This is the third in a series of occasional pieces on the transformation of the newspaper business. The first two pieces, both published in 2009, were The Writing Is on the Paywall and Google in the Middle.

Information doesn’t want to be free. Nor does it want to be expensive. Information wants to be reasonably priced. And when it’s reasonably priced, it gets purchased.

The internet has changed patterns of supply and demand in media businesses in profound ways. We’re not going back to the way things used to be. But it’s a mistake to assume that the contours of the landscape in the immediate aftermath of the disruption are the permanent contours of the landscape. New patterns of supply and demand – and, in turn, new ways of doing business – emerge to replace old ones, though it can take a long time for those patterns to mature and become stable. And in the meantime, there can be a whole lot of wreckage to clean up.

The arrival of Napster and its various progeny gave rise to the assumption that the recorded music business was doomed, that no one would ever pay for music again. That assumption, which at the time seemed entirely reasonable, has proved wrong. Plenty of people now purchase music through online stores like iTunes and Amazon.com, and a growing number are purchasing subscriptions to music services like Spotify. (I recently signed up for a five-bucks-a-month Spotify plan and, despite the mediocre sound quality and the annoying gaps in the tunebase, I’m pretty happy so far.) Music is being paid for even though (a) attempts to restrict music trading through digital-rights-management schemes have failed, and (b) most of the songs being purchased can, without too much trouble, be found and downloaded for free. People, it turns out, are generally happy to pay for convenience, for the assurance of quality, and for legitimacy. (The music industry’s distasteful program of suing kids for downloading craploads of free tunes actually worked; it put a little bit of fear into the minds of downloaders – and their parents.)

Similar trends have been unfolding in the motion-picture business. In addition to going out to theaters, people continue to buy and rent recorded movies and other shows, in both physical and virtual forms. What we’ve witnessed in the recording industries in general is that the internet has actually expanded, not constricted, the ways people consume media. In particular, we’ve seen the establishment of five modes of consumption,* four of which produce revenue for the supplier:

1. Unit purchase. Buy an item (song, album, movie, TV show, etc.) for a fixed price in order to own it in (theoretical) perpetuity.

2. Subscription. Pay a recurring fee to access a collection of items. The fee may be variable, tied to limits on access and use.

3. Rental. Pay a nonrecurring fee to access a particular item or a collection of items for a set period of time.

4. Ad-subsidized. Watch or listen for free, but with some form of advertising included.

5. Freeloading. Unauthorized copying or trading.

The consumption of online recordings, via all these modes, has both cannibalized and supplemented the consumption of physical media. Though physical media sales, rentals, and subscriptions have fallen, often drastically, they have not been entirely supplanted. The reason is that, even when it comes to information, a virtual good is not always a perfect substitute for a physical good. Anyone who has had their viewing of a movie interrupted as Netflix recalibrates its streaming quality in response to a fluctuation in bandwidth knows that physical media still have advantages. Those advantages will almost certainly continue to erode as online offerings improve, but they may never be erased entirely.

The expansion in modes of consumption, which is now being extended still further as a result of the proliferation of networked gadgets like smartphones and tablets, each of which offers a somewhat different experience, doesn’t necessarily mean an expansion in the profits of suppliers. It seems pretty clear that the music business will never enjoy the same profitability it did back in the CD days. (As someone who bought a whole lot of recordings at exorbitant prices, I can’t say this breaks my heart.) But it does show that there are still plenty of people willing to pay plenty of money for informational products, even when those products have no physical form and are freely traded online.

The newspaper business – or, more generally, the written-word business – is different from the music and the movie business. Generally speaking, a news story is a lot more fungible than a song or a film. When I want to hear a particular song, no other song is going to be a satisfying substitute, but when I want to read about the outcome of a Congressional vote, I’m a whole lot less fussy about which story supplies the details. And whereas people may listen to a song a lot of times and watch a movie quite a few times, it’s rare for a person to read a news story more than once. Such differences have led some observers to argue that, even if other media products find a price online, news stories never will. People will just never pay for what newspapers produce.

Recent evidence suggests, however, that that’s another mistaken assumption, again born of a belief that current circumstances will persist. Newspaper paywalls, long scoffed at, are beginning to pay off, both by producing a new stream of subscription fees and by protecting traditional print subscriptions. It was once thought that paywalls would work only for business-oriented papers like the Wall Street Journal and the Financial Times, but smartly constructed paywalls, which strike the right balance in supporting both ad-subsidized consumption and subscription consumption, are now showing signs of success for mainstream papers as well. See, for instance, Felix Salmon’s piece on the New York Times’s “porous paywall,” Ellie Behling’s review of the paywalls at the Concord Monitor, Augusta Chronicle, and Tulsa World, and John Lafayette’s article on the Arkansas Democrat Gazette’s well-established paywall. And a growing number of papers and other publications, from the Dallas Morning News to the Intelligencer Journal-Lancaster New Era, are testing paywall variations, which will help the industry gain a better sense of what works and what doesn’t. In fact, a recent study reveals that about half of all small newspapers now charge for online content in some way, and most of the rest are planning to institute paywalls.

Newspapers are also getting smarter about distinguishing between the more fungible and the less fungible elements of their products – and focusing their talents and investments on the latter. Less fungible means more distinctive, and distinctiveness in written news can manifest itself in many forms, from news analyses, to human-interest narratives, to smartly written editorial columns, to editorial skill in creating a bundle of stories, to compelling packages of local news and event coverage. Finally, and crucially important, the huge overabundance of supply in the news market, a consequence of the collapse of geographical boundaries that traditionally separated newspapers, is slowly ebbing as journalists are laid off and newspapers go under. The pruning of supply is ugly, but, from a business standpoint, it’s both inevitable and necessary.

What we’re coming to understand is that, in the newspaper business as in the music and motion-picture businesses, convenience, assurance of quality, and legitimacy are valued by consumers. Mainstream news consumers are not news geeks. They do not want to spend an inordinate amount of time flitting among sites, aggregation services, RSS readers, and tweet streams to cobble together a sense of what’s happening in the world. Many of them will choose to pay for convenience, assurance of quality, and legitimacy, and, as with music and movies, they will likely pay in a variety of ways – unit purchases, subscriptions, even rentals – depending on their needs. Many others will refuse to pay, limiting themselves to what’s available in purely ad-subsidized models. (And, of course, there will be plenty of freeloaders who take pride and pleasure in figuring out ways to defeat paywalls.) The newspapers that will survive, and perhaps even thrive, in the years to come will be those that are able to offer the most distinctive products and to tailor those products to a variety of consumption modes, spanning payment methods and devices, in a way that maximizes revenues and optimizes readership. And because an online news site is not a perfect substitute for a printed paper for either readers or advertisers – I cancelled my paper subscription a couple of years ago but ended up resubscribing after realizing that I was missing something – print editions will likely remain a crucial element in the mix indefinitely.

There is a group of new-media pundits – let’s call them the Self-Appointed Guardians of Web Orthodoxy (SAGWOs) – who encourage newspapers to launch all sorts of online distribution and editorial experiments. That’s good advice. But the SAGWOs have heaped scorn on experiments with paywalls and subscriptions and pricing. That’s terrible advice. Newspapers and magazines need to test all sorts of ways to get people to pay for news. That’s the only way to secure a vibrant future for quality journalism. Many of the experiments will fail. But some will succeed. And, eventually, we’ll see the emergence of sustainable, robust new business models, probably characterized by a broader set of revenue sources than existed before. If the last decade was the decade of digital destruction for newspapers, the current decade may turn out to be the decade of rebuilding.

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*I realize that there are some who will take offense at my use of the c-word – “consumption” – as it conflicts with their belief that the web has made media consumption obsolete. But that’s silly. The people formerly known as the audience still spend a lot of time behaving like an audience. I doubt that’s going to change.

Put Mike Arrington, Tim Armstrong, and Arianna Huffington in a beach house together for six months and film the proceedings. The hijinks would be primo. And if the action ever flagged, you could always helicopter Paul Carr in for a sleepover.

Can I patent this idea?

Skills are gained through effort.

Automation relieves effort.

There’s always a tradeoff, but because the relief comes immediately whereas the loss of skills manifests itself slowly, we rarely question the pursuit of ever greater degrees of automation.

Recent case in point:

Pilots’ “automation addiction” has eroded their flying skills to the point that they sometimes don’t know how to recover from stalls and other mid-flight problems, say pilots and safety officials. The weakened skills have contributed to hundreds of deaths in airline crashes in the last five years … “We’re seeing a new breed of accident with these state-of-the art planes,” said Rory Kay, an airline captain and co-chair of a Federal Aviation Administration advisory committee on pilot training. “We’re forgetting how to fly.”

Something to think about on Labor Day.

I’m thrilled to report that The Shallows was today named a finalist for the PEN Center USA 2011 Literary Award in the category of Research Nonfiction. The other finalists in the category are Colossus by Michael Hiltzik and Charlie Chan by Yunte Huang. The winner in the category is Why the West Rules – For Now by Ian Morris.

The National Interest is running my review of Douglas Edwards’s new memoir, I’m Feeling Lucky: The Confessions of Google Employee Number 59. Here’s how the review begins:

In December 2001, an upstart Silicon Valley company named Google posted its corporate philosophy, in the form of a list of “Ten Things We’ve Found to be True,” on its website. At once charmingly idealistic and off-puttingly smug, the list set the tone for Google’s future public pronouncements. “You can be serious without a suit,” read one of the tenets. “You can make money without doing evil,” read another. But it was the most innocuous sounding of the ten principles—“It’s best to do one thing really, really well”—that would prove to be most fateful for the company. No sooner had it pledged to remain a specialist than it began to break its promise by branching into new markets, with far-reaching consequences not only for its own business but also for the Internet as a whole.

Google issued its philosophy at a decisive moment in its history. Although it had incorporated just three years earlier, in late 1998, its eponymous search engine was already widely viewed as the best tool available for navigating the net. But the company was struggling to make money. To succeed financially, its young founders, Stanford grad-school buddies Larry Page and Sergey Brin, knew they would have to supply not only search results but also advertisements tied to those results. At the time, the market for search-linked ads was dominated by another Internet start-up, Overture, which had forged partnerships with major web portals like Yahoo, America Online, Ask Jeeves and Earthlink. Google’s own advertising system, AdWords, was more sophisticated than Overture’s, but big websites feared that the company, which operated its own site at Google.com, might end up competing with them for online traffic. Google’s high-toned philosophy, with its promise to stick to doing “one thing”—i.e., web search—“really, really well,” was meant to reassure would-be partners that it wouldn’t expand into their markets. The subtext was clear: “You can trust us; we’re pure.” …

Here’s the rest.

Rough Type’s retro summer continues with this post, which originally appeared on this blog on December 19, 2006, under the title “Sharecropping the Long Tail.”

A while back I wrote that Web 2.0, by putting the means of production into the hands of the masses but withholding from those same masses any ownership over the product of their work, provides an incredibly efficient mechanism to harvest the economic value of the free labor provided by the very many and concentrate it into the hands of the very few.

Richard MacManus’s new analysis of web traffic patterns helps illustrate the point. Despite the explosion of web content, spurred in large part by the reduction in the cost of producing and consuming that content, web traffic appears to be growing more concentrated in a few sites, not less. Using data from Compete, MacManus shows that the top ten sites accounted for 40% of total internet page views in November 2006, up from 31% in November 2001, a 29% increase. The greater concentration comes during a period when the number of domains on the web nearly doubled, from 2.9 million to 5.1 million.

Even if we grant that traffic numbers are unreliable and that page views are not the only way to measure traffic, the trend seems clear: A few big sites increasingly dominate the web.

On the surface of it, this might seem to contradict the long-tail, or power-law, theory. But it’s not so simple. As MacManus shows, the greater concentration of traffic can largely be explained by the popularity of two “social networking” sites, MySpace and Facebook, which together accounted for 17% of all page views in November 2006. Both MySpace and Facebook are made up of millions of “user profiles” created by their members. If we counted each profile as a separate site, which in a content sense it is, we would find no increase in the concentration of traffic, consistent with the long-tail theory.

What’s being concentrated, in other words, is not content but the economic value of content. MySpace, Facebook, and many other businesses have realized that they can give away the tools of production but maintain ownership over the resulting products. One of the fundamental economic characteristics of Web 2.0 is the distribution of production into the hands of the many and the concentration of the economic rewards into the hands of the few. It’s a sharecropping system, but the sharecroppers are generally happy because their interest lies in self-expression or socializing, not in making money, and, besides, the economic value of each of their individual contributions is trivial. It’s only by aggregating those contributions on a massive scale – on a web scale – that the business becomes lucrative. To put it a different way, the sharecroppers operate happily in an attention economy while their overseers operate happily in a cash economy. In this view, the attention economy does not operate separately from the cash economy; it’s simply a means of creating cheap inputs for the cash economy.

It strikes me that this dynamic, which I don’t think we’ve ever seen before, at least not on this scale, is the most interesting, and unsettling, economic phenomenon the Internet has produced.

Thanks to the Internet, Americans are devoting less of their free time to watching television and more to creating socially useful stuff.

As if.

A year ago, the Nielsen Company reported that Americans’ TV viewing hit an all-time record high in the first quarter of 2010, with the average person spending 158 hours and 25 minutes a month in front of the idiot box.* That record didn’t last long. Nielsen has released a new media-usage report, and it shows that in the first quarter of 2011, the average American watched TV for 158 hours and 47 minutes a month, up another 0.2 percent and, once again, a new all-time high.* Twenty years into the Web revolution, and we’re boob-tubier than ever.

But even that understates our video consumption. One of the Net’s big effects has been to free TV programming from the living room and the bedroom. We can now watch the tube through our laptops and smartphones 24/7 – at work, in restaurants, and while strolling down the street. And that’s just what we’re doing. In the first quarter of 2011, the average American watched 4 hours and 33 minutes of streaming video a month on a computer, up a whopping 34.5 percent from year-earlier levels. That same average American watched an additional 4 hours and 20 minutes of video on a mobile phone, up 20 percent from Q1 2010. You no longer need a couch to be a couch potato.

Of course, we’re doing more on the Net than just watching video. We’re also playing Angry Birds. As of the start of this year, human beings were devoting 200 million minutes a day to playing the addictive computer game. That works out to 1.2 billion hours of our collective annual cognitive surplus.*

Bottom line: the more time we spend in front of media devices, the more time we fritter away. Shocked? Me neither.

Previous posts on this subject:

Gilligan’s Web

Charlie Bit My Cognitive Surplus