Paying for Content Part 1: No Scarcity

So will I ever pay to read the newspaper online?

The cyclical argument about whether or not readers will pay for content online over the years has been interesting and disappointing. In the early days of the web, traditional newspapers and magazines were wary of putting content online when there was not an online ad model that brought in revenue at the same level as print advertising. Today, traditional newspaper and magazines are wary of putting content online when there still is not an online ad model that brings in revenue at the same level as print. (And there probably never will be with the ability to use targeted advertising online instead of being limited to mass audiences, but that's a different post.) But the fact is that most previously print-centric media have more or less succumbed to the paradigm of republishing publicly online like everyone else and playing the traffic generation game for small, incremental revenue.

Many in the news industry believed they committed the digital sin over the past 15 years by putting free content online.  Now they want to try and correct what they did and avoid committing that sin again in new channels, such as mobile. 

The current trend toward paywalls is not new. We have seen several cycles of hope that readers can be charged directly for reading content. These are followed by periods of disappointment, believing that in fact readers never will pay online. The Wall Street Journal is always held up as the anecdote in both cycles. "It works for the WSJ!" or "It will only work for the WSJ."

The promise of enabling technology has been part of each cycle. We had hope in the micropayment systems. (Remember the W3C plans?) Then the promise of paywall solutions, which have been talked about since the 1990s (remember when Slate and Salon were subscription sites?), but we are only now seeing broad implementation?  Recently apps and tablets were the new-found saviors. Tomorrow it will be something else. But at the end of the day they are all trying to get someone to pay for the same content that they have been reluctant to pay for in other delivery packages.  But people paid for the print content,didn't they?  Hold that thought for a moment. 

First of all, this is not about technology providing a solution to the long-time problem, it is an economic issue.

There are two fundamental factors in whether I as a consumer will pay for any specific content--online or off. The first is scarcity and uniqueness and the second is wallet share. This post looks at the economic changes removing scarcity from content markets. My next post will discuss paying for all content from a consolidated personal budget perspective.

Several people have written about looking at online content from a scarcity perspective. (Jarvis, Shirky) The economics are simple to see if you compare available media sources today versus the early 1990s. Before the wide adoption of the web, the amount of sources available to a consumer was limited by geography.

• Each city's newspaper held almost a monopoly of news communication. Although television news, especially cable, was already adding direct competition for the consumer's attention as they could be providing the same information.We did pay for printed content, because that was one of the few choices.
• Books appeared to be abundantly available, but choices were actually limited by what was carried in local stores or libraries.
• Music was similar to books, limited by albums carried by the local music store.
• Movies were already changing from very scarce to less so. A local theater might be showing a few new releases while network and cable television broadcast a slightly wider selection of shows. However with VCRs and DVDs movie rental stores significantly decreased the limitation of movies to watch at any one moment. Although anyone like me who remembers being disappointed because all desired movies were already checked out from the video store and then still paying several dollars for an old movie I had already seen because it was that was available recognizes even Blockbuster priced based on scarcity.

Compare this with today. There is almost an endless supply of each of these types of content available at anytime anywhere because of the internet. Plus there are millions and millions of new websites, blogs, podcasts, videos, and various types of content instantly available at anyone's fingertips. Today, we create as much content every two days as was previously created over centuries.  Content is no longer scarce, therefore it cannot be priced and sold based on scarcity.

I am not saying content doesn't have value and cannot be sold, only that the models are different. Other factors still give content value, the most obvious one being quality. So what is quality? That is the multi-billion dollar question that industries are betting on.

In this context I am going to argue that quality is relevance, uniqueness, and some mix of reliability, thoroughness, composition, etc. Most discussions of quality content focus on the latter mix of those qualities. Those are traits that can be learned, or can come easily with talent. Good research. Good writing. Good reporting. Good directing. Good editing. Those are all important, but I see them more as a barrier to entry to be marketable content. In a lot of cases, more than most will admit, that barrier to entry is low. While the vast majority of what is produced today is almost-zero value user generated content, there are a lot of competitors with similar quality content to traditional media that are perfectly acceptable substitutes from the consumer's perspective.

The internet has increased the supply of content available to consumers, which effectively shifts the supply curve to the right, thus increasing the amount of content consumed, but also lowering the price of content.  This assumes the new entrants to the content market are substitutes for content supplied previously.  A following post will argue that the demand curve is steeply sloped, even more dramatically lowering the price closer to zero.

This is where decades of geography-constrained scarcity has put blinders on content publishers. Something that was the only source of one type of content to a consumer was perceived as quality back then, but now is just one of countless substitutable sources. A favorite example is recipes printed in a newspaper or magazine. They were great selling points as there were no other sources of recently published recipes available to readers other than cookbooks. Today those same recipes have been commoditized by databases of recipes online and endless cooking shows on cable food channels. The incremental value to readers of a recipe published in a local newspaper is now very low compared to what it was 10-15 years ago.

Some news reporting also fits this pattern.  In the past several reporters representing different publications would cover the same event to create here-are-the-facts news articles.  This was justified because each was reporting for a different market that did not overlap with the others.  Newswires like the Associated Press simplified this to an extent so that every little newspaper did not have to have reporters all across the state, country, and world.  But there was still a lot of overlapping reporting.  For a visual, just imagine media day at the Super Bowl.  Each reporter does not bring something unique to the story.  Now that a reader in any one market can access many of these news articles, the incremental value of any single report is negligible. 

Of course there still is some content that stands above the crowd. This is due to uniqueness and relevance.  The truly premium brands that have survived usually do represent a quality that is in fact scarce.  The New York Times, Wall Street Journal, leading book authors, top film directors, award-winning musicians all bring talent, skill, and resources together to create content that has unique value.  I will gladly pay for a new book by Michael Chabon or to read an issue of the New Yorker because the millions of other books and articles available at lower prices or for free are not equal substitutes. And my local newspaper still can report on news that is local and relevant to me about my home town with a breadth of coverage and a quality from credible investigation and reporting not easily replicated by other media.

So content scarcity does still exist, but it in itself is scarce. The risk for media is not recognizing when their content has been commoditized by the deluge of good-enough substitutes from the consumer's perspective.  And that takes a very honest conversation, putting away egos, and trusting consumers' choices.

So will I pay to read a newspaper online?  If it is for truly scarce, quality, relevant information....maybe.   And it depends how much it costs.