Someone anonymously submitted a decent writeup by John A. Byrne, the former editor-in-chief at Business Week who recently left (amid the shakeup due to Bloomberg buying the magazine) to start a new media effort called C-Change Media. In this blog post, Byrne argues that the media complaining about Google sending them traffic is biting the hand that feeds them. There's really not much new in the writeup, which runs over the same ground we've covered for a few years now, but it's a nice succinct summary of the situation:

Rupert Murdoch's protestations aside, there is no doubt that Google is driving vast amounts of traffic to websites run by traditional media companies. In recent years, most of BusinessWeek.com's growth came from search optimization and direct traffic. Up until only three years ago, the number one referring domain at BusinessWeek was always a portal until Google's popularity replaced Yahoo Finance and MSN Money as the top referrer. Search--largely Google--now accounts for some 45% of the traffic at BW.com, up from less than 20% in 2006. That simple little box is driving vast amounts of advertising inventory (and therefore revenue) to the site. It's a similar story everywhere else.

In the war between the traditional media brands and Google, the old cliche about biting the hand that feeds you is certainly in play. Some of the complaints from media can be attributed to sour grapes. Many incumbents resent that most efforts to find information on the Web no longer starts with a brand. It starts with Google which is largely brand agnostic. So, in effect, Google has become this massive transaction machine, and as everyone knows, transactions are the antithesis of relationships. If a brand wants a relationship with its audience, Google is getting in the way. It's how Google was able to siphon nearly $22 billion last year in advertising from traditional media. And it's the most obvious proof that media brands have diminished in value. People are more routinely turning to Google to get information, rather than a brand known for its expertise in a given area. They'll google (yes, I'm using Google as a verb) leadership before going to The Wall Street Journal, Fortune, BusinessWeek, or Harvard Business Review. They'll google President Clinton before going to The New York Times, Time, or Newsweek. Why? Because they trust Google to serve up unbiased results; because they want to see what is generally available out there and not tied to a brand, and because most brands no longer wield the power and influence they did years ago.

Instead of complaining about this and threatening to block Google from crawling a site, media companies would do well to step back and more fully understand what they really need to do: rebuild the relationships they have with their readers, viewers, users. To offset the massive transaction machine that Google is, media brands need to focus on restoring relationships with users. That's why "user engagement" is not an idle phrase to throw around but is essential to making a brand successful online. Original content isn't enough. Gee-whiz tech tricks aren't enough. Neither is a fancy design or a search trap gimmick. You need an audience that is deeply and meaningfully engaged in the content of a site, so engaged in fact that many of those users become collaborators, and that requires tremendous amounts of work and editorial involvement with the audience.

Indeed. It's the point we've been trying to make for ages. Newspapers were always in the community building business. They would bring together a community of folks and then sell their attention to advertisers. That was the business. But they thought they were in the news delivery business, and that's confusing them -- leading them to do things that are anti-community and anti-relationship (registration walls, paywalls, etc.) that actually harm the value of the community and limit that. Thus, people are going elsewhere for community -- whether it's other media publications or social network sites -- and newspapers are lashing out at the wrong party: the one who sends them traffic.

For many years, we've been quite skeptical of any business model in virtual worlds/social networks that rely on "buying virtual goods." That's because these are all based on artificial scarcities, and as we all know (hopefully, by now), relying on artificial scarcities for a business model is incredibly risky, especially once people realize the scarcities are artificial. And yet, over the past few years, a number of businesses have been built on this very premise. In fact, Silicon Valley is crawling these days with businesses built on selling virtual goods, and if you talk to many VCs about it, you'll quickly note that they're positively giddy over the fact that people are paying for this stuff. What they don't seem to realize is that it's unlikely to last.

In the last couple weeks, Mike Arrington, over at TechCrunch, did an amazing job calling attention to the widely known, but rarely discussed in polite company, dark underbelly to most of those business models: quite a large part of their revenue is based on scammy offers that effectively trick unsophisticated purchasers (often kids) into signing up for expensive subscriptions to things they don't want. I was at an investor "roundtable" a couple months ago, which was mostly bankers in suits, and they were laughing about just how gullible people are on these things, and it's great to see TechCrunch exposing them, and pushing the worst abusers to clean up their act. Of course, even when some, like Zynga, claim to be cleaning up their act, Arrington was able to dig up a video where Zynga's CEO proudly talked about the scammy tactics he used -- and then noted that these same scammy tactics showed right back up on Zynga, after the company promised they were gone. Those who use these kinds of tactics may find that while they "bring revenue now," it may be short-lived. Companies that focus on such abusive tactics live to regret it (just ask RealNetworks).

But, the really amazing thing, as pointed out by Dan Lyons/Fake Steve Jobs, in an amazingly un-Fake-Steve-Jobs-like rant, is to compare the series of writeups by Arrington with the love letter to Zynga and other "virtual goods" companies in the NY Times, which came out after most of Arrington's posts, and makes no mention of them at all. As Lyons/FSJ notes:

So: they walked into this shit-storm and somehow, by some miracle, managed not to notice the fecal matter flying all around them. It's like covering a football game that took place in the middle of the blizzard and neglecting to mention the weather.

Now, maybe they did all the reporting before Arrington's stuff broke. In which case they should have gone back and updated their info. Or maybe, just maybe, Zynga's PR people teed up a Times story as a kind of rebuttal to what Arrington was reporting. Either way, that's what ended up happening: Zynga used the Times to deflect the bad shit flying at them from Arrington. They need good press because they're hoping to cash out by going public next year. That story in the Times will be worth millions. Many millions.

Meanwhile, Arrington, still digging, blasted again on Saturday night, reporting that sleazy ads had popped up again on Zynga, despite promises that they would be taken down.

Um, New York Times? If you guys are still wondering why people are dropping their subscriptions and getting their news from blogs instead of you -- this is why.

After which, Lyons/FSJ notes:

And to all those people who go around wringing their hands and saying what are we going to do when the "real newspapers" all die and we have to get our news from Gawker and HuffPo and TechCrunch? Friends, I think we're going to be just fine.... What really cracks me up is how often I still hear people say that bloggers are mere "aggregators" and the "real journalism" gets done at places like the Times. Because time after time, blogs are simply beating the shit out of the newspapers. They're the ones who still dare to go for the throat, while their counterparts at big newspapers just keep reaching for the shrimp cocktail.

Of course, there's just a bit of irony in noting that Dan Lyons wrote one of the quintessential blog bashing articles four years ago, when he was writing for Forbes, at one point suggesting that blogger "journalists" were no different than notorious (NY Times) maker-up-of-stories, Jayson Blair. Nice to see he's coming around to recognizing things perhaps aren't so bad in the blog world.

One of the key points we've raised in the past about the futility of newspapers putting up paywalls is that doing so would only open up a huge opportunity for other, smarter journalism organizations to take their market share by remaining free. And, indeed, more and more organizations are starting to point out that's exactly what they would do. Reader Jamie writes in to let us know about a speech by the managing director of ABC in Australia (not the Disney owned ABC in America), Mark Scott, taking on the "old media" thinking around such things as paywalls:

Scott's most virulent words were saved for News Corporation (owner of The Australian) chairman Rupert Murdoch and CEO Europe and Asia, James Murdoch.

He called Rupert Murdoch's recent call for content providers to charge online distributors for content as "a classic play of old empire, of empire in decline. Believing that because you once controlled the world you can continue to do so."

"When you have been so powerful and dominant for so long, it is hard to believe that empire is slipping away," he said.

Scott argued traditional media companies had been out-thought by technology companies in strategy.

And... oh yeah, if Murdoch goes paywall, Scott promises to do the opposite:

He reiterated the ABC would continue to provide free online news content and said the ABC must remain audience-focused

Not just that, but he seems to be recognizing that the way people interact with news has changed, and they want to be much more involved:

... he noted the only media organisations to survive will be those that: know and accept that all the rules have changed; are endlessly inquisitive about the new; empower their audiences to contribute, to create and share media....

Nice to see some news business execs who seem to recognize what's happening.

We've seen a bunch of studies like this in the past, but people keep submitting this, so figured we'd do a quick post on it. Yet another study has shown that people who are more active in unauthorized file sharing, also tend to spend more on authorized entertainment purchases. Now, to be fair, the study was paid for by a file sharing provider -- so, take it with a rather large grain of salt. But similar studies have been done in the past as well, and it seems to once again call into question the rallying cry in Hollywood that people just want stuff for free.

With our CwF + RtB experiment in full swing, we've asked some of the participants involved to provide some guest posts. The post here is from James Boyle, whose book, The Public Domain is a part of our Techdirt Book Club (signed by Boyle). If you order both the Techdirt Book Club and the Techdirt Music Club before midnight PT, August 3rd, we'll throw in a free Techdirt hoodie, or a free lunch with Mike. We asked Boyle to give his thoughts on new media business models from his perspective, and he came back with this incredibly thought-provoking post that ought to create quite a bit of conversation:

The Associated Press recently released the details of their plan to develop a new metadata/Digital Rights Management format for news stories. (It wasn't described as DRM, but I agree with Techdirt that it certainly sounds that way.) Particularly ominous was this phrase "The system will register key identifying information about each piece of content that AP distributes as well as the terms of use of that content, and employ a built-in beacon to notify AP about how the content is used." (My italics) Even those without a strong dose of civil libertarian paranoia might bridle at the thought of having their practices of reading and sharing newspaper articles tracked by a central repository (other than Google, that is.) "He sure is reading a lot of articles about gay rights!" Pamela Samuelson calls DRM'd articles "texts that rat on you." Somehow it doesn't sound like a good slogan for a sales campaign. (AP says it has no interest in tracking on the individual user level.)

The response of the tech-savvy was, predictably, pretty savage. Techdirt ("it's difficult to think of anything quite this useless") at least offered some principles on which sustainable web businesses might be built. Others were not as kind. Someone even created an extremely profane and sometimes juvenile, but nevertheless quite funny anonymous graphical translation of the AP's diagram to explain the new plan. The criticisms of the plan (clueless graphics aside) centered around two tenets that are familiar to Techdirt readers.

1. an argument that DRM is a.) doomed to fail technologically and b.) has in fact already failed in social and economic practice. The general line here is that the arc of history bends towards technologies that are copy-friendly and anything that tries to turn that feature into a bug will soon fail if it hasn't already.
2. an assertion that "old media" (other names include "the clueless" "dinosaurs" "non digital natives" "the walking dead" etc.) are demonstrably incapable of understanding the potential upside of the sharing economy, or copy-friendly technologies, still less the business models that can be built on top of them. This tenet is so sweeping that it would be much harder to defend if history didn't give us such fabulous anecdata to back it up. My own favourite quote was about the technology that lowered the cost of copying in a prior technological era, "The VCR is to the movie industry what the Boston strangler is to the woman alone." That was Jack Valenti, the late head of the MPAA. Actually, unless the answer to that puzzle is "What is a savior?" Mr. Valenti would turn out to be wrong. Movie rentals to fill the -- cheap -- VCR's that the movie industry had failed to criminalize, tax or enjoin soon provided more that 50% of the industry's revenue.

Personally, I am at best agnostic about tenet #1. I am not a technological determinist. I think that DRM has failed spectacularly in some areas (root kits on CD's), provoked mild irritation and a pressure towards more open alternatives in others (the move towards selling open MP3's rather than protected streams or DRM'd iTunes tracks) and become standard (even if not loved) in others. Most of you are still being forced to watch the FBI warnings on your DVD's and fuss with region control. Sure you could get around it. But how many people bother to? Life is too short. I do think news is a particularly bad candidate for DRM or even "beacons," but that is a specific judgement not a general one.

On tenet #2, I think we are thinking too narrowly. Behavioral economists have identified specific deviations from economic rationality in human psychology-- we tend to value potential losses asymmetrically from potential gains, to use simple heuristics even when they are shown to be false and so on. In my new book, The Public Domain (freely available online, of course) I argue that we have a measurable cognitive bias against "openness" -- I call it cultural agoraphobia, and I argue that it impedes us in understanding the creative potential, productive processes and forms of social organization that the web makes possible. The source of that bias (by which I mean a demonstrated tendency to ignore certain kinds of possibilities in a way that the data does not support) probably lies in the fact that most of our experiences with property come from physical goods -- sandwiches that 1000 people cannot share, absent divine intervention, fields that might be overgrazed or underused if not subject to single entity control. Even digital natives still spend most of the hours of their day in a world in which goods are both "rival" and "excludable." Reflexes picked up in that world tend to lead us astray when we are dealing with the kind of property that lives on networks. "Like astronauts brought up in gravity, our reflexes are poorly suited for free fall." I would even argue that this cognitive bias, even more than industry capture of regulators, is one reason why our current intellectual property policy is so profoundly and utterly misguided. But its implications are wider still.

So far, this sounds similar to the standard technophilic critique of existing institutions -- albeit with a behavioral psychology chaser. But it isn't. Just because it's a bias doesn't mean it's always wrong. It may be that, even once one discards the bias, there may be no immediately obvious way of carrying important social functions into the world of the Net. I don't care where on the techno-optimist spectrum you are (It ranges from "get their eyeballs and their wallets will surely follow" to "the only alternative you seem to be proposing is Google ads, cover charges and lots of T-shirts.") Unless you believe that markets spontaneously self-correct for everything (hint, check your IRA balance before you answer this question) you have to acknowledge that the problem that the AP is responding to may be our problem (how to pay for the kind of expensive investigative journalism that is a real boon to democracy and liberty) as well as their problem (how not to die in the immediate future.)

Don't get me wrong. The world of the future will clearly have media that in some respects are far better than what we have today, even when measured against the most rigorous standards. I am pretty sure, in the world of 2020, pollution levels in Silicon Valley and school performance in Palo Alto will be covered with a wealth of data, expert systems, and interactive mapping in a way that would have seemed a dream in 1990. That will be true for most areas that have wealth, a wealth of data, and a highly educated citizenry with lots of personal liberty and strong personal and ethical reasons to be focused on a particular subject. It will be much less true for areas where those conditions do not hold true, particularly if you have a powerful in-group with strong reasons to want to keep the eyes of the world away. Twitter and the camera phone can do a lot. But they can provide neither the culture of professional journalism, nor the sustained effort and resources to develop a story over years. And there is an oft unnoticed corollary to the claim that the dinosaurs are clueless. It means they are unlikely to solve the problems themselves. Unless you think that markets and technologies spontaneously self-correct for everything, that leaves the rest of us.

In Robert Putnam's fascinating book Bowling Alone he describes the way in which the threads of civil society and of trust frayed during the 20th century -- and offered a convincing social science case that the implications were profoundly negative for our culture. But the book was not a depressive one. Putnam pointed back to the turn of the 20th century. Then, as now, people noticed their society changing around them -- industrialization, the acceleration of migration to cities, urban isolation. But Putnam points out that this prompted an extraordinary entrepreneurialism in civil society. Groups were founded that today seem quaint to us -- the Kiwanis. the Rotarians and so on -- all aimed specifically and solving this failure of civil society. The message was not, in other words, that these problems would self correct through markets and technology. It was that we would need an entrepreneurialism outside the market -- one that experimented with institutions and communities to solve the problems of the day. For me, a glance at AP's DRM business plan prompts the same thought. Some of the functions that newspapers now perform are going to be located elsewhere in society -- in universities, in foundations, in government, in blogs. Some of that will happen spontaneously -- but a lot of it will not unless we innovate in social organization the same way the citizens of the early 20th century did to meet the problems of urbanization.

I was lucky enough to be involved with Creative Commons from its inception and to help found Science Commons and ccLearn. Those organizations were designed to solve a particular problem for which there was a market and legal gap -- the problem of failed sharing. Jesse Dylan's brilliant video on the subject explains it better than I could. Are there equivalent institutional innovations that could help in the area of news gathering? I don't know. Journalism isn't my field. But without the kind of institutional innovation and experimentation in civil society that Creative Commons (or the Kiwani's) represented, I think that we are unlikely to solve its problems. Web 2.0 business methods alone, even with a Techdirt crystal ball, will not be enough. If I am right, mocking the clueless will be a poor consolation.

James Boyle is William Neal Reynolds Professor of Law at Duke and the author of The Public Domain: Enclosing the Commons of the Mind. He writes a regular column for the Financial Times and tweets sporadically as thepublicdomain.

One of my big complaints with all the stories from newspaper people about how they're suddenly going to put up paywalls and charge, was that they never actually talked about adding more value. They seemed to just assume people would pay, when the truth is that they've never really paid for the content. But, of course, if you can really connect with people, and give them a reason to buy, then that's something different. But "the news" alone is not a reason to buy, because it's not scarce. It's quite abundant, and if someone charges, then people will just go elsewhere. But there are plenty of scarcities that you can charge for if you're smart about it -- and it looks like the NY Times may actually be taking a more intelligent approach to its own business model.

Last week, as you hopefully know, we kicked off our latest business model experiment, by launching our CwF + RtB options, based on the formula that we've seen many musicians use successfully: Connect with Fans (CwF) + Reason to Buy (RtB) = Business Model. So it's fascinating to see some of what the NY Times is exploring for its own premium offers. While these are still apparently works in progress, some market research shows that the NYT is considering two separate added value tiers. These aren't about locking up the content, but providing additional (scarce!) value that people may find worth paying for.

For example, in the proposed silver level ($50/year) people would get early access to some stories (a la our Techdirt Crystal Ball), as well as some additional features on the site, a choice of a tote bag, baseball cap or some other products, and early access for tickets to NYT's events. Not bad. The proposed gold level ($150/year) also gives the person access to exclusive events, direct access to some of the reporters/writers/staff at the NY Times (even a newsroom tour) and some other features. This is still preliminary, but it seems like the NY Times is definitely thinking in the right direction. It's not about locking up the content that's already there. It's about providing a real reason to buy something additional that's scarce and valuable. And, certainly, given the NY Times' reputation, it has connected with many, many people. So, now let's see what happens when it gives them real reasons to buy. Who knows what model will eventually be launched or how successful it really is, but it's interesting to see the NY Times apparently stealing our idea (that's a joke, people). In all honesty, it's great to finally see a newspaper looking at adding value, not trying to take it away.

As newspapers have struggled to get the online world, most of them did the simplest thing of all, which was toss up some comment forms at the end of their articles. However, they never did anything to actually engage with commenters. Instead, they looked at the comment form as being a community, but never gave any incentives for the folks in the comments to do anything intelligent. They didn't tend to the community or have the authors of the articles respond to comments (in some cases they specifically barred it!). So if you treat your comments as a place where the riffraff is just going to say stupid stuff, don't be surprised when that's what happens.

But, it seems that some are getting the wrong message from this. Douglas Bailey, who apparently is a "media consultant" or a "media strategist" has simply determined that all newspaper comments are dumb and should be done away with. Instead, he suggests you write a letter to the editor or an op-ed.

But his reasoning is backwards (and makes me wonder why anyone would hire him as a consultant). First, he gives a few apocryphal stories to make his point -- which isn't exactly compelling since they could be entirely made up. Second, he assumes that because plenty of comments on newspaper sites are dumb the problem is the commenters or the very act of commenting itself. Apparently, it never occurred to him that perhaps the problem is the way the newspapers set up the comments. Those newspapers didn't do anything to try to build up community or to encourage people to post more insightful comments. The problem isn't that the commenters are dumb and pointless, but that the newspaper failed to put in place incentives to encourage smarter comments. The newspapers failed to actually engage with their community and talk with them rather than to them. Any newspaper that wants to hire a media strategist these days should probably find one who looks for ways to help a newspaper better engage their community, rather than one who tells them to ignore the community.

Citizen Media Law alerts us to a rather troubling "state of the media journalism" report issued by FCC commissioner Michael Copps. While the report doesn't really mean anything right now, it's seen as an indicator of where the FCC may go in its rule-making process. And if that's the case, it's quite troubling, though the old school newspaper folks screaming for protection may find it comforting. Basically, it focuses on "the decline of traditional print and broadcast outlets" and seems to blame the combination of "the internet and bloggers" with the deregulation of media ownership.

This makes almost no sense, and is, in fact, contradictory. The rise of "the internet and bloggers" has massively increased the diversity of people involved in reporting and distributing the news. The barriers of entry to being a journalist have been lowered to almost nothing at all, and people have flooded the market. Copps views that as a problem, but apparently doesn't note the total contradiction in then immediately lamenting the decrease in diversity of journalists in traditional media jobs:

"We're not only losing journalists, we may be losing journalism," he said. "Some blame the Internet and bloggers, and that's certainly a part of the story. All that consolidation and mindless deregulation, rather than reviving the news business, condemned us to less real news, less serious political coverage, less diversity of opinion, less minority and female ownership, less investigative journalism and fewer jobs for journalists."

What's really troubling is that he seems to think this is a problem that the FCC needs to fix. This certainly seems to go well beyond the FCC's mandate, and it takes an impressive amount of conceptual blindness not to see that the solution is exactly what he described was a part of the problem.

The media seems to be falling all over itself to report on the "insights" coming out of a "report" put out by Morgan Stanley about how teens are using technology today. The report, it appears, isn't an actual research analysis or anything. It's just a 15-year-old intern writing about what his friends use technology-wise. That's not to say it's not interesting. It certainly gives a decent view of what's happening in one kid's social circle. Nothing in it seems all that surprising. Kids communicate a lot on the internet. They don't buy music (oh yeah, he contradicts that "other" questionable study of the day that claimed streaming was replacing downloads by noting that his friends prefer to actually have the files, but don't pay for them). It's difficult to see why this is a big deal, but because Morgan Stanley put its logo on it, suddenly it's getting a ton of coverage from Bloomberg, The Telegraph, The Guardian, The Financial Times and others. It's as if none of them have ever thought to actually ask a teenager what kind of media and technology he or she uses. But the key point here is that while there are some useful insights raised by the kid (though, nothing too surprising) it's still just the anecdotal musings of one kid.

We see all sorts of confused analysis when it comes to how "free" works in economics -- which goes back to our assertion that the human brain tends to run into a mental block when it encounters a zero and rather than recognize the rest of the economic equation, it just pops out an error message. That's the only explanation I can find for the so-called analysis by Media Metrics' Laura Martin of how Hulu is "anti-consumer, anti-media employees, and even anti-America" and supposedly putting $300 billion worth of market value "at risk" (thanks Ben for sending this in).

Wait... what? Anti consumer? Offering consumers more of what they want at a better price is anti-consumer? How?

Anti-media employees? Offering a better product that can be better monetized through smarter means should be good for media employees.

Anti-America?!? How? Martin's claim is apparently "Media companies will lose a lot more revenue by giving shows away for free online than they will from pirates." Oh really? How does a person like Martin get and keep a job if that's her analysis? Apparently she's never heard of a little something we call "television" which has made a tremendous amount of money for years giving shows away for free and supporting it with ad dollars. Furthermore, the idea that media companies stand to lose more by competing with piracy by offering something better is the most twisted economic analysis we've heard in a long time (and, boy, we've heard some twisted economic analyses over the years). The fact is more and more people were moving to online to watch shows anyway. Pretending that didn't exist is economic suicide. Offering a better experience allows the networks to compete.

On top of that, Martin apparently hasn't looked at much of the actual research out there if she thinks that online shows are somehow cannibalizing TV revenue. In fact, most studies have found the opposite. They've found that putting shows online for free helps make the audience more engaged and convinces more people to watch the shows on TV, because if they miss an episode they can just catch up online.

It's hard to fathom how any media analyst in this day and age can actually think that using "free" as a part of your business model is not just a "bad idea" but "anti-consumer" or "anti-America." If you don't understand basic media economics, how can you be a media analyst?