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The common discussion among such people these days goes like this: "We've always charged people to read us in print, and so people ought to pay something for reading us online, too."
But here's the truth, folks: Newspapers haven't actually charged for news content since the 1830s.
Up until then, most newspapers were subscription-only and cost about 6 cents a day (or about $1.20 in today's dollars, adjusted for inflation).
By asking subscribers to bear the full cost of production, newspapers limited their audience to the few who could afford the luxury. That was actually OK for the time, because literacy rates were quite low anyway.
But compulsory education raised literacy rates as the 19th century progressed, and in the 1830s publishers realized a new model to reach the growing market -- the penny press.
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| The New York Sun in 1834 sells for a penny, marking the end of newspaper's charging readers the total cost of production |
Newspapers cut their price from 6 cents to just 1 cent (about 20-25 cents today), thus reaching a much broader circulation and finding advertisers would pay to reach that market. The first popular penny paper, the New York Sun, printed this motto at the top of every front page: "The object of this paper is to lay before the public, at a price within the means of every one, all the news of the day, and at the same time offer an advantageous medium for advertisements." (source)
Since then, for about 180 years, the retail price of a newspaper has never reflected the total cost of assembling and producing it. Any paper that tried to charge such a price (6x more) would lose circulation and be undercut by correctly priced competing papers.
As news now moves online, the same rule of economics apply: The price of a product in a competitive market falls to the marginal cost of creating and delivering one more unit.
For printed newspapers, the marginal cost was a little more paper and ink, maybe an extra block on the delivery route. Subscription fees never accounted for the fixed costs of producing the content: the building, staff, printing press, etc. That share of costs has long been paid by advertising and diluted by economies of scale.
The same economic forces apply online. And because the marginal cost of bits is nearly zero, the appropriate price becomes too small to bother tracking. Free is the result.
In fact, the principle of marginal-cost pricing is even stronger in the Internet economy because there are very low barriers to entry and nowhere near the startup costs of print. And the marginal costs such as bandwidth and storage decline every month.
Those who ignore the rule of marginal-cost pricing and try to charge users for content in a competitive market will be undercut by more efficient competitors who stick with free. They'll also face an endless fight against piracy, because economics says the product should be free and technology makes it easy to duplicate and spread.
(This is not to say some news providers couldn't get away with charging online; but to do so they would have to have content so valuable and unique that they don't face the competitive forces that pull prices down to the marginal cost of ~zero. And even if you find a specific niche and premium content you can charge for, you're likely to face free competition once the word gets out.)
So, newspaper folk, economics actually says the same thing about charging online that it has said for 180 years about charging for print: you must set consumer prices at or fractionally above the marginal cost. In print, that may be the 50-cent newsstand price. Online, with cheap bits, it's ~zero.
If economics hasn't allowed total-cost subscription pricing in print newspapers, even with their market monopolies and other advantages, why would anyone think economics would allow such pricing in the ultra-competitive online market?
UPDATE: See also, "In-depth on the free content argument"
17 comments:
Without classifieds for income, can online media make enough from advertising to cover fixed costs? Why will traditionally heavy advertisers--department stores, auto dealers--pay to advertise on a website?
The question Amy S asks is fair: can one assume the advertising model that worked for the penny press in the 1830s will work equally well on the Net.
I offer a different angle on the problem - for what it's worth - here.
See also NPR's story today.
If you can consider this, a potential paying reader got to read some free copy at the newsstand. If the reader wanted more they paid a fee to access the rest of that edition's copy. So why not do the same online. A reader gets to read some headlines and maybe some copy then pay to access that day's edition. If they liked what the publication offered then they subscribed.
The advertising dollars plus the reader access fee help pay for the cost of gathering the news and the staff to present online.
Marginal costs are effectively zero, yes, but the other side of the equation is crucial: Marginal revenues are being pushed toward zero as well.
With no barrier to distribution, no contained audience, and ubiquitous ad inventory, is there enough marginal revenue from advertising to support the operation?
I've been preaching the same gospel for years. Charging for regular content online hasn't worked and isn't going to - unless we somehow manage to get the entire Internet to collude with us.
If you want to charge for online content, charge for something innovative and unique. If you can get the same thing in print or from another website - why would you pay for it online?
Instead, create exclusive content that is worth paying for. The average daily news and police blotter aren't going to cut it.
What if newspapers charged for content online-- for the first 24 hours? After that, the archives were free? That's what I argue here:
http://trueslant.com/paulsmalera/2009/07/21/david-simon-and-newspapers-have-pay-walls-backwards-pay-for-today-set-archives-free/
How about rethinking the definition of "advertising" in the digital era? My article, "Free Is Not a Business Model" offers some ideas, although it is geared more to specialized pubs than to newspapers: www.healthcontentadvisors.com/blog
Thanks for this Jeff. I agree. I think most of us subscribed to get the service of delivery to our door. The idea that people will pay for most content is focusing energy in the wrong place. Where's the innovation in funding journalism?
I would never "subscribe" to a newspaper. An article here, an article there, isn't worth subscribing. Most of my "news" comes from multiple locations.
Now something I would subscribe to would be a large group of "newspaper" type sites that I could read whatever I wanted amongst the group... probably a limited number of articles to keep it fair to the publishers.
Also, if I'm paying, I don't want to see too much "dancing baloney" advertising, it's distracting and annoying and I'll set my browser to not display it if it's too much.
What Bill describes sounds similar to a biz model the company Journalism Online announced recently.
I write about this and other attempts by newspapers to monetize online content at www.greenbergmedia.com/blog
What is continually disregarded in this debate is the relevance of the last few words of the Sun's motto, "...offer an advantageous medium for advertisements".
This is the core of the current problem. The true failing of the print news media is that in an aggressively changing and increasingly competitive environment print media has failed to continue offer an advantageous medium for advertisements.
Newspapers in particular are still read by a great many people, however advertisers now have platforms available to them that are more advantageous (i.e. efficient) resources for distributing their marketing message to their potential customers. The debate about paid or unpaid content needs to be set aside in favor of a similar debate about how the print news media can once again start offering an advantageous medium for advertisements.
For newspapers to monetize online content will require enhanced online services. In my experience, most print editors fear expanded online service. The rule in newsrooms for most of the current editorial cadre's recent career has been "people-centered story telling." Those who favor hard reporting of public processes and, god-forbid, release of aggregated data became virtual pariahs. Yet these are the services a newspaper can best offer at the local level -- a vital job most have forsaken or abandoned.
I saw a newspaper turn to a second-hand national Web service - followthemoney.org - to report state election finance, when reporters simply had no editorial support for original efforts to obtain and put online local or state election data. The result was tragic. In that state, followthemoney didn't get data until well after the election, and local press made no effort to challenge state laws or practices that allowed the delay. Despite one state law that requires release of raw finance data, election officials cite another law that prohibits publication of electronic public records unless the reporter agrees to pay royalties on use of public records, provide stories for official approval prior to publication and acknowledge jail terms that can be imposed on those who publish electronic records that are deemed in that very statute to be public records. The watchdogs were caged while the show dogs preened.
A main-line reporter asked me with an incredulous tone, "What would I do with five years of city budgets?"
Put them online for readers to analyze? Learn some basic digital analysis skills and find out if library spending has gone up or down in comparison to spending for the mayor’s press staff?
A business editor asked me, with a wounded tone, in response to my offering him 10 years of compiled real estate sales data in late 2008 that would shed light on the narrowly focused quarterly press releases he got from the industry, "Do you know how that makes us (the newsroom!) feel?"
A real estate reporter could not find words to respond to my offering of a data system to retain details of his monthly building permit inspections. He preferred to report two numbers from the official documents, then go to the morgue if ever he wanted to analyze those numbers in depth. His clips reveal he never offered more than a cursory report of long-term trends that could be found even in the limited data he did pass along to readers.
While their exclusive franchise wore away under the constant pressure from new media including cable TV and an ever-expanding market for niche publications, newspaper staff rode through the boom years with little real concern. They became quite satisfied to be gate keepers, and were more than happy to defend a gate only as wide as they could control access. A wider gate only meant more competition. For many, readers' access to greater levels of detail threatens their livelihood, built on short-form storytelling while their digital skills are stuck in 1984 and their math skills have not developed beyond the eighth-grade level.
If surviving newspapers were willing to expand service by retaining digital-savvy reporters, and to market the results of their new-found savvy online, we would find new revenue sources. We would also find governments acting as if the watchdogs might do something other than growl on cue. Instead, "computer-assisted reporting" initiatives across the nation floundered and failed -- even when the revenue was still rolling in.
It's time for newspaper publishers and editors to decide whether their business is news or papers. If it's paper, they probably can't see the forest dying because they are too focused on the dead trees rolling through the press. If on the other hand, they are concerned with news, there is a whole new set of tools available and some very frustrated reporters -- including myself -- crying "censorship" because our very publishers and editors ripped our tools from our hands while we were doing our jobs.
What about aggregating all the paid models and letting the user choose from among "many ways to pay"? That's the concept behind PayCheckr.com, demo online now at http://www.paycheckr.com
I looked at the emergence of the Penny Press in the US while I was a student. I sort of wondered how long it would take someone proper to realise that it was pretty much the same position as we're in today. Great post.
I think you ignore a relevant fact in this post. Originally newspapers charged for content because they needed to pay for the production of their paper prior to creating an effective medium for their advertisers. IE: they eventually proved readers were reading their papers and were able to convince advertisers to "pay to play", thereby giving readers more access to the product. With Website content, we are hard pressed to convince advertisers that people will SEE their advertisements, which means getting advertisers to PAY to PLAY with website content is much more difficult. It isn't a proven medium for advertisers yet. Regardless of whether or not that is accurate or perception... perception IS truth and therefore, until we are able to convince advertisers that web content attracts their market and their message will be seen by those they want to reach in the volume they want to reach them, getting advertisers to offset the price of putting quality content online is difficult.
Further... the notion that getting a website with quality content is not an expensive endeavor is absurd. The amount of time and energy and talent that goes into creating a quality news content site that offers up to date relevant local and national news content is not at all cheap and certainly those going out and finding/writing about the news we want to read, deserve to be paid for their efforts. Those who build the site, maintain the site etc also deserve to be paid. There are many costs incurred when creating a website that's primary focus is content rather than commerce, and to assume such isn't the case perpetuates the notion that we should be able to access content on line without so much as being expected to pay for what we receive.
At this point, creditability should be worth something to those of us gathering our news online. If "anyone" can post "content" we have the danger of reading that which lacks integrity, might be complete fabrications or just plain old fashion crap. Again, we should pay for quality content until such time as we can ride the paradigm shift the advertisers have to endure to adjust their perception of website advertising not working.
Plus... we have yet to prove that website advertising DOES work. Frankly, it should be the same as image advertising in newspapers or magazines, but somehow the dynamic nature of "moving ads" makes the images seem less effective. Are they? We don't really know... but until we have more proof, coupled with more time for advertisers to shift their perception, you are going to hard pressed to get a content focused website to be funded by advertisers.
Mr Sondermann, I think that the 2nd paragraph in Maxx Spirit's comment brings a strong case against your postulate.
Would you care to respond to this?
I will respond. "Expensive" is a relative term. It costs me as a reporter no more to interview sources and write for print that it costs me to write for Web. The cost of developing quality print content depends on what we call quality. If "quality" is a warm fuzzy feeling about the president's new puppy, cost is a matter of recruiting writers who know how to manipulate reader's emotions -- something advertisers value in a market. If quality is sound analysis, the costs might not be measured in financial terms. It costs commitment.
Look at "quality" content outside of hard news - consider sports. All that endless gray agate draws the most attention-deficit readers deep into a page. All of it provides useful content that readers mentally calculate and consider. It's not a horribly expensive endeavor to write scripts, relying on a vast library of open source language tools, that let readers compare and analyze stats.
Now, if that were banker's local lending practices and we were investigating red-lining, it would be our civic duty to do the math for readers. But we didn't. And we didn't give readers the tools to do their own math. The newspaper I worked for boasted throughout the decline and into the fall that their Web service would soon allow local sports fans to enter game data directly onto the Web. I brought in hoards of available data, and configured it for Web presentation. The only, yea, the only remaining barrier was to toggle the switch so readers could see what this reporter was working on -- so they could check my math in some cases.
And I, at very little cost to the newspaper, had taken time to be sure each data set had a switch on each page that said "live" or "newsroom only". Did they let me open my pages to the public or did they delete my data from the server and refuse to restore it while I was working on a deadline story about the local economic climate? If you’re thinking “they did their job and let you tell readers what you found out,” you are wrong.
The hard fact is, the long-time staff at the state-capital newspaper this reporter worked for openly resented use of technology to report public affairs, even when readers loved it. The problem was not about marginal costs and the high cost of all the free programming I donated to the newspaper, as have scores of highly motivated editors and reporters who comprise the newspaper industry's failed flirtation with computer assisted reporting.
The problem was editorial, ethical and moral. The newspaper had sided with a segment of the local community that did not benefit from aggressive public involvement in public processes. The late publisher's role on the Atomic Energy Commission did not shed a favorable light on systematic efforts to publish with Web 2.0 accessibility the meeting times, progress reports and opportunities for public comment at the nearby national nuclear research laboratory, much less the local community planning meetings.
The heavy involvement of real estate advertisers in the revenue stream discouraged editors from supporting my expose of tax assessments that could result in significantly higher tax bills for property buyers. The paper's cozy relationship with state Democrats did not favor an aggressive effort to force governments to provide records in electronic format for the costs of copying.
Instead, electronic public records are inaccessible in this state, and in many others. That raises the threshold for participation beyond what even a professional reporter can surmount -- the threshold becomes court action rather than simply paying the inflated copy cost as we do with paper records.
The notion that producing electronic news costs more than print news is absurd. What is more absurd is the notion that reporters don't need to master basic spreadsheets, don't need to know how to do basic computer-assisted mathematical analysis, and that the costs of using tools every thousands of mom and pop business use each day to guide their business planning is somehow too expensive for newsrooms.
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