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.