Some followup on my earlier post:
In today’s New York Times, Jenna Wortham reports:
It used to be that a basic $25-a-month phone bill was your main telecommunications expense. But by 2004, the average American spent $770.95 annually on services like cable television, Internet connectivity and video games, according to data from the Census Bureau. By 2008, that number rose to $903, outstripping inflation. By the end of this year, it is expected to have grown to $997.07. Add another $1,000 or more for cellphone service and the average family is spending as much on entertainment over devices as they are on dining out or buying gasoline. And those government figures do not take into account movies, music and television shows bought through iTunes, or the data plans that are increasingly mandatory for more sophisticated smartphones.
Over at The Atlantic, Derek Thompson writes:
Even if we feel like we’re consuming the New York Times and Taylor Swift’s new album for free over the Internet, we’re paying thousands of dollars a year to access all that “free” content … We tell ourselves that we’re paying for connectivity, but obviously we’re paying to be connected to information. So how are media publishers failing if we’re paying more than ever for our media? The key seems to be that consumers have learned to put a price on access, but not on individual content … Today’s media mindset is “A thousand dollars for access, and not one cent for content.”
As an example of the prevailing trend, the US Department of Labor reports that over the past decade (through 2008) the amount an average American spends annually on newspapers and magazines has dropped by about 40%, from $97 to $61, but the amount spent for Internet access has more than quadrupled, from $49 to $222:
The average American’s annual telephone bill, including both landline and cellular, rose from $914 in 2001 to $1,127 in 2008, an increase of nearly 25%, according to the Labor Dept.
As for spending on cable television, the Census Bureau reports that the average American’s annual bill has gone from $256 in 2004 to a projected $401 this year, a jump of 57%.
How about radio, the original free broadcast medium? The Census Bureau reports that per capita expenditures on radio programming have increased about tenfold from $1.19 in 2004 to an estimated $12.25 this year.
I’m telling you, that free information really adds up.
Ugh. Here we go again. This meme that spending on these various services somehow represents taking away money that used to go to content makers (or maybe really *should* be going to content makers) is mostly wrong and certainly greatly exaggerated. It does not explain why some content businesses are struggling.
1. Much of the money cited above pays for content. I don’t think anyone considers their humongous cable bill just “access.” It’s considered payment for bundled content and in fact much of the money goes right on to the content providers. Comcast just bought one of the biggest cable content makers on the planet so that money won’t have to travel very far. Subscription radio likewise pays content makers.
Are people paying more to watch TV and less to read magazines and newspapers? Sure, but that’s all still paying for content and it’s been going on since way before the Internet.
2. Another big chunk of this spending is for communications. That’s not spending for “access” to old media content. It never was and it’s still not.
3. A ton of the time spent online is to access social media, email and other stuff that has nothing to do with old media content.
4. We are still paying for plenty of content online even if some web sites are free. Many sites have subscriptions, like ESPN, Thestreet.com and the Wall Street Journal. My kids are spending a gazillion dollars on content from iTunes, Amazon and online sites like Club Penguin.
5. Free web sites with advertising – how is that so different from free broadcast TV and radio that we have had for decades?
Of course, this could be even worse if the US market wasn’t the most competitive market in the world, forcing companies to offer price discounts, bundles and so on to save their market share. On the other hand, countries like Brazil has a “monopoly in disguise” which makes the decision of whether rising prices or not a decision of the market leader. Even the so called “regulatory agencies” analyses and votes for what’s in the leading company’s agenda, leaving little or no room at all for discussions that are for the interest of the people.
Do you want to know how much I spend yearly on cable TV (no premium channels included) + internet (3Mbps) + land line (up to 100 minutes) + cell (up to 90 minutes with no SMS or data packs)? $2195.74 at today’s currency exchange rate.
The payments made for these services are high because the phone and cable companies in America have a near-monopoly on the pricing for Internet access.
The reason we pay less for content is simple: There is more content available than there is time to consume it.
Most people have dozens if not hundreds of video games, movies, records to enjoy. The market is completely FLOODED with digital content that does not wear out and can be consumed over and over again.
The news is a little different: there are thousands of news sites on the web, all competing for your time.
Let Rupert Murdock charge for his content. Nobody will buy it and the fools that do should make better decisions about where to spend their money.
The first sign that this was a bad post (besides the headline) was the NYT reporter comparing $25 per month to $800 per *year* to make the difference look larger.
Nick is very disingenous on this whole topic because he fails to acknowledge that with while spending as doubled, consumption has quadrupled.
Nick
When you wrote your initial article, I posted a blog response featuring seven criticisms. This article addresses just one of those criticisms (“evidence”). You’re providing some “evidence”.
But you’re muddying your terms terribly. Based on the scope of your discussion, you’re not talking about the cost of information at all: you’re talking about the cost of telecommunications subscriptions.
Right now, telecommunications subscriptions provide a means of getting access to a lot of information. Your analysis here makes absolutely no allowance for the fact that telecommunications costs are displacing costs that were incurred through other means in the past. That causes your subscriptions-only focus to grossly distort the “cost of information.” Whereas, the analysis I performed on expenditures 25 years ago vs today, based on psychographically matched individuals at similar life stages demonstrates:
1. the way in which some telecommunications costs have decreased significantly
2. the way subscriptions have displaced costs incurred in the way of getting information through other means (e.g. travel)
3. how the cost of information has *shrunk* relative to 25 years ago.
(The limitation of my study is the fact that it was based on two individuals only; the strength in that in-depth analysis of usage patterns was able to be achieved through in-depth matching of the individuals’ history.)
You’d strengthen your argument significantly if you accounted for each of the other six factors I outlined.
Good post. I’d add hardware costs as well. What about PVRs that allow us to timeshift TV? And digital set-top boxes? And TVs that have a shorter lifespan. And iPods – I think I spend more on iPods now than I used to spend on TVs – one every couple of years, then there’s the iPhone and the PC and router that I use to stream music all over the house.
In almost all cases, telecom, cable tv, the provider is a monopolist/duopolist/oligopolist. Conversely, content is in as near a free market as you can get. That is all the explanation you really need to understand about their relative pricing power.
I get what you mean on this, Nick. I think your prior commenters are quibbling over semantics. You’re not saying that it’s de facto, but that consumers don’t consciously distinguish between access cost and media cost – it’s all just information.
My newspaper costs a dollar, but I don’t pay the street vendor too – I assume that’s covered by the content provider paying them as a distributor. Yet in new media, I’m often asked to pay for both, which may ‘feel’ wrong.
I think the fundamental issue is that in the past the content owners also owned or had significant stake in the distribution channels, whereas online they don’t (in most cases). So in the past they had more cost control: a dollar for a newspaper. Now, the distribution channel is effectively an overhead cost to the consumer, which content providers need to factor into their pricing. The ones that do, succeed (iTunes’ 99c per track, rather than $15 albums of old), the ones that don’t, fail (AOL et al).
Nick’s right. Americans – myself included- are so stupid we now pay for access to terrible TV reruns we had little interest in watching for free on old UHF stations. And then we buy the DVD sets of them.
In addition to the increasing costs, the complexity of media has skyrocketed. The rotary phone in my kitchen is far more usable than any cell phone that will ever be produced.
I spend my day teaching members of the general public how to produce and edit video. The vast majority cannot open a window or save a file. Across all age groups. Even the young members of the vaunted Digital Nation can’t manage to save a file that’s not called “Untitled47”.
So all of it costs more money and wastes more time than a Newspaper or Radio. And the great reward? Being able to post comments like these that no one will read.
Nick is very disingenous on this whole topic because he fails to acknowledge that with while spending as doubled, consumption has quadrupled.
I’m more than happy to acknowledge that “consumption” (whatever that means) has “quadrupled” (or whatever). I’m looking simply at the amount we fork out from our pockets today for purchases of “information” (whatever that means) and what I’m seeing reveals a tension between the real habits of human beings and some of the prevailing assumptions about those habits.
And you spelled “disingenuous” wrong, not to mention “has.” And what’s with that free-floating “with”? I suppose in the long run we’ll get what we pay for.
Loryn,
I love it when you fact-check my ass, but I’m not sure I find a seat-of-the-pants comparison between your dad’s information outlays and your own to be particular illuminating about this general question, particularly since you include your old man’s gasoline expenditures as part of his info budget. (Nice try.) And the fact that you measure not absolute expenditures but expenditures as a percentage of income makes your anecdote even less useful since we now have a (widely variable) denominator involved and yet still only two subjects.
Nick
Loryn,
Your comparative analysis is interesting but idiosyncratic. You might have persuaded me if you had come up with similar numbers in a comparison between two “average Joe” residents of a major metropolis separated by time. 23% of your father’s information expenditures is tied up in gas, phone/LD, and professional books–is it reasonable to suggest that an average worker in 1985 would have incurred this set of expenses?
Nick, Mike
I believe I was first to the punch in stating that comparing two individuals is only anecdotal (see my first comment in this thread). You’re right, this study would be much stronger if I was able to compare averages. Someone else will have to provide that study.
Mike: It isn’t reasonable to expect an average worker in 1985 would incur this set of expenses: that wasn’t the point of the comparison. The subjects are matched for psychograhics, stage in life, education levels, etc. The subjects are not matched for locality. My argument is that my father incurred expenses 25 years ago that are now economically substituted for online access.
Nick: I don’t include my father’s entire gasoline budget; merely his budget for gasoline directed to pursuing his education. If your argument is that I should exclude that because my father lived in a country town, and I live in a metropolis: then I concede. (But it merely changes the magnitude, not the direction of the conclusion. Exclude the gas, and he still outspends me by a factor of two.) However, if your argument is that studies should never include gas costs, then I strongly disagree. You well know about the concept of economic substitution.
I do include both my own and my father’s LD phone budget. That is one areas that has massively decreased in price over the years. My father faced timed national and international calls. I don’t. I have a flat, untimed $0.10 fee on national calls. And I use Skype, email, etc. for almost all international communication (and blog posts, comment systems, etc., like right now). For those calls I do make internationally by phone, again, the price has decreased substantially.
Economic substitution between categories is vital for measuring the changes in “information costs,” if that’s what you’re actually discussing. Of course, if all you want to discuss are subscription costs, then that’s not “information costs,” but “subscription costs.”
And why do you continue to count subscription access charges in your study (which now includes payment for mobile phone hardware, but didn’t in 1985) but not computer hardware costs? (You include some computer hardware—phones—and not others: desktops and laptops.)
Nick: You criticise the reporting as percentage of income as making it less useful. Did you miss the second comparison I provided? I also compared the budgets in inflation-adjusted terms. Anyway, percentage of budget is a useful comparison because it addresses the question of “how much (of what I’ve got) I’m willing to spend on information.”
Quoting from my piece: If you would actually “define your terms,” separate “the cost of information, information access, communications and entertainment,” include non-subscription information costs, adjust rigorously for cost of computer hardware (either include it all, or statistically exclude it from the mobile phone bills) and include economic category substitution effects, your own assertions would be much better put to the test.
Of course Stewart Brand was talking about “free from boundaries” like isolated servers, remote file drawers, your head.
And not some kind of proto-hippie “free of cost” to get all the miraculous value enabled by the information services.
And certainly not, “free from bitching about how much companies charge for a service I want.”
So, you know, there’s that. ;-)
It is all simple for me. I pay for access convenience. I don’t view any of those costs as information costs and certainly not content costs. They are just a cost of living in my world that I am willing to bear. Doing that, I can view costs of content separately and make decisions to use free or fee-based content based on its worth to me. I admit that I will cut my content costs before I cut my access spending because there are still a lot more free content alternatives than there are access choices.
I am quite convinced that in the next 10 years we are going to watch people pay more and more for all content from a per-bit perspective (of both the information and entertainment flavors)… I am also fully convinced that a larger and larger percentage of that spend will go to the content creators — though for very different reasons in the case of information (whose value is a function of self-referential scarcity) and entertainment (whose value is a function of personal utility compared to other options) — http://wless.in/information is my full breakdown