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.

Is small media the future of big media?

Michael Arrington at Tech Crunch develops an interesting proposition. What if the best 50 writers at the New York Times left the NYT, and developed their own lost cost, low overheads online start-up? Would their readership follow them? Would investors be interested?

Like everyone else I’ve watched the print media world fall apart over the last few years. The poster child for that industry is the New York Times, of course, and their many missteps in recent memory have been well chronicled. In early 2008 Marc Andreessen started a New York Times Deathwatch, and the company’s financial performance has degraded since then.

I keep wondering what would happen if the top 10% of the writers at the NYTimes just…walked out. I know it’s crazy, but let’s just explore this a bit for the heck of it.

Today the company is worth just a little over $1 billion. As recently as five years ago it was worth nearly 5x that much. You have to go back to the early 1980s to see a lower stock price.

I certainly don’t think the NYTimes is going to be shutting down any time soon. The company still pulls in nearly $3 billion a year in revenue, down just 10% or so from 2005. But massive overhead, and more than 9,300 employees, make profitability an increasingly difficult goal for The Gray Lady. Her age is showing.

Full article here.

Journalism in the 21st Century - keynote podcasts available

The Keynote sessions at the Journalism in the 21st Century: Between Globalisation and National Identity conference is now available as podcasts from the SBS Radio site. I participated in the session titled "Journalism in the New Digital Age: New Directions for national and international media outlets", with Valerio Veo (Executive Producer Online Current Affairs SBS, Sydney), Christoph Lanz (Director Television, Deutsche Welle, Berlin), and Bruce Dover (Chief Executive ABC International TV, Sydney).

The theme of the session was:

The currently proclaimed ‘crisis’ of journalism is caused by new increasingly complex technology developments. Traditional media are deeply challenged by a number of different developments which question not only their business models but also ways of journalistic practice. New transnational interactive journalistic formats but also forms of a ‘global presence’ of local, national or international outlets have an impact on business models as well as journalism practice. Questions asked are: is there a role for national journalism in such a globalized sphere? What are quality standards of new forms of ‘interactive’ journalism? What are the new models of covering worldwide events? What is the role of journalism as a 4th estate in an international context?

The End of Fortress Journalism

Peter Horrocks, Director of the BBC World Service, has contributed to a collection of papers published by the BBC on The Future of Journalism. The full report can be accessed from the link provided, but a sample of what he refers to as the "end of fortress journalism" can be found below.

Most journalists have grown up with a fortress mindset. They have lived and worked in proud institutions with thick walls. Their daily knightly task has been simple: to battle journalists from other fortresses. But the fortresses are crumbling and courtly jousts with fellow journalists are no longer impressing the crowds. The end of fortress journalism is deeply unsettling for us and requires a profound change in the mindset and culture of journalism.

Fortress journalism has been wonderful. Powerful, long-established institutions provided the perfect base for strong journalism. The major news organisations could nurture skills, underwrite risk and afford expensive journalism. The competition with other news organisations inspired great journalism and if the journalist got into trouble - legally, physically or with the authorities - the news organisation would protect and support. It has been familiar and comfortable for the journalist.

But that world is rapidly being eroded. The themes are familiar. Economic pressures - whether in the public or private sectors - are making the costs of the fortresses unsustainable. Each week brings news of redundancies and closures. The legacy costs of buildings, printing presses, studios and all the other structural supports of the fortress are proving too costly for the revenues that can now be generated.

Democracy, Participation and Convergent Media

Democracy, Participation and Convergent Media: Case Studies in Contemporary News Journalism in Australia

View more presentations from Terry Flew.

The Economist on the future of news media

Good analysis from The Economist about the future of news media:

The internet is killing newspapers and giving birth to a new sort of news business

THE race is crowded, but San Francisco stands a fair chance of becoming the first major American city without a daily newspaper. The San Francisco Chronicle, founded in 1865, is trimming its already pared-down staff in an attempt to avoid closure. And if it does disappear? “People under 30 won’t even notice,” says Gavin Newsom, the city’s mayor.

Most industries are suffering at present, but few are doing as badly as the news business. Things are worst in America, where many papers used to enjoy comfortable local monopolies, but in Britain around 70 local papers have shut down since the beginning of 2008. Among the survivors, advertising is dwindling, editorial is thinning and journalists are being laid off. The crisis is most advanced in the Anglo-Saxon countries, but it is happening all over the rich world: the impact of the internet, exacerbated by the advertising slump, is killing the daily newspaper.

Does that matter? Technological change has destroyed all sorts of once-popular products, from the handloom to the Walkman, and the world has mostly been better for it. But news is not just a product: the press is the fourth estate, a pillar of the polity. Journalists investigate and criticise governments, thus helping voters decide whether to keep them or sack them. Autocracies can function perfectly well without news, but democracies cannot. Will the death of the daily newspaper—the main source of information for most educated people for at least the past century, the scourge of corrupt politicians, the conscience of nations—damage democracy?

Picked apart

A newspaper is a package of content—politics, sport, share prices, weather and so forth—which exists to attract eyeballs to advertisements. Unfortunately for newspapers, the internet is better at delivering some of that than paper is. It is easier to search through job and property listings on the web, so classified advertising and its associated revenue is migrating onto the internet. Some content, too, works better on the internet—news and share prices can be more frequently updated, weather can be more geographically specific—so readers are migrating too. The package is thus being picked apart.

The newspaper’s decline is both cause and effect of the worrying finding by the Pew Centre that the number of Americans aged 18-24 who got any news at all the previous day has dropped from 34% to 25% over the past ten years. But that figure may be less troubling than it looks. Because newspapers pack together all sorts of different content, many of those who claimed in the past to have seen some news probably did so for a few seconds before turning the page to the sports scores. Acquaintance as shallow as that with the news is probably no great loss to society; Pew surveys of general knowledge suggest that young people are about as well (or badly) informed as they used to be.

And the newspaper companies’ tribulations do not necessarily presage the demise of the news business, for they stem in part from the tumultuous and expensive transition from paper to electronic distribution. News organisations are currently bearing two sets of costs—those of printing and distributing their product for the old world, and providing digital versions for the new—even though they have yet to find a business model that works online.

Up to now, most have been offering their content free online, but that is unsustainable, because there isn’t enough advertising revenue online to pay for it. So either the amount of news produced must shrink, or readers must pay more. Some publications, such as the Financial Times and the Wall Street Journal, which has more than 1m online subscribers and has just promised to develop a new system of micropayments for articles, already charge for content. Others will follow: Rupert Murdoch, the Journal’s owner, has said he expects his other titles to start charging too. With news available free on Google and Yahoo!, readers may, of course, not be prepared to pay even for deeper or more specialised stuff; but since they do in the paper world, where free-sheets and paid-for publications coexist, there seems no reason why they wouldn’t online.

Better mobile devices may encourage them to do so. Apple’s iPhone is the first reader-friendly mobile phone, and the latest update to its software, due shortly, will enable news providers that currently give away content on the iPhone to start charging for it. Amazon has just unveiled a new, larger version of the Kindle, its e-book reader, better suited to displaying newspapers. Similar devices are available from other firms, with many more on the way. Better technology coupled with new payment systems will not solve the acute problems faced by newspapers today, but should eventually provide new models to enable news to flourish in the digital age.

And already, there are signs that it will (see article). New sources of news are proliferating online. Many, it is true, are unreliable. Most are badly funded. Some are the rantings of deranged extremists. But some—like Muckety, an American site which enriches news stories with interactive maps of the protagonists’ networks of influence, and NightJack, the revealing and depressing blog of an anonymous British policeman, which won the Orwell prize last month—enhance society’s understanding of itself, and could not have existed in the old world.

But the only certainty about the future of news is that it will be different from the past. It will no longer be dominated by a few big titles whose front pages determine the story of the day. Public opinion will, rather, be shaped by thousands of different voices, with as many different focuses and points of view. As a result, people will have less in common to chat about around the water-cooler. Those who are not interested in political or economic news will be less likely to come across it; but those who are will be better equipped to hold their rulers to account. Which is, after all, what society needs news for.

Note: they don't think pay-per-view news will work. At all. Interestingly, they find evidence that partisanship does work commercially, at least on the short term.

For more see here.

Governance as Social Networking

Lee Rainie from the Pew Internet and American Life Project on the Internet and news, politics, governance and citizenship.

Governing as social networking

View more presentations from PewInternet.

Anxiety about the Internet

Anxiety about the future of mainstream news media in the mainstream news media appears to be growing. Here is Melik Kaylan worrying out loud in Forbes magazine, and lamenting the good old days of gatekeeping and normative media:

The Internet Is Bad For The Truth
Melik Kaylan

The Internet's evisceration of the music business points to yet another kind of meltdown on the horizon, one that may reach a crisis in the Obama years: the meltdown of Big Media purveyors in newsprint, television, books and movies. We confront a bewildering sea change in mass communications, and nobody seems to have clue where we're headed.

In the music biz, easy download capability through computers meant that consumers preferred not to go out and buy CDs. They shared the music for free via the Internet. Now that they can download for a dollar a song from iTunes--a clear revenue stream has appeared but a little too late. Everything else has changed.

Soon after consumption became too easy to monitor properly, supply followed suit; anybody could create music and push it on the Web, thereby bypassing the music industry gatekeepers. Result: There was a Babel of options to choose from and--the already famous excepted--no way of knowing whom to choose because the new process destroyed the old one by which talent gradually evolved toward fame and recognition.

The gatekeepers had served the vital function of filtering, marketing and branding talent. By creating celebrity, they'd helped focus the attention of mass audiences toward shared tastes, shared cultural experiences and, ultimately, shared values (however dubious).

Many iconoclasts objected to the old system, and have been delighted with the changes. They talk of "democratization" and "proliferation of choice" and "pluralism."

This is especially true in the area of news media. Ann Coulter, for example, was recently asked in a public forum what she thought of the financial difficulties besetting mainstream newspapers. She was delighted that the monopolies had finally fragmented and new voices like hers could be heard.

In principle, she is right--but then she achieved fame just before the floodgates opened. She had Fox News on her side and a still-healthy book-industry distribution and marketing system, albeit one that largely found her views distasteful. When the monopolies fade, so will the role (and fame) of anti-monopolists like the leggy and feisty Ms. Coulter. (I have written about her before.)

Where are we headed? Here's a clue: Whenever I returned from reporting in Iraq, I was always asked by people at dinners and cocktails--informed citizens all--"What's it really like over there?" Ye Gods, I thought, you live in the most media-intensive environment, with so many sources, how can you still be asking?

At first I thought they didn't trust the media monopolies or the political slant in every report they read ranging from blogs to newspapers. But I've come to sense a profounder cause at work: the fragmentation of the very process by which we form opinion, or taste, or ultimately a sense of the truth.

I grew up in the U.K. at a time when the television offered two state channels and one commercial channel. It meant that mandarins with high taste determined the level of culture to be nightly consumed by the citizenry. It also meant that the country as a whole experienced culture, even counterculture, in unison.

Not a bad time to grow up--from high-minded documentaries like the 7-Up series to entertainment from the Beatles to Monty Python to Spitting Image, the system produced terrific results. Sure, one had to filter out the snoozy-left default ideology of BBC apparatchiks, but most people were intelligent enough to do so, and partly because the BBC didn't talk down to them. After all, the country elected Margaret Thatcher.

Never in doubt, though, was the nature of truth, what it looked and felt like. It was a whole and compact thing with a glue of certainty at the core, enough to act upon, and it grew out of shared reality, common experience. I am not talking about opinions here, political or otherwise, but the sense that it was possible to know what actually happened, to digest the knowledge and believe you knew the truth.

I speak here of the Western world. That sense of the truth was precisely what the Iron Curtain countries lacked, because they disallowed any and all alternative voices.

But there is a point at which multi-cultural, multi-ethnic, trans-national, infinite and contradictory sources of information simply confuse and bewilder the individual and fragment the perceptual consensus. Since no one has the time to wade through all the sources, one arrives at the same relationship to the truth as the Soviet citizen: knowing the truth is too much hard work--if it is even knowable in the end.

To take Iraq again--what your news source chose to report--what it chose to see, even--depended often on its political bias. Anti-war bias? Lots of car bombs to report. Pro-intervention? Lots of turning points in the long struggle. But with a zillion blogs and sources, even by local Iraqis, each with its particular political nuance, how could you know what was the "balanced" version, indeed what was the reality. So much for infinite pluralism in the media.

Recently, I went down to Miami Beach to report for the Wall Street Journal on the annual Miami Art Basel extravaganza. Watching the mega-moneyed collectors at the main art fair, I was fascinated to see that they were all watching each other. In a field where a bunch of cigarette stubs in a medicine cabinet by Damien Hirst can be worth $1 million, nobody knew what was good or bad art, indeed what art was.

Here is the reductio ad absurdum of endless "inclusivity" or "inclusiveness"--it ultimately destroys the category that contains it. Endless truths destroy the notion of truth. If anything can be art, you have no idea what defines art, and you start watching other people to get clues.

The Internet, by its nature, destroys that shaping experience by which countries or cultures live a "moment" together. It's not a normative medium as the BBC was in my youth. It simply feeds the consumer's pre-formed tastes, it doesn't form them. If you know what you want, the Internet is a great tool. But how do you develop your tastes, or political biases or moral code--the criteria that help you to choose--in the first place? My bet is, in the coming decades, it won't be through the media anymore.

News and Information as Digital Media comes of age

The Berkman Centre for Internet and Society at Harvard University has published a series of papers, blogs, discussions, videos etc. around the theme of Media Re:Public: News and Information as Digital Media Comes of Age.

There are papers on international news, new media literacy, public broadcasting, digital media and democracy, mainstream news and the networked public sphere, as well as a series of case studies on the site. The underlying premises of Media Re:Public are:

• Public participation in the media, enabled by the Internet, is a burgeoning and evolving phenomenon that has both positive and negative effects.
• Dramatic changes in the traditional news media are occurring in parallel to the rise in participation, primarily due to the disruption of their business models by new distribution systems.
• Simple dichotomies—new vs. old, mainstream media vs. blogosphere—do not accurately describe the current environment, with its complex interdependencies among media entities with different structures and motivations. The distinctions between professional and amateur are blurring, and the definitions of commercial, public, and community media are shifting.

From the Overview paper, authored by Persephone Miel and Robert Faris, some key points are:

1. Under pressure from falling revenues and the disruption of their business model, traditional media outlets are reducing and shifting the scope of their original reporting.
2. Web-native media entities are not addressing all of the crucial reporting gaps left by traditional media. Current structures and mechanisms do not provide sufficient incentives for them to do so.
3. In the changing media environment, news consumers risk relying on news sources that are neither credible nor comprehensive.
4. Participation in the online media space is not evenly distributed; some populations and ideas remain underrepresented.
5. There are elements of critically important journalism that have not yet found reliable sustainability models in the online media environment.
6. Efforts to understand and address these issues are limited by a lack of solid empirical evidence, and must rely instead on incomplete information, anecdotes, and intuition.

For more read here.