Monday, November 19, 2012

There's no free lunch - and no free news either

I read last week that the German daily newspaper "Frankfurter Rundschau" declared bankruptcy. While it's not the first and probably not the last newspaper to throw in the towel, this saddened me considerably because it's the newspaper I've grown up with. Some years ago, when back in Europe, I checked their website and found it confusing to useless. I never gave it a second look, and haven't bought a print issue since forever. So to make matters worse now I feel personally responsible for sinking a newspaper I actually thought was pretty good. I also haven't bothered you for a while with my terribly insightful diagrams, so here are two to depict the problem.


The first one shows the present situation of online news providers. We get the news "for free" because they're paid by advertisement revenue. But this money has to come from somewhere, so we pay for it with the product that's being advertised. Now nobody really likes all the advert clutter around or even covering the news, and advertisement techniques are shifting. The problem is then that if newspaper advertisement doesn't yield results, and companies cut it out of the cycle, they cut off your news feed with it. What bothers me even more is that long before this happens newspapers have a large incentive to produce content that increases the number of people clicking on adverts. It is questionable this benefits the quality of information.


The second diagram shows how the situation would look like if we'd manage to get over the idea that information is free. All content has to be produced somewhere by somebody and that somebody needs to live from something. It would make more sense to directly pay for news because the feedback loop isn't distorted by product sales. If you cut out the marketing here, you cut yourself off information about products and services, which would lead to incentives for more sensible advertisement rather than to incentives for more traffic-generating content aggregation.

Most providers of online news actually represent a mixture of these two cases, but the first case has become very dominant within the last decade or so. During the last years there has been a trend to subscriptions for online content, notably realized by the NYT paywall. Now the NYT is a very prominent newspaper with a large readership, and that it seems to be working for them doesn't mean it will be working for everybody. The problem is that the subscribers still pay, implicitly, for the advertisement cost with purchase of products. As long as there are news financed entirely or to a large extent by adverts, capitalism predicts people will prefer them (unless they are of considerably worse quality that is), and it will be very difficult for pay-for-content news providers to generate enough revenue.

21 comments:

Phil Warnell said...

Hi Bee,

I think what’s missing in your consideration is the difference between the old concept of print newspapers and those found on the web. That is for the most part print newspapers were conceived to service local communities, while web based ones having a global reach. The impact this shift has on their marketing utility in general therefore is a complex issue, not to mention what this does respective to the concept of community.

For the most part I like the idea of being able to read newspapers from all over the world, as I think it broadens ones perspectives. On the other hand this has it even more difficult to conceive how all this can be practically paid for; that is just imagine having to subscribe to dozens of print newspapers. In the end when I think of all this it’s hard not to be reminded about Marshall McLuhan’s global village, to realize what he saw coming on the horizon held more than consequences having a huge societal impact, yet also what its realization presents being as a remunerative dilemma. Thus I find it hard not to imagine how to avoid some having more access than others as simply having more resource; this is a dilemma indeed.



”We have become like the most primitive Palaeolithic man, once more global wanderers, but information gatherers rather than food gatherers. From now on the source of food, wealth and life itself will be information.”


-Marshall McLuhan, “The Agenbite of Outwit”


Best,


Phil

Juan F. said...

My contribution to the information paradigm of these times.

http://thespectrumofriemannium.wordpress.com/2012/02/02/prueba-dos/

The news or information/numbers are one of the ubiquitous pieces to be understood better in the whole Physics. Best regards. Amarashiki

Renate Weineck said...

The "Frankfurter Rundschau"has a vera good e-paper issue fpr nearly the same price as the printed medium.

Uncle Al said...

Advertising assumes purchase in excess of costs. 1929 was a consumer crisis. Folks had enough of everything, with no purchases beyond financial qualification. Governments today create digital $trillions/year. Wheelbarrows of paper money are reinvented into something shiny. People borrow to own ephemera with no expectation of repayment (student loans being "pre-debt"). Advertising will morph into government-enforced public weal. Irresistible menus will offer no choices. Prosperity will gush from non-delivery by both sides. Prepare for Duroplast fists inside Trabant gloves. Don't be left behind!

Arun said...

If people had substantial savings/investment that they had to manage on their own and needed reliable news in order to do so, they might be willing to pay for news not influenced by advertising.

The problem right now about news is that it is seen as infotainment, and not as an essential component of being a good citizen, a good investor, etc. So, why would one want to pay for high-quality news?

Bee said...

Hi Arun,

What you say is true for a broad class of news, but it's not true in general. It's in everybody's self-interest for example to be informed about public health topics: risks, prevention, environmental factors, and so on. There are also rather banally the local news: where will the new bus stop be, how long will this construction go on, will this school be closing, when will the mayor retire, is the crime rate rising, and so on, that people should have a self-interest in because it's of immediate relevance to the organization of their lives and the decisions they make (about moving for example).


Also, what people are interested in is to a large extent an emergent property, since they're usually interested in what others are talking about. You might call that infotainment, but there can as well be real information be conveyed there, popular science is an example.

That having been said, the media has always had this double-sided mission, on the one hand to inform citizens so they are sufficiently informed about the decisions they get to make in a democracy, and on the other hand to entertain them. If people individually don't want to pay for the news they need to make the decisions they have to, they're acting against their own interest. It's exactly the sort of problem that you solve by making a service tax-funded. I don't think though that such a top-down approach is actually necessary. I believe most people are actually willing to pay for news because they realize somebody has to work for it. The problem is just that as long as there's similar news (apparently) for free or less money, that's what they will prefer. Best,

B.

Paul Guinnessy said...

This is partly the reason why "sponsored content is seen as the next big thing. i.e. the content is the ad in its own right.

Both readers and advertisers are falling into the same trap. They believe that there's no point in paying for a subscription (or ads to appear in a magazine) because there may be only one or two pieces of news that will interest them (in readers case entertainment and sports, advertisers really only want to be in the most prominent place for a cheap a price as possible). Hence they believe that the articles they are interested in should cost (subscription fee/number of articles produced). What they don't consider is that (a) Advertising pays between 40-85% of all newspaper costs and (b) its a false argument because each story cost a different amount to make, and has the public interest remit for certain aspects of it. Hence in all reality, I would make the cost of each article the same as the subscription price.

Of course it would never work in a thousand years, what with google and the huff post stealing all the ad revenue that should be associated with the articles by copying most of it and hosting the results on their own pages.

muon said...

Hi Bee, I agree with your post.

I'm having trouble posting comments, though. First of all, when I call of your web page, I get a message "To view this page, you must log in to this area on bloggerblogwidgets.googlecode.com:80:" which I cannot and don't want to do.

Second, when I try to use OpenID with WordPress and my blog page (muon.wordpress.com), I get an error message. If I try to use Google Account, I am forced to have a blog page and I don't want to do that either.

Sorry for the complaints but there may be other people out there who want to post comments but who run into problems...

Michael

GeekSpeaker said...

Bee, new reader, just wanted to state that your analogy might be true unless the readers are now in fact the product, a duality of sorts for info.

Bee said...

Muon: What browser are you using? There've been some issues lately with Firefox.

Phil Warnell said...

Hi Bee,


Just as a follow up to my previous comment I thought I would just leave a link to the full text of the article where Marshall McLuhan stated those words of his which I quoted there. That is for me I’ve long thought a good beginning to thinking about such things is to start with McLuhan’s exploration of the whole of the matter in general.


Best,


Phil

DocG said...

The news media are clinging to an outmoded marketing model. When I surf the net I'm constantly being asked to subscribe to some publication or other. But even if I'm tempted by some offer for a news source I like, what I really like is to be free to browse around at several sites. And it's absurd to even think about subscribing to every site that interests me.

What's needed is a completely different model, which would enable readers to pay a reasonable annual fee that would cover a whole range of online publications. Let's say a subscription fee of $50 per year for full access to 100 different sites.

While this might sound absurdly low, it actually makes a lot of sense because:

1. Unlike the conventional publication model, there are literally hundreds of millions of potential subscribers.

2. The overhead costs are almost the same regardless of the number of subscribers. Once hard copy is taken out of the equation, the economics of publishing change drastically.

Thus it pays to offer each reader the lowest possible rate, as the potential for volume is so great. But this is NOT what most publishers are doing. They stick to the same old absurdly high annual rates and are thus pricing themselves out of the online market.

No worries. They will learn.

Bee said...

Hi DocG,

That's an interesting suggestion. The problem is though that all these publishers would have to give up their individual strive to increase profit and would thus not have much incentive to increase quality. Best,

B.

Bee said...

Hi Phil,

Yes, you are right, the global nature of the internet has certainly changed demand as well as supply of news, which also affects the marketing tactics. I'm not sure though how this is relevant for the issue of paying-to-read and paying-through-ads. It is relevant for the question of subscription versus pay-by-piece, if that is what you mean. As you and DocG say, subscribing to a single newspaper seems quite old-fashioned, and I too have a handful of different ones from different countries in my reader (though, to admit it, most of the content overlaps strongly). Best,

B.

Bee said...

Hi Paul,

What do you think of Jaron Lanier's suggestion of having "micropayments" for each article? Of course this would work only if the process is simple and universal over a wide range of products. I think that it makes a lot of sense for the readership as well as for the writers. My problem with this is however that more than 90% of the time when I click on an article, I find after giving it a closer look that it is not worth paying money for, for one or the other reason. Unlike with, say, a book or so, news items are too short to give the reader a useful summary of what they will get. I'd vastly prefer a method to pay for articles I did like for one or the other reason. This of course raises the question of whether sufficiently many people would do that. Or maybe there's a way to combine both. So that you'd pay a tiny amount just for reading and if you like it, add to it to a level that actually pays for the content. Best,

B.

Bee said...

More on this: The End of Financial Times Deutschland

Giotis said...

I think in a few years people will pay for less news.

Phil Warnell said...
This comment has been removed by the author.
Phil Warnell said...
This comment has been removed by the author.
Phil Warnell said...

Hi Bee,


What I means is when a significant event happens I prefer to read many sources as to attempt to separate the politics from the facts. This is better done by searching the issue and following from there. In this case the wide adoption of pay walls will have this eliminated although micropayments are one way to address this and yet only if can be globally worked out. The other way is to have one’s URL location identified so that the advertizing can then be regionalized if ones product or service is not a global one to have the costs made relevant to that. Google has this already in relation to their key words purchasing, which can be as large as to cover everything or scaled all the way down to a specific small area like a postal code or ZIP address. The thing is whichever method is eventually chosen the creation of the system respective of the methodology , logistics and required infrastructure hasn’t been created yet,; one which I would hope as McLuhan did will be founded, developed and whose aim is to support the individual artists of the world as it being only them and not corporations nor government(s) that will have it left to being meaningful and universally productive.


”When new technologies impose themselves on societies long habituated to older technologies, anxieties of all kinds result. Our electronic world now calls for a unified field of global awareness; the kind of private consciousness appropriate to literate man can be viewed as an unbearable kink in the collective consciousness demanded by electronic information movement. In this impasse, suspension of all automatic reflexes would seem to be in order. I believe that artists, in all media, respond soonest to the challenges of new pressures. I would like to suggest that they also show us ways of living with new technology without destroying earlier forms and achievements. The new media, too, are not toys; they should not be in the hands of Mother Goose and Peter Pan executives. They can be entrusted only to new artists.”


-Marshall McLuhan, “The Agenbite of Outwit”


Best,

Phil

Paul Guinnessy said...

Hi Sabine,
We've done experiments with micro-payments and they don't work unless you can really scale them payment process like itunes. So I doubt it will save newspapers.

In addition, news organizations face the same problem music companies have with illegal downloading. People say they are already paying for their content, its just that they see the bill as the $50 per month they are spending for internet access.