Tagged: business

The demand curve

In general I have given up arguing free v.s. paid content strategies. The terminology being used: ‘free’ v.s. ‘paid’ is in itself some assurance that in a recession many publishers are going to start charging for their online editions. Never mind that the debate is really ad supported v.s. subscription supported v.s. a hybrid of the two. And, never mind that if you sketch out a ‘paid’ strategy thinking ‘free’ is the other alternative you are probably going to get it wrong.

So in the short term some will get it wrong, possibly horribly wrong. But those paying attention to the fact that digital has changed our culture will hopefully get it right. And ‘right’ can include some level of subscription fees, the question being what cost, what content and what platforms.

But, the number one way to get it wrong is to believe that because content is expensive to produce, readers must and will subsidize its creation through subscription fees. Assuming you are entitled to be paid for something is not really a sound economic argument, especially in the face of an unlimited supply of information driving down the perceived value of your content.

I have not seen anyone map this on a simple supply/demand curve:

Disclaimer: the chart is for entertainment purposes. I am not an economist, not even on TV and the curves here are purely diagrammatic. If this was showing a real information demand curve the ‘supply’ line would be so far to the right as to be off the page bringing the quantity (Q1) with it and dropping the price equilibrium (P1) to zero.

Economics 101 is when supply increases prices decrease. In this case we could argue demand has also increased but not enough to match a limitless supply of information.

So what we have is an oversupply of information. Not news, not journalism necessarily, but information. And guess what, consumers are exhibiting a behavior that indicates 5.5 hours per day of ‘information’ on Facebook is at least a minimally acceptable substitute for paying for a daily newspaper or watching the evening news. If the news is important it will find them. Assuming there are any newspapers left to cover it.

The Kindle/Google/distribution problem

An interesting quote from Jonathan Miller (once-upon-a-time my boss’ boss’ boss’ boss at AOL) talking about Kindle, the WSJ.com and the distribution problem in digital media:

I went from paying $14 to The Wall Street Journal to paying $10 to Amazon (for WSJ.com on the Kindle). Now the splits there, and I think this is relatively well known, are very, very much in favor of Amazon. So I became very much less valuable to The Wall Street Journal. That’s part one. Part two is they don’t know I exist. I went from being someone who’s their subscriber to being someone who is an Amazon subscriber, which The Wall Street Journal has no visibility back to and cannot manage that customer relationship. . . . So they’ve lost both the customer management and, trust me, the lion’s share of the economics.

So newspapers are mad at Google for creating an efficient distribution system that drives traffic back to them, but the same publishers are rushing to Amazon to give them 70% of the subscription revenue to get onto Kindle?

Success = Attention x Trust x Convenience

Reading Steve Buttry’s latest blog post this morning  Clinging to the past won’t save newspapers he summed up (with credit to Chuck Peters) the exact philosophy we have been thinking about at the Telegraph recently: Success = Attention x Trust x Convenience.

Great quote and great presentation from Chuck:

View more presentations from Chuck Peters.

Pay walls: How does this make sense?

I am totally willing to agree that the current online news business model (e.g. publish everything for free and try and make money from eyeballs/ad revenue) has some flaws. And, the only way to find a new model or mix of models is for different organizations to try different things. Each market is different, each organization is different. Eventually it will all work out.

But, reading Business Week today Jon Fine mentions this nugget (which has been noted before):

For Subscribers Only: Locking Up the News Sites

Little Rock’s Arkansas Democrat-Gazette, which boasts a daily circulation of around 176,000, charges a monthly fee of $4.95 for full Web access. Around 3,400 subscribers are paying for that access, which comes to just over $200,000 a year, a sum that’s two zeroes shy of being meaningful for big players.

Obviously numbers are not my strong point, but this is a big paper. Can someone explain why $200,000 is a winning business model?  More to the point – how are 3,400 online subscribers (which does not count the print subs who get online access as well) enough?

Just doing the math here with round, easy numbers: $200,000 with a $5 CPM = 40,000,000 pageviews per year. So really, assuming three ads on a page they would need 13 million pageviews a year to bring in that same revenue. Increase that CPM a bit and having a paywall looks like an anchor.

Now ArkansasOnline.com has ads on the page, and these are viewed even by non-subscribers. So, they are double dipping a bit there. But still – how many readers and page views are they giving up by being behind the paywall?

Anyone have unique visitor or page view numbers to share and compare to  other non-paywall sites of similar circulation size? I wish anyone the best who tries something new but I would like to at least be able to understand the strategy.

Update: From the Neiman Lab on 04/02/09: Paying for online news: Sorry, but the math just doesn’t work.

The Flat Earth Society

This blog post finally irritated me enough I had to rant further on it: OJR: Papers must charge for websites to survive

I intended to comment (again) on the post itself – but it has been closed. It seems like the conversation could have/ should have continued there.

Here is my original response last month:

Not to be trite but so far today I have gotten free news and weather from my TV, free traffic reports from my radio and free movie listings from a local weekly paper. Seems like charging for information might be the exception not the rule in many cases.

To be fair Mr. Storch was considerate enough to respond to almost everyone including me:

Damon, I don’t know about you but I don’t get my TV for free. I pay $123 every month to Comcast (for cable TV and Internet access). Otherwise, I wouldn’t have TV (no rabbit ears). Similarly, isn’t conventional radio fading and being eased out by the pay satellite services?

So, lets call that a ‘non denial denial.’ And perhaps further proof that Mr. Storch is not, as he freely admits, an economist. Well, I don’t even play one on TV – but I do have a set of rabbit ears available in case I need them. And, for what it is worth I don’t subscribe to satellite radio.

But, overall his analogy does seem pretty good: Comcast has built a delivery infrastructure that takes their product into every home in town. They deliver syndicated and original content and they charge their subscribers a premium for the privilege. So, why can’t newspapers do the same?

BECAUSE COMCAST IS ALREADY DOING IT! And Verizon and Roadrunner and every other ISP out there.

The exact reason people are no longer dependent on once-per-day news-on-paper is that they have an always-on broadband connection drowning them in information 24-7-365. Surely we do not all need MBAs to recognize the basic supply and demand pressures at work here?

But, lets turn the argument around. What would it hurt if we did charge for online news? To start we need to ignore two basic facts:

1) Print subscriptions subsidize delivery costs. Online distribution for news is basically free – or at least infinitely scalable at a relatively low fixed cost. In both mediums advertising has always been the revenue driver.

2) Local news is an extremely valuable product. Valuable enough that if local papers are careless, free competitors will appear in your market. All it would take is one fanatical blogger who lives for school board meetings to take a good chunk out of your newspaper’s Web traffic and prestige. Multiply that by 2 or three of your local beats and let me know how that affects your revenue growth.

Sure we can start charging for the news online. We could also double our print subscription rates or triple our advertising rates. None of those things are likely because the economics just do not make sense.

No one is arguing everything online should be free. The debate is really about who – the consumer or the advertiser -  should be paying.  Just as Comcast charges you extra for movies on-demand, there is probably a market for premium content even in local communities. But, I have yet to see the news product or feature that seems to fit the bill.