The writing is on the paywall

There has been much interesting speculation about the future of the newspaper business in recent weeks. There was Michael Hirschorn’s pre-obituary for the print edition of the New York Times in The Atlantic. He foresees the Times shrinking into “a bigger, better, and less partisan version of the Huffington Post.” There was the Times’s David Carr running the old micropayments idea up the flagpole. Look to iTunes, he suggested, for a model of how “to perform a cashectomy on users.” In a Time cover story, Walter Isaacson also endorsed the development of “an iTunes-easy method of micropayment [that] will permit impulse purchases of a newspaper, magazine, article, blog or video for a penny, nickel, dime or whatever the creator chooses to charge.” In a memo posted at Poynter Online, Steve Brill argued that newspapers, the Times in particular, need to abandon the practice of giving away their stories online and begin charging for access to their content, either through pay-as-you-go micropayments or through various sorts of subscriptions.

Shadowing the discussion, naturally, have been anti-paper agitators like Clay Shirky and Jeff Jarvis. To them, the renewal of talk about asking folks to – gasp! chuckle! guffaw! – pay for content is yet more evidence of the general cluelessness of the dead-tree crowd, who are simply too dim to realize that publishers have been rendered impotent and it’s the “users” now who call all the shots. “Back in the real world,” says Shirky, “the media business is being turned upside down by our new freedoms and our new roles. We’re not just readers anymore, or listeners or viewers. We’re not customers and we’re certainly not consumers. We’re users. We don’t consume content, we use it, and mostly what we use it for is to support our conversations with one another, because we’re media outlets now too.” Consumers pay; users don’t.

Shirky argues, in particular, that micropayments won’t work. “The essential thing to understand about small payments is that users don’t like being nickel-and-dimed. We have the phrase ‘nickel-and-dimed’ because this dislike is both general and strong.” I think Shirky is right. (He wrote a seminal paper on micropayments some years ago.) But I also think he overstates his case. The clue comes in his misinterpretation of the phrase “nickel-and-dimed.” We say we’re being nickel-and-dimed when a company charges us lots of small, frivolous fees for stuff that has no value to us. The classic example is a bank charging for every check you write or every ATM withdrawal you make. We don’t say we’re being nickel-and-dimed when we buy a product we want for a very low price – a pack of gum, say, or a postage stamp. Spending a nickel or a dime (or a quarter or a dollar) for something you want is not an annoyance. It’s a purchase.

Shirky’s need to see all forms of micropayments as dead ends leads him into a tortured attempt to dismiss Apple’s success at selling songs for less than a buck a pop through iTunes. “People are not paying for music on ITMS because we have decided that fee-per-track is the model we prefer,” he writes, “but because there is no market in which commercial alternatives can be explored.” Huh? Au contraire: a whole lot of people have indeed decided that they don’t mind paying a small fee to purchase a song. There are other music-sales models out there, various forms of subscriptions, most notably, and some, like eMusic, have had some success, while others have failed spectacularly. Nearly all the music for sale at iTunes is also available for free through services that facilitate illicit downloading. A huge amount of music continues to be trafficked that way, but nevertheless Apple’s experience demonstrates that a sizable market exists for purchasing media products piecemeal at small prices. I can pretty much guarantee that if Apple were to start charging 10 cents, or 5 cents, for a track, they would actually sell a lot more of them. Buyers wouldn’t, in other words, run away, screaming “don’t nickel-and-dime me!”, because they find spending such tiny amounts a horrible hassle. They’d buy more. The iTunes store, and Amazon’s music store, demonstrates that consumers can be trained to spend small amounts of money for products and services they desire.

Still, I don’t see micropayments working for news. Most news stories, for one thing, are transitory, disposable things. That makes them very different from songs, which we buy because we want to “own” them, to have the ability to play them over and over again. We don’t want to own news stories; we just want to read them or glance over them. Hawking stories piecemeal is a harder sell than hawking tunes; the hassle factor is more difficult to overcome. Second, news stories are – and I’m speaking very generally here – more fungible than songs. If you want the Kings of Leon’s “Sex on Fire,” you want the Kings of Leon’s “Sex on Fire.” A wimpy Coldplay number just ain’t going to scratch that itch. But while there are certainly differences in quality among news stories on the same subject, sometimes very great differences, they may not matter for people looking for a quick synopsis of the facts, particularly if the alternatives are being given away free. And most news stories also go out of date very, very quickly. The window during which you’d have any chance of selling one is exceedingly brief. Finally, people don’t have any experience buying individual news stories the way they have with buying individual songs (as 45s or cassette singles of CD singles). So the whole concept just seems weird.

Does that mean that a micropayments system absolutely, positively won’t work for newspapers? No. But it does mean it’s a heck of a longshot and not worth pinning one’s hopes on.

So is the idea of getting people to pay for news online an impossible dream? You’d certainly think so reading people like Shirky and Jarvis, who can’t wait for old-time newspaper publishers to be dead and buried so we can get on with some vague, communal “reinvention” of news production and distribution. But the freeniacs are wrong. Charging people for news, even online, is by no means an impossible dream. Yes, it often seems like an impossible dream today, but that’s because the news market is currently, and massively, distorted. But market distortions have a way of sorting themselves out. Indeed, that’s one of the main reasons we have markets.

The essential problem with the newspaper business today is that it is suffering from a huge imbalance between supply and demand. What the Internet has done is broken the geographical constraints on news distribution and flooded the market with stories, with product. Supply so far exceeds demand that the price of the news has dropped to zero. Substitutes are everywhere. To put it another way, the geographical constraints on the distribution of printed news required the fragmentation of production capacity, with large groups of reporters and editors being stationed in myriad local outlets. When the geographical constraints went away, thanks to the Net and the near-zero cost of distributing digital goods anywhere in the world, all that fragmented (and redundant) capacity suddenly merged together into (in effect) a single production pool serving (in effect) a single market. Needless to say, the combined production capacity now far, far exceeds the demand of the combined market.

In this environment, you’re about as like to be able to charge for an online news story as you are to charge for air. And the overabundance of supply means, as well, an overabundance of advertising inventory. So not only can’t you charge for your product, but you can’t make decent ad revenues either. Bad times.

Now here’s what a lot of people seem to forget: Excess production capacity goes away, particularly when that capacity consists not of capital but of people. Supply and demand, eventually and often painfully, come back into some sort of balance. Newspapers have, with good reason, been pulling their hair out over the demand side of the business, where a lot of their product has, for the time being, lost its monetary value. But the solution to their dilemma actually lies on the production side: particularly, the radical consolidation and radical reduction of capacity. The number of U.S. newspapers is going to collapse (although we may have differently branded papers produced by the same production operation) and the number of reporters, editors, and other production side employees is going to continue to plummet. And syndication practices, geared to a world of geographic constraints on distribution, will be rethought and, in many cases, abandoned.

As all that happens, market power begins – gasp, chuckle, and guffaw all you want – to move back to the producer. The user no longer gets to call all the shots. Substitutes dry up, the perception of fungibility dissipates, and quality becomes both visible and valuable. The value of news begins, once again, to have a dollar sign beside it.

Shirky claims we’re “in a media environment with low barriers to entry for competition.” But that’s an illusion born of the current supply-demand imbalance. The capital requirements for an online news operation are certainly lower than for a print one, but the labor costs remain high. Reporters, editors, photographers, and other newspaper production workers are skilled professionals who require good and fair pay and benefits and, often, substantial travel allowances. It’s a fantasy to believe that the production of all the kinds of news that people value, particularly hard news, can be shifted over to amateurs or journeymen working for peanuts or some newfangled journo-syndicalist communes. Certainly, amateurs and volunteers can do some of the work that used to be done by professional journalists in professional organizations. Free-floating freelancers can also do some of the work. The journo-syndicalist communes will, I suppose, be able to do some of the work. And that’s all well and good. But they can’t do all of the work, and they certainly can’t do all of the most valuable work. The news business will remain a fundamentally commercial operation. Whatever the Internet dreamers might tell you, it ain’t going to a purely social production model.

Newspapers are certainly guilty of not battening down the spending hatches early enough. But if you look at, say, the New York Times’s emerging “last-man-standing” strategy, as laid out in its issue yesterday, you see a strategy that makes sense, and that actually is built on a rational view of the future. Make sure you have enough cash to ride out the storm, trim your spending, defend your quality and your brand, expand into the new kinds of products and services that the web makes possible and that serve to expand your reader base. And then sit tight and wait for your weaker competitors to fail. As one analyst, looking toward the future, says in the Times story, “‘there could be dramatically fewer newspapers,’ leaving those that remain in a stronger position to compete for readers and ads. ‘And then the New York Times should be a survivor.'”

Once you radically reduce supply in the industry, the demand picture changes radically as well. Ad inventory goes down, and ad rates go up. And things that seem unthinkable now – online subscription fees – suddenly become feasible. We also, at that point, get disabused of the fantasy that there’s no such thing as news consumers. We see that providing fodder for “conversations” is not the primary value of the news; it’s an important value, but it’s a secondary value. The newspaper industry is in the midst of a fundamental restructuring, and if you think that restructuring is over – that what we see today is the end state – you’re wrong. Markets for valuable goods do not stay disrupted. They evolve to a new and sustainable commercial state. Tomorrow’s reality will be different from today’s.

What I’m laying out here isn’t a pretty scenario. It means lots of lost jobs – good ones – and lots of failed businesses. The blood will run in the streets, as the chipmakers say when production capacity gets way ahead of demand in their industry. It may not even be good news in the long run. We’ll likely end up with a handful of mega-journalistic-entities, probably spanning both text and video, and hence fewer choices. This is what happens on the commercial web: power and money consolidate. But we’ll probably also end up with a supply of good reporting and solid news, and we’ll probably pay for it.

31 thoughts on “The writing is on the paywall

  1. Nick Carr

    Kevin, I’ll pass. The scenario I sketched out assumes that many newspaper companies will go belly up, with the news business, online and off, being gobbled up by a few giants. So if I took your bet, I’d kind of be betting against myself. Which would be a nice hedge strategy, but … in for a penny, in for pound, as we say in the pub. Nick


    Nick, it’s interesting to me that so many people use the phrase “news business” when they actually mean “advertising business whereby news content delivers audience to advertisers.”

    The fact is that for all the $200 million New York Times newsroom budgets, news is a pretty cheap way to deliver bodies to advertisers.

    But the other fact is that there are many cheaper ways to deliver audience online. A successful Web site might have bandwidth costs that sit in the neighborhood of one millionth of a cent per page view. Add on electricity, personnel and other fixed overhead and that cost might be in the neighborhood of one hundredth or one thousandth of a cent.

    To elaborate a bit on the social networking point above, the heavy cost of producing content and page views is placed on the end user, not the business trying to make money selling ads while simultaneously producing news. So, a lower CPM on a social networking site might actually mean much higher profit margins.

    What it comes down to for an advertiser isn’t necessarily cost per CPM, but effectiveness per ad served.

    That’s the real dilemma facing the “news business.” Can they serve more effective ads than anyone else?

    I don’t know the answer to that.

    I do know that in this fucking economy, we need more pubs.


    I like the framing of the issue as a market one and agree with the fundamental argument here. However, journalists like so many other aspects of the pre-Internet world have some social constructs associated with them. They get press passes to events and (sometimes) get to refuse to answer certain questions in courts.

    Attempts to get these benefits transferred to bloggers and the like have not been a great success so far. These things tend to stay in place long past their useful lifetimes and I’m not sure how they translate into a world where we have 20 global newspapers and only one official reporter turns up at a press conference. Of course the very notion of a press conference may be outdated as well. But getting rid of all these embedded concepts of the old world of journalism won’t happen in the next 10 years.

  4. Amyloo

    “Most news stories, for one thing, are transitory, disposable things. That makes them very different from songs, which we buy because we want to “own” them…”

    Maybe the metaphor is the porn show peep show. Pay to see.

    But, what about this? Combine micropayments with two other net staples: auctions and ratings. Based on an abstract, a reader would enter an amount she would be willing to pay to read the story. It would be in pennies. The vote fixes the price. Gaming would abound, and that problem would provide employment for programmers.

  5. meh130

    A few thoughts/comments/diagreements:

    1. The idea a newspaper industry needs professional writers is accurate, but the requirement for professional photographers is false. With digital cameras, the cost of photography has dropped, as have the skills required to take high quality photos. Witness the use of stringers to take photographs in hotspots. Today, concerns about news photos are more about the accuracy/legitimacy (fauxtography scandal, Hezbollah staged events, etc.) of photos than the quality of the image.

    2. The idea that the choice is between professional (i.e., employed by news agencies) and amateur (i.e., pajamas clad hobbyist) to report and write the news is false. Some of the best news reporters/writer today are independent, semi-professional or professional reporters. Just look at the work of Michael Yon and Michael Totten in war reporting. Their work is simply an order of magnitude superior than anything coming out the traditional press, due to the depth and context it provides compared to the big company reporter in his Green Zone hotel room collecting reports and photos from stringers.

    3. The elephant in the room is the collapse in quality, accuracy, and more importantly, integrity of the major news organizations. It started with the American television news organization (Dateline NBC’s exploding trucks, CNN’s Tailwind), metastized with CBS’ Killian documents, spread to Reuters with fauxtography, and finally the New York Times with the ridiculous Cindy McCain hit piece (where the reporter tried to dig dirt via McCain’s daughter’s classmates). Which begs the question, do we want a corrupt organization like the New York Times to be the “last man standing”?

  6. pitsch

    this debate is slightly depressing due to the lack of solutions on all sides.

    what do you expect from a company like NYT, which is willingly shutting down access to their own online archives for the second time now? either they want to boycott google, or they just don’t get it.

    the obsession of the news industry with paper (material, electronic or metaphorical) is understandable but confusingly ignorant. since the introduction of the telegraph in the 19th century and telex routing in the 1930s, news in its essence is already electronic. with the rise of the internet the news networks are loosing their privileged access to “the wire”. with rss following the metaphor of the news ticker and twitter popularizing the telegram format what is missing today are working models of “monetizing” the speed of delivery of validated news.

    a bit more competition in difference instead of repetition would help todays infosphere indeed. one problem of news papers is that their headline articles are mainly redundant (as you can easily see in google news). while the blogosphere (including the “daily show”) still often delivers more commentary than source material.

    one simple solution: let people pay for real time news, instead of old archived articles. this business model of paying for novelty is known for years from stock market news services. instead of selling access to the archive, sell the access to the news of the next day the evening before. like in the gourmet restaurants, why not pay for freshness?

    the price of information has a time component. why not make the “realtime web” business class? it would help the rest of the people relax a bit.

    sure, the uproar will be gigantic… but this has nothing to do with net neutrality on the lower network layers.

    i’d be really interested if this proposal has been made elsewhere already by one of the celebrity protagonists… and watch as the meme spreads.

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