The New Dark Age

24 July, 2009 — Editors Weblog

It is a common refrain in the news industry: readers paid for printed news content, so they should pay for the same thing online. To the overwhelmingly majority publishers, this principle appears fair and logical. Thus, the justifications apparently resolved, business managers are now grappling with the choice of payment structures most appropriate for their products.

Yet, according to News Futurist’s, Jeff Sonderman, such convictions ignore the fundamentals of newspaper production and distribution, namely: marginal-cost pricing. Subscriptions to online content are entirely unworkable, largely because the concept is antithetical to the way that newspapers have functioned for the past 180 years.

The lesson in newspaper economic history follows as such: in recognition of competitive market forces, newspapers have in fact not charged for their content since the advent of the penny press in the 1830s. Adoption of cheaper selling prices gained papers broader readerships, access to which advertisers proved willing to pay. Advertising revenues and the diluting effects of economies of scale have always covered the most expensive production costs: staff, building printed press etc. Subscriptions, on the other hand, have never been sufficient to cover anything but the marginal costs of production. If a publisher tried to make subscriptions costs cover the bulk of the costs by increasing selling prices, the paper would inevitably lose readers and be undercut by ‘correctly priced papers’.

Apparently, ‘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.’ Additionally, as the marginal costs of bandwith and storage decline every month, it is unsurprising that the result has been free access.

Consequently, Sonderman maintains that these forces should be respected, if not, enterprises which try to get people to pay for this content which is naturally free will be undercut by rivals adhering to free access. Morever, they will always have to contend with piracy, ‘because economics says the product should be free and technology makes it easy to duplicate and spread’.

The lesson is simple: If total-cost subscription pricing was unworkable in the print environment, even with its advantageous market monopolies, it is almost unthinkable that the idea would work in the ‘ultra-competitive online market’.

Sonderman’s reasoning on the basis of market forces is convincing- a pushing motivation for the majority of newspapers has been the increase of its circulation, thus achieving the double benefits of having a wider influence and attracting the principle source of funding – advertisers. Surely online news providers, working in a considerably cheaper and more fluid environment, would achieve these objectives by offering their content in its natural state- as a free entity?

Yet money must come from somewhere and Sonderman’s argument neglects the central fact that due to the current economic climate and the attraction of rival Internet sites, the levels of revenue coming in from advertising are simply not sufficient for news providers to continue providing their services free of charge. It is arguably commercially naive to think that the traditional advertising models could be uniformly transferred to a radically different media platform.

Sonderman maintains that news providers offering particularly ‘valuable’ and ‘niche’ content have better chances of charging successfully, as long as the value of their content is so high that it can’t be negated by competitive forces. With the abundancy of information available online and the proliferation of sources, concerns that people will not be eager to pay for what they can get for free are understandable. This is particularly true when working on the basis that the average news seeker, if unwilling to pay, often makes no active effort to verify the intentions or reliability of the source.

Indeed, the dubious elements of the online information plethora has demonstrated that the collection and distribution of reliable, verified information takes staff, time and resources, all of which require financial output. Payment, arguably, restores value to content. The International Herald Tribune’s Alan Cowell recently made an impassioned plea that the ‘old compact between writer and reader needs recasting and reinforcing for a new age’. This compact is generated by the act of the exchange of money for a newspaper, given on a basis of trust in the standard of information offered. Are the erection of payment structures the only way to restore this compact in the digital world?

Sources: New Futurist
The International Herald Tribune ( Sat-Sun, June 27-28 2009)