Who will pay for online news?

With the revenue downturn for Fairfax Media being announced on Monday, I got the call from Ashley Hall at the ABC’s PM program to give my opinion. At 2.45pm I may not have been sure that I had an opinion, but the nature of the relationship between news journalists and academics is that it would be good for all concerned if you could get an opinion, and give that to us to put on air. With Crikey publisher Eric Beecher and former ACCC head Allan Fels also offering their opinions, I was in good company on the PM program.

My comments were picked up by Shaun Carney, the associate editor of The Age, for his opinion piece on Wednesday. In Carney’s view I am one of those who argues that the future of digital media is free content, as we are moving from an environment of information scarcity to one of information abundance, and that is driving down the price of online content of all sorts. The editor of WIRED magazine, Chris Anderson, is another seen to be holding to this view, in his most recent book Free: The Future of a Radical Price.

Carney disagrees with this, arguing that the era of free online content will be seen as a short-lived phase, since commercial businesses ultimately need to set a price for their content or they will go out of business. Carney is also of the view that consumers will ultimately accept the need for this. Just as what were once free sample bags given out at the various Royal Shows around Australia (Easter Show, The Ekka etc.) became show bags with a price attached, so too will once free online news become a commodity for which consumers will pay.

Since Rupert Murdoch said the hares running on this issue earlier in August by declaring that News Corporation sites around the world will move to a pay model, there has been a lot of commentary on this. Among those offering views have been Brian McNair, Roy Greenslade and James Harkin. The jury is clearly out on what will happen next, with there being some high profile examples where a subscription model for premium content has worked, such as the Financial Times and the Wall Street Journal, and some high-profile failures, most notably The New York Times.

I wanted to pick up on a specific criticism that Carney makes of my claim that we have been moving from information scarcity to information abundance in ways that affect the ability to charge for access to online news:

It's true that there are a lot more places where people can get information ''about'' news, such as boutique political websites and one or two email newsletters, but when it comes to finding actual news he's wrong. So far, the Internet has not ushered in any substantial new news organisations; the vast bulk of Australian online media consumers still rely on Fairfax, News, ninemsn and the ABC for their news. Scarcity still applies.

Carney is right to argue that the big news organisations continue to dominate the online news space in Australia, and no substantial new players have emerged that are Internet only. News, The Age, SMH, ninemsn and the ABC are all sites that are in the Alexa top 25 most accessed Internet sites in Australia, and probably account for about 80% of traffic to Australian news sites, even allowing for a relatively flexible definition of news. While it is difficult to compare the number of users of a site such as Crikey to that of theaustralian.com.au as more people get the former in a “push” format via emails, it would be somewhere in the range of 10-20% of page views for Crikey as compared to that of The Australian, which in turn is well below the site statistics for The Age, ninemsn or the ABC.

Carney has pointed to what is known as power-law distribution, where the majority of an activity tends to cluster around a minority of possibilities, Also known as Pareto’s Law (after the Spanish economist Vilfredo Pareto) or the 80/20 rule, it has been a feature of media industries that the majority cluster towards a minority of options, be they TV programs, Britney Spears CDs, Dan Brown novels or whatever. Put differently, of course the ABC would love to put more arts programs to air, but with a 1 to 2 per cent audience share, it has to be on Sunday afternoons, not Monday nights.

What the Internet has changed, and what Chris Anderson points to with the long tail concept, is that as digital media distribution costs tend towards zero, the less popular options also can become commercially viable. Social media can intensify this by promoting new ways of gathering a reputation, through ranking systems, word of mouth, shared links via Facebook, Twitter feeds etc.

Moreover, Anderson also suggests that assumptions about popularity may have been an artefact of distributional limits. When the number of books for sale was determined by the size of the store, that set physical limits to the number of titles that could be held; there is no such capacity constraint on the Internet, and so more specialist tastes and interests can be catered for through online book catalogues.

What Shaun Carney points to – as does Rupert Murdoch – is that the business of getting news is not free. As economist Tyler Cowen puts it, all of the major news providers have found that their revenues are falling below their average costs curves, and they are not prepared to make losses indefinitely. The problems are that no-one knows what the price should be, what is the best approach to charging (subscriptions, pay-per-view, freemiums, or what?), or whether enough consumers will pay to offset the losses arising from those who will inevitably opt out once some form of charging for news is introduced.

At this point, two further complications emerge. One is the possibility that new opportunities may emerge for commercially viable free news services that capture the convenience users who opt out of pay models. This may be a new provider who also captures the imaginations of those who are now vocally critical of what they term the "mainstream media", and who access sites such as The Huffington Post in the U.S.

The second is that it is unlikely that the public service media providers – ABC, BBC, SBS, NPR etc. – will charge for news, as it is contrary to their Charter obligations of providing universal access. At any rate, I doubt that Shaun Carney is right that consumers will simply accept paying for what they are currently getting for free simply because they recognise the costs that exist for the established news providers.

Economists on pay-per-view online print news

Tyler Cowen has provided an interesting economist's perspective on the plans of Rupert Murdoch and News Corporation to start charging subscription fees for online news. He doesn't think that it will work, but can recognise that on this occasion the capacity of news proprietors to collude around common business interests will have an impact. He does think that public service media will come into their own as providers of free, quality news content.

This time around plausibly all the major newspapers will follow suit and charge for their content as well. It's like one of those Lester Telser/George Bittlingmayer models except now we are at the point where the major players realize they are all below their average cost curves permanently and they are not willing to incur losses indefinitely. Since we've not yet been in an all-charging equilibrium, we don't know what the price will be. What does the NYT business model look like at $50 a year for access, with price breaks for India?

In that equilibrium does any newspaper gain from defecting and moving back to p = 0? Is there a stable core to the game? Isn't Murdoch simply signaling that all the newspapers ought to collude?

Won't NPR, and NPR.org, be the big winner?

I'm not saying the Murdoch move is going to "work." I am saying that if the game has no core the idea of charging for content will not go away.

Joshua Gans is also thinking about the issue at Core Economics. Key point here is that that "producing news involves high fixed costs and low marginal costs.".

Debating Journalism

I am pleased to say that a podcast is available of an interview that I did with Peter Clarke from Inside Story at the recent ICA Journalism in the 21st Century conference at the University of Melbourne. The link can be found here.

Below is the description on the site (Note: completely free - no need to pay News Limited or Fairfax for access).

CONFERENCES on “the future of journalism” have become a growth industry. In many ways, the news media’s own digital evolution has become one of its biggest stories. The collapse of the twentieth century funding model for (quality) journalism is pre-occupying western news operations. Rupert Murdoch is leading another attempt to try to make online news content pay its old media creators as well as its new media recyclers. But the myriad micro-realities of changing journalism practice in a digital age mean journalism academics and practitioners have plenty to describe and argue about. The School of Culture and Communication at the University of Melbourne’s recent conference, Journalism in the 21st Century: Between Globalisation and National Identity, brought together career academics, journalists-turned-academics and a range of news practitioners and executives from Australia and overseas. Peter Clarke was there to gauge the latest thinking on possible futures for journalism.

More on Murdoch and pay-per-view news

Roy Greenslade offers this commentary on Rupert Murdoch's announcement that News Corporation news titles will go towards pay-only access to online content:

I have never received so many calls from so many places across the world to talk about the momentous decision by Rupert Murdoch to charge people for access to his newspaper websites.

As so often with statements by the world's most famous media mogul, the announcement is being treated as the word of god. Where Rupert goes, said several TV and radio presenters, others are sure to follow.

Excuse me if I disagree with those slavish reactions, and with Murdoch and, incidentally, with Lionel Barber, the editor of the Financial Times, who also believes that paid-for content is inevitable.

I tend to agree with Jeff Jarvis (Murdoch's move to charge for content opens doors for competitors), Guido Fawkes (Murdoch bucks the market) and John Temple, publisher of the now-defunct Rocky Mountain News (charging for a basic news service is flawed).

But I concede that there are many supporters of Murdoch's move too. The split is both philosophical and practical. There are those (with whom I agree) who believe that the digital media revolution is in the process of transforming journalism and those (such as Murdoch and most traditional newspaper publishers) who believe the net is merely another platform rather than an instrument of transformation.

It follows that if you wish to continue to fund traditional journalism that you require similar revenues, hence the Murdoch charging strategy.

Oddly, there are advocates of Murdoch's approach who believe him to be a journalistic hero and even a revolutionary, as I discovered when taking part yesterday evening in a BBC World Service discussion.

I was taken by surprise by the passionate support for Murdoch offered by by Tim Luckhurst, professor of journalism at Kent University (and a former editor of The Scotsman).

This also from James Harkin, also available (free) from The Guardian:

The cheerleaders of a free, digital utopia want to resurrect the mass market for news by having us chat to each other and our newspapers all day long. But between the fusty old newspapermen who refuse to tweet and the gadgeteers who do little else, there is little evidence that the rest of us have the time to be cogs in an all-purpose electronic machine. Long before the net tore apart its business model, the truth is that many newspapers were looking bloated and fat, as if lifestyle supplements and the advertising which went along with them was all readers wanted.

What they wanted, it turns out, was focused content, written by journalists who know what they're talking about. The freshest news outlets springing up in the US, for instance, are Politico, the magazine aimed at political junkies which broke the scandal of the Washington Post charging companies for access to its reporters, or TMZ, the well-connected celebrity mag which broke the news of Michael Jackson's death.

News organisations will, as a consequence, divide into populist monoliths which try to be all things to all people – witness the growth of news aggregators, for example – or, more promisingly, slim down and concentrate on what they know about.

For those that can hold their ground and know their niche, the good news is that the advertising industry will eventually have to catch up to the fact that the production of news is moving away from national mainstream outlets into a more global patchwork of niches. What matters then is whether newspapers have anything distinctive enough to pay for, or audiences who are interested enough in reading them to see their demographic data sold on to advertisers in tune with their specific interests. In one way or another, Rupert is right and the free-lords are wrong – we'll end up having to pay for the news that we really want.

Its on - Rupert Murdoch to introduce pay online news

Today saw Rupert Murdoch's News Corporation announce one of its largest corporate losses in history. Details from ABC News are below:

The global economic downturn has had a huge impact on News Corporation's results, with Rupert Murdoch announcing a 30 per cent decline on last year's performance.

News Corp reported a fourth quarter loss of $US203 million ($241 million), in line with its forecasts.

Across the fiscal year the company recorded a $US3.4 billion ($4 billion) loss.

Mr Murdoch says newspapers have been hit particularly hard, with classified advertising never expected to return to previous levels.

"The last year has been one of the toughest in our history and the results today outlined for fiscal 2009 clearly reflect the sour economic environment that affected our businesses throughout the year," he said.

But Mr Murdoch says he is confident the worst is behind the company.

Mr Murdoch has also indicated that access to News Corp material on the internet may soon come at a price.

"The extended downturn has only increased the drum beat for change, but the secular challenge is clear," he said.

"Classified advertising revenues will never again reach the levels that print once offered.

"Quality journalism is not cheap and an industry that gives away its content is simply cannibalising its ability to produce good reporting."

The big news is that Rupert Murdoch has indicated that all News Corporation online news sites will become fee-based in the near future:

"The digital revolution has opened many new and inexpensive distribution channels but it has not made content free. We intend to charge for all our news websites."

...

At present, only the Wall Street Journal charges a fee for online access and until recently, received wisdom in the publishing industry was that readers would not pay to read newspapers on the internet.

Murdoch said he had completed a review of the possibility of charging and that he was willing to take the risk of leading the industry towards a pay-per-view model: "I believe that if we're successful, we'll be followed fast by other media."

He said he was thinking in terms of "this fiscal year" to introduce charges. He said News Corp would avoid a migration of readers to free sites by "making our content better and differentiated from other people".

The charging model will be extended to red-top tabloids such as the Sun and the News of the World. Murdoch said he was keen to capitalise on the popularity of celebrity stories: "When we have a celebrity scoop, the number of hits we get now are astronomical."

As Bobbie Johnson observes in The Guardian:

A divisive split has emerged between those who believe that readers must be forced to pay for access to stories or see traditional reporting disappear altogether, and those who believe that a great deal of the information we consume each day is merely a commodity, and journalism must adapt itself to the changing environment.

News Corporation is at the forefront of the former camp, and plans are well advanced to make news on News Corp sites available onto on a fee-paying basis. Jeff Jarvis thinks that this won't work, as it misunderstands the nature of value creation through the Internet:

Newspapers have had 15 years since the launch of the internet browser to reimagine and rebuild themselves for the reality of the post-Guttenberg age. But they didn't. Now they are trying to reclaim old business models for a new media economy — a link economy, I call it, in which links give content value. Cut yourself off from links, behind pay walls, and you cut yourself off from the internet and its real value.

With any radical change to business models of this nature, some of the issues to be considered are:

• Consumer reaction: will consumers simply shift en masse from News sites to other sites that provide free news content?
• Competitor reaction: how will sites such as the Fairfax sites in Australia, or The Guardian in the UK, respond? The role of public service media is another factor here - the ABC and BBC are almost certain not to go down this path;
• Advertiser reaction: will advertisers identify potential "premium clients" here, or simply migrate to where the consumers are going, if they leave News sites for free content?
• Implications for different News properties: fee-based access to the Wall Street Journal can be profitable. But does this apply to The Sun, The Australian, The Courier-Mail, the Hobart Mercury etc.?
• Implications for News journalists: if news is understood as a low-value-adding commodity, then status differentiations among journalists are not so great. But if there is a need to produce content that people will pay for, will this leave a small cadre of "star" journalists, and mass layoffs for those who provide everyday news content?

News Limited has being laying off journalists and other news staff in Australia, and this would be likely to continue under a pay-per model. There is also the interesting point, which was considered in Tech Crunch last week, of whether "star" journalists - those whose content attracts a personal following that readers would be willing to pay for - are better off leaving large flagship newspapers and starting their own sites, hoping to take readership and advertisers with them. Harvard Business Review blogger Umair Haque has been thinking along similar lines with his Nichepaper Manifesto.

(Hat tip to Tim Mansfield for the latter).

Internships as the new elitism

A story coming through from The Guardian in Britain is the growing use of unpaid internships in business and government to employ university graduates at minimal cost. With up to one million young people estimated to be unemployed this year, this is a source of cheap labour, but its growing use for that purpose has raised allegations of exploitation and avoiding minimum wage obligations.

Another consequence of the high use of unpaid internships in some industries is that it reinforces patterns of elite employment that were raised in the Milburn Review into inequality in Britain. For those from lower-class backgrounds, the option of months or years of unpaiod work is less open, as they cannot rely upon parental support. This is particularly likely in the media and creative industries, where the notion of short-term contract work is widespread and people are more willing to forego short-term income.

Alex Donovan, 22, has been trying to break into the film world since graduating from Nottingham University last year with a degree in American studies.

After numerous unpaid stints as a runner, assistant director, editor, camera assistant, scriptwriter, website tester and general office skivvy, he is signing on and working unpaid in an east London theatre.

"It's immensely frustrating and I've got to the point now where I can't do internships," he said. "I've been on the dole for six months and I can't get bar work and a lot of high street recruitment agencies won't take me on as I don't have recognisable skills. They won't even take my CV. I knew film was notoriously difficult to get into, but I'd hoped to be in a paid job after six months."

Despite the setbacks, Donovan is determined to persevere. "It would be very easy to get depressed and there are nights when I think, 'Oh my God, why am I doing this?' but I will definitely keep pushing away to get into film; I would hate to end up doing something I didn't want to do."

Research by the National Council for Work Experience suggests that Donovan is not alone, and that his predicament will be shared by thousands more graduates this year.

A poll of 1,400 recent graduates and students who were seeking work found that 66% had felt obliged to work for free and 67% said they felt "exploited" or "undervalued" while doing work experience. The research, seen by the Guardian, reveals that half had worked unpaid for four weeks or more.

The government's own guidelines suggest that in the vast majority of cases unpaid placements should be for no more than two weeks.

More here.