Searching for an Economic Lifeline for News Publishers

work-permit.jpgWalter Isaacson’s piece, “How to Save Your Newspaper,” in the current issue of Time Magazine, assesses the economic crisis facing newspaper publishers and seeks to identify a means to address the disconnect between the creation and the monetization of news content.

While newspapers across the country are cutting back their publication frequency or folding entirely, Isaacson notes that, ironically, newspapers currently have the largest audience in their history. Their content “is more popular than ever — even (in fact, especially) among young people.”

The problem is that fewer of these readers are paying for the content they consume. They are viewing it for free online — through a system that returns little revenue to the content creators. Isaacson writes:

The easy Internet ad dollars of the late 1990s enticed newspapers and magazines to put all of their content, plus a whole lot of blogs and whistles, onto their websites for free. But the bulk of the ad dollars has ended up flowing to groups that did not actually create much content but instead piggybacked on it: search engines, portals and some aggregators.

A year ago in his Wired Magazine cover story titled “Free! Why $0.00 Is the Future of Business,” Chris Anderson wrote  “[T]he last debates over free versus pay online are ending. In 2007 The New York Times went free; this year, so will much of The Wall Street Journal.”

Isaacson draws a different conclusion: “This is not a business model that makes sense”

As Isaacson explains:

Newspapers and magazines traditionally have had three revenue sources: newsstand sales, subscriptions and advertising. The new business model relies only on the last of these. That makes for a wobbly stool even when the one leg is strong. When it weakens — as countless publishers have seen happen as a result of the recession — the stool can’t possibly stand.

Isaacson, however, sees light at the end of this dark tunnel coming from a proposed system of micropayments:

The key to attracting online revenue, I think, is to come up with an iTunes-easy method of micropayment. We need something like digital coins or an E-ZPass digital wallet — a one-click system with a really simple interface that will permit impulse purchases of a newspaper, magazine, article, blog or video for a penny, nickel, dime or whatever the creator chooses to charge.

It’s an attractive idea. The electricity usage in our homes is metered — we pay by the kilowatt hour. The more we use, the more we pay. Despite this, few of us pause each morning before putting bread in the toaster and ponder, “Do I want to pay a few cents to toast this bread?”

For micropayments to be successful for online content, they similarly need to fall below the threshold of conscious decision. The “click cost” needs to be sufficiently small and inconspicuous that we don’t start to wonder “Is this article worth 7 cents to read?” But, somewhat paradoxically, the cost also needs to be clear and apparent. There can’t be unwelcome surprises — links that unexpectedly charge several dollars rather than a few cents.

This combination of invisibility and transparency is difficult to achieve. I doubt that it will naturally evolve from the decentralized, disaggregated Web of today. If such a system emerges, it will probably come from a large aggregator — like Apple or Amazon.com — who can provide a predictable and trusted payment system for a broad selection of content.

Nicholas Carr is also skeptical of Isaacson’s prescription for micropayments. He attributes the source of the crisis in publishing as a supply-side problem precipitated by the Internet eroding the traditional geographical boundaries of publications. Carr writes:

[T]he geographical constraints on the distribution of printed news required the fragmentation of production capacity, with large groups of reporters and editors being stationed in myriad local outlets. When the geographical constraints went away, thanks to the Net and the near-zero cost of distributing digital goods anywhere in the world, all that fragmented (and redundant) capacity suddenly merged together into (in effect) a single production pool serving (in effect) a single market. Needless to say, the combined production capacity now far, far exceeds the demand of the combined market.

Carr believes the tide will turn only once we see a “radical consolidation and radical reduction of capacity” in the publishing of news. This is, naturally, unwelcome news for those currently in this industry.

All these ideas are not mutually exclusive. Publishing’s fortunes may not turn around until we’ve experienced a massive market shakeout and developed a better system by which content creators and publishers can get paid for their work.

There are, as well, additional ways of generating revenue other than micropayments and the traditional publishing triad of subscriptions, advertising, and direct one-off sales. As Isaacson notes, much of the revenue generated by online content is now flowing not to the creators, but to the aggregators.

Other industries have developed monetization schemes based on this phenomenon. Cable companies pay to carry some television channels. BMI and ASCAP return royalties to music publishers from “free” radio airplay. We need to explore avenues like these for news content. In 2006, Google agreed to pay the Associated Press a fee to carry AP news headlines on the Google News service. At the time, a Google representative was quoted as saying “Google has always believed that content providers and publishers should be fairly compensated for their work so they can continue producing high-quality information.” It would be helpful if Google and other profitable aggregators worked to develop better systems for allocating the revenue they generate back to those who create the content.

The answer to the press’s current economic conundrum will probably turn out to be a combination of these various alternatives — free ad-supported content, paid subscriptions, micropayments, carrier subsidies, and others — in a post-shakeout environment that supports fewer authoritative sources than in the past.

Whatever the solutions eventually prove to be, they won’t come quickly or easily. The problem, as Isaacson notes, arose at the dawn of the age of the personal computer a third of a century ago. As a young Bill Gates, angered by people freely trading copies of his BASIC software for the Altair, wrote in 1976, “Who can afford to do professional work for nothing?”

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