) what's this?

What's this?

Techdirt community members with Techdirt Credits can spotlight a comment as either the "First Word" or "Last Word" on a particular comment thread. Credits can be purchased at the Techdirt Insider Shop »

Follow Techdirt

Techdirt Daily Newsletter

Techdirt Deals
Techdirt Insider Discord
The latest chatter on the Techdirt Insider Discord channel...