Thursday, April 23, 2009

Mnookin: Ya gotta make it easy

I have a few friends -- OK, really, something like two -- who are so cool that, really, I feel badly overmatched in our friendship. Seth Mnookin is one of those friends. He’s writes for big magazines, he writes books, he hangs out with stars, he does charity work, he zips around New York on a motorbike of some kind, he wears black a lot. I am entirely out of my friendship depth.

He’s also a brilliant media critic -- his book Hard News on the New York Times is absolute must reading for anyone interested in newspapers. I asked Seth if he would write an essay on the future of newspapers. He sent along some thoughts about a big question here: Will people pay for content?

* * *

About three weeks ago, I participated in a panel discussion on the media -- which, as far as my bank account is concerned, still consists of the results of my labor being transformed into physical products made out of dead trees and so forth.*

* I'd adopt a Posnanskian conceit here and include my footnotes -- which I've always been a fan of** -- in the text itself. So: in the past fifteen years I've been employed by daily newspapers, weekly newspapers, weekly magazines, monthly magazines, and quarterly magazines. I also did a stint writing for the late, great Inside.com, and while it was among the most fun of my many jobs, I don't think I logged enough time there to qualify as a new-media employee in any real way.

** In the NYT Book Review of Feeding the Monster, Chip McGrath said, "He has also chosen to lard his book with copious footnotes, some of which appear to be a homage to David Foster Wallace." I do not think he meant that as a compliment.


To the extent that my "talk" had any kind of organizing conceit, it was that the news industry's "original sin" wasn't so much giving away content for free, it was making it so damn hard to pay for content. I contrasted that with two popular topics here: the Kindle and the iPhone. Amazon and Apple have both perfected the type of instant-gratification, on-the-spot payment plans that basically erase the lag time between wanting something and owning it--buying a book or an app are, in today's parlance, incredibly low-friction transactions.*

* So low friction, in fact, that on more than a occasions I've woken up having spent the previous night doing the Kindle's/iPhone's version of drunk-dialing: buying books/apps without any thought as to whether they were something I'd still want to own, come morning. This is the only way I can explain why I now haveiBird Explorer Plus loaded onto my phone.

The problem, as I saw it, wasn't that people weren't willing to pay for information they could get elsewhere for free; it was that it took more effort to pay for that information than it did to find it for free. To wit: in the time it would take me to fill out my name and billing address and track down theCVV/CVC code on my credit card, I could have done a half-dozen Google searches and found 824,000 other places to get that same data. What the newspaper/magazine world needed to do was get together and institute a single pay system, where you click on a button on any media site --be itnytimes.com or thebark.com -- and .99 cents (or $10.99, or whatever) magically disappears from your bank account.

A few days later, Steve Brill, one of my old bosses, announced he was starting Journalism Online , a new business based on that exact idea.* And in the few days after that, plenty of people -- including Jack Shafer -- explained why Steve was insane and his idea was doomed to fail. Jack argued that no one would pay for pieces that could easily be pirated by clearinghouse sites like The Huffington Post, or Gawker, or anyone else: "What legal recourse will Journalism Online and its hypothetical client/partners at the New York Times, Newsweek, Esquire, The New Yorker, and Fortune, et al., have if Gawker's rewrite aces observe both copyright law and the "hot news doctrine"?" This, I think, misses the point.** It's obviously cheaper for me to look up the flight pattern of a European Starling using the free mobile Wikipedia app on my iPhone than it is for me to pay for iBird Explorer . It also costs me more time, effort, and aggravation.

* This is one of the many reasons Steve is a wealthy entrepreneur and I am perpetually struggling to "monetize" my "labor": when I have an idea, I blab on about it during an ad-hoc panel at an art gallery; when Steve has one, he raises a couple of million bucks and makes it happen.

** Of course, Jack is someone who has a long and frequently brilliant career writing online, so by any measure he's better qualified than I am to write about the world of the Internets. He's also, from what I've heard, one hell of a bird watcher. 


(If I was writing this for a print publication, this is where my editor would tell me to wrassle up a good kicker to close out on. Oh well...)

23 comments:

  1. People already pay for online content. They pay for it every month when they get a bill from their ISP. They're not paying for the connectivity, they're paying for the content. The connection is worthless without the content. Unfortunately, none of that money gets passed on to the people who actually produce the content. Online media may be the only business in the world in which the middleman doesn't pay the producers for the right to sell their product at a mark-up.

    There's no such thing as a free website. It's amazing to me that so many executives have somehow been convinced that their websites are free. That content is not free; you're just not getting any of the money that people are paying for it.

    Have you noticed that to date nobody has launched a blog called "The Future of Internet Service Providers"? Why is that? Maybe it's because they've already convinced 180 million Americans to pay them to deliver content that the ISPs get for nothing. That's a pretty efficient business model!

    I think it's pretty simple: until newspapers go to war with ISPs over compensation for the right to carry their websites, they are going to fail. To date the business has shown no stomach for this fight, or even an awareness that they could be having it.

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  2. Mikey, I respectfully disagree. We're not paying our ISP's for the content. We're paying our ISP's for their infrastructure. That's why as our bandwidth increases, so too does our bill.

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  3. Whoa, hit post before I finished my thought there. I was going to say that it would have benefitted newspapers to work hand-in-hand with the ISP's much the same way HBO did with the cable companies 30 years ago. Unfortunately they're way past the point of no return and the Internet encompasses a lot more than television. You can itemize 500 stations but it's tough to itemize an infinite number of web pages.

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  4. Agreed, Mikey's got it wrong.

    Back to the post, I'm not sure I agree that transactional friction is the problem here. I can't remotely get my head around paying for content on a click-by-click basis. I don't know enough about whether or not I'm going to like reading something until I've read most of it. I'm not going to pay any money for an article that I may or may not read.

    The alternative, of course, it to make it easy to pay for a subscription. I love the NYTimes columnists, but I never bought TimesSelect when that was still going. Now, maybe I'd buy if the Washington Post, NYT, LAT, and a bunch of other papers erected a TimesSelect model. Maybe.

    But it seems to me that this could also bring down the whole ecosystem. If bloggers / delicious / Twitter / etc. can't link to free content (b/c not everyone has TimesSelect), doesn't that kill the viral nature of good content? Would anyone pay for a subscription to YouTube?

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  5. But it's the content that drives the consumer behavior. I could have been more clear there. You're right that what you're paying for is in large part infrastructure, but nobody would pay for it if the content were not there. Just like nobody would pay for the cable industry's infrastructure costs if not for the content.

    In my mind there is a relatively small number of websites that could credibly demand compensation. Maybe fewer than 100. The huge majority will never build an audience big enough to make demands. They're more like public access TV.

    Your HBO comparison is right on, but I think we disagree about the point of no return. At some point it's in the interest of ISPs to help keep newspapers going (and facebook and every other online brand that can't monetize itself).

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  6. What if they went the way of ESPN Insider? I pay $6/month for Insider access and I get the mag for free. ESPN says I'm paying the other way ($6/month for the mag and the website is free), but I don't really like the mag. My point is what if newspapers charged money for "Insider" access to their best on-line content, and in exchange you'd get a free newspaper every day? I'd buy that.

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  7. Ah wait, newspapers are local and daily. Nerds!

    Mikey, I see where you're coming from. But I can assure you that the ISP's don't see it that way. If you pay $20/month to your ISP, you're paying for a leased line. If you were paying for content, your bill would be higher. So while it's true that the connection is worthless without the content, that's not the fault of the ISP. Your argument is akin to saying that a Firestone tire is pointless without a Ford car to put it on, so Firestone should help out Ford with its manufacturing costs.

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  8. That's an interesting analogy but I prefer to think of it as more like:

    A department store is worthless without merchandise

    A restaurant is worthless without food

    A cable package is worthless without programming

    And in those cases of course the people who supply the product do get paid.

    In a Ford analogy I would see ISPs as being less like Firestone and more like your local Ford dealerships

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  9. What you're saying is true, but I don't think you're understanding what the product is in the case of the ISP's. You think that the product the ISP is providing is web content, but that's not accurate. The product they're providing is bandwidth. If the ISP's are going to start selling web content, your bill from your ISP is going to go up.

    And maybe that's what needs to happen. But what you're doing is you're asking the ISP to start paying out for something they're not collecting on.

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  10. The internet is limitless. So every newspaper in the world can threaten to take their sites offline unless they get a piece of ISP money, but that really won't make any difference, because there are literally millions of other sites on the internet that people will still visit.

    The only way a website is going to be able to charge money for content is by charging a little bit for "premium" content, and even that will only appeal to a small number of people. The answer to the internet revenue problem has to be getting more money for internet advertising. Get the eyeballs on your website, and advertisers should pay to reach them.

    The revenue will never be anywhere near as large as print ads in newspapers, but the production and delivery costs will be incredibly cheaper than they are for print as well. Good writers shouldn't need publishers, printing presses, or delivery people. They need a sales department that is very creative and effective, and that's about it. The group of racing writers who are starting their own site is a great idea, I hope it works for them.

    Not to hijack the topic, but I think the government has handed out too much to ISPs. They are going to be an unnecessary middleman in a few years, and I hope that the government will cut them out by offering free wireless service to everyone across the country. It should be a basic part of our infrastructure, like roads.

    Good thing that private companies aren't allowed to build roads and charge whatever they feel like for the public to use them. That's the government's job.

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  11. if someone finds a way to monetize my rss feed, maybe they'd have something. i don't really have time to "surf" for news anymore, pay-by-the-click or no. i'm sure i'm behind the curve because i'm using rss instead of having some twitter feed full of tinyurls, too.

    ugh.

    so i think mnookin and brill have the right idea (people really don't mind small transactions if they're seamless), but i doubt the way brill wants to do it will work.

    and i'm not just saying that because i hold a grudge against steve brill, as all americans (possibly, all humans) should. brill has admitted as much (can't remember where i saw the interview) and realizes that he owes the world, big time, for unleashing nancy grace upon it.

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  12. Here's what ISPs replace in the 'paper' environment:
    Paper
    Ink
    Delivery trucks
    Paper boxes
    All the people needed to operate and fill those things

    Mikey, you want an ISP to pay a newspaper, when a newspaper already pays for all this? It doesn't make sense to me.

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  13. Although I found Mikey's points about ISPs versus content interesting, I come down on Brian's side. At the risk of stating the obvious AND being an annoying dweeb, I'd like to turn it into an Econ 101 example.

    So long as content comes into my house via a wire, the one or few companies that control the local wires have some degree of monopoly power. Sure, I might be able to switch between Comcast and AT&T, but these two are the only games in my town, so they will get a reasonable return on their costs. More companies don't open shop because setting up wires is expensive.

    The problem for newspapers is that the fixed costs of producing news are high, but the dawn of the internet means that marginal costs are low. In plain English, reporters cost real money, but once a story is written it costs almost nothing to make it available electronically to almost everybody. Economics 101 says that industries with high fixed costs and low marginal costs tend to become monopolies. If there are lots of reasonably-similar newspapers competing for eyes via the internet, they'll tend to drop their price to gain market share until the price gets driven down to their marginal cost of serving another customer, which is virtually zero over the internet.

    But of course that leaves newspapers with no way to pay the fixed costs, so newspapers start going away. Each newspaper used to have some local monopoly power from their dead-tree delivery network (analogous to current ISP wires) and their control over local classified ads, but those are getting wiped out by the internet.

    So newspapers need to find some other form of monopoly power to be able to pay for their high fixed costs despite their low marginal costs. This probably means a future with far fewer voices on national issues, since only low numbers will allow a given news source to seem unique enough to command a decent price. I hate the thought of that, but I can't see any way to avoid massive industry consolidation and loss of work for a high proportion of newspaper people.

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  14. Mikey is wrong in his initial post when he wrote that people are paying for content, not connectivity. Much of the time, we are paying for connectivity. My emails to friends are connectivity, not content. So is facebook. So, that's problem No. 1.

    Problem No. 2 comes up in Mikey's incorrect analogy. He says that a store is worthless without merchandise. True enough -- but it's a poor analogy. The online world is actually a store in which there's too much merchandise, kind of the situation in grocery stores today. Food manufacturers must pay for space in a grocery today, through which they hope to make sales to customers. Newspapers are fighting for "online" shelf space. They are competing against blogs, facebook, youtube, etc. The problem is that many people prefer those other products, and all of those products are free.

    In short, newspapers have no leverage with customers to charge them for their product, and there is no gatekeeper at the store who is keeping out the competition.

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  15. See, I don't think that online shelf space is as crowded as you might think it is. While there are hundreds of thousands if not millions of sites out there, half the traffic on the internet is driven by fewer than 70 sites. Those couple dozen brands that really aggregate a mass audience might have some leverage.

    You know, my whole view of this is strongly colored by my own work experience, which is entirely in television. I just see online content as being strongly analogous to cable programming. Cable MSOs have built an incredibly successful industry by investing heavily in infrastructure and making small per-user payments to content providers. It's not really clear to me why online brands haven't tried to follow the same model.

    Imagine an internet not only without newspaper brands but also without facebook, without youtube, without all the brands that have been unable to convert their mass audiences into profitability. It would be, as Eric Schmidt has been suggesting, a cesspool. ISPs have got a great thing going here. Isn't it in their longer-term interests to keep these brands alive, even if it means paying out some money and passing that cost on to the consumer? Obviously I think it would be but I've been getting killed in these comments so apparently I'm really in the minority.

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  16. The internet is not like cable TV though. There are limits on the number of TV channels, and not everyone can start their own channel. One person can't even really produce their own broadcastable TV show. The internet is entirely different. Anyone can produce their own content, and broadcast it around the world.

    As far as the leading sites, those can and do change really quickly. Friendster was doing really well a few years ago, but then facebook came along and changed everything. If the top 70 webpages all disappeared, yes at first it would change things for the worse. But then people would start putting videos up on one of the many other video sites out there instead of putting them on youtube. And once enough people starting going to the other sites, you wouldn't be able to give youtube away, much less charge people for it.

    Many websites can be mirrored or copied in ways that TV shows and networks absolutely cannot. If one starts charging three more pop up that do very similar things, and most people avoid the one that charges money. The only way to charge a fee for the internet is to offer something truly exclusive, and even then, only a small percentage of people will actually pay for it. It can work with a very targeted audience, but not at the mainstream level that major newspapers need.

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  17. I think a lot of folks here are misintepreting Mikey's original point. Such as Anonymous's comments about e-mails to friends being about connectivity. An e-mail to a friend (or a Twitter post, or a Facebook status update) isn't just about connectivity -- it's about content. It's about sending some information to someone else. It's not really any different from calling a friend on the telephone or sending a 'snail mail' letter -- in which case you pay for the connectivity (to the phone company or for the stamp), but the 'value' you get is from the content.

    Example: There used to be a time when you might try to call someone on the telephone and get a 'busy signal' -- the person was already on the phone, and you couldn't get through. If the connectivity was the important facet, you'd continue to pay the phone company even if all you ever got were busy signals. However, somewhere along the line, voice mail became ubiquitous, because now, instead of having just the connectivity, you can still send content even absent a direct connection to your target audience. (And if you doubt that again what we're talking about is the ability to share content, were you casual when you discovered someone was ignoring your voice mail since he expected to see you at some point anyway?)

    The real genius of ISPs is that it has completed the pattern begun with the handbill (where the writer tries to sell the bill in the streets) and developed through newspapers (with clipping services and the AP), radio stations (with consolidated networks), and television stations (with affiliations with giant content-providing super-networks); they get paid for providing nothing but access to the content developed by others. (Some ISPs do try to maintain some sense of the old newspaper/TV model in that they have custom-designed 'start pages' you can go to, but honestly -- does anybody here with Comcast/AT&T/Verizon/etc. as an ISP actually use the ISP's start page, or do you change it to a start page you actually find interesting?)

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  18. Mikey, I'm afraid you are up a tree. I think this comment sums up your mistake:

    > In my mind there is a relatively small
    > number of websites that could credibly
    > demand compensation. Maybe fewer than 100.

    You are vastly overstating the concentration of attention on the web.

    Check out Alexa, which ranks websites based on (global!) popularity. If you look at their "Top 500 sites on the web," you'll see that the NYT isn't even in the top 100! (It's at 103).

    http://www.alexa.com/topsites/global;5

    Start looking through the top 500 list, and you'll see: foxsports.com is #313. The IRS is #435 (think they've gotten some traffic recently?). Perez Hilton -- who's a bona fide "internet celebrity" -- is #495. The magnitude of content on the web is so far beyond cable TV that ISPs could never pay each of them a fair share.

    And even if they somehow could: Cragislist, which ranks a very respectable 25th place, is only visited by 1.8% of all web users. NYT is visited by 0.8% of web users. Even the very very popular sites are visited by a vanishingly small percentage of web visitors.

    Furthermore, the most popular sites aren't even "content providers" -- they're content aggregators. Google, Yahoo, YouTube, Facebook, Blogger: these sites are popular because they're mechanisms for sharing content among a vast base of users. They generate almost no content of their own. There may be an "HBO" of the web (IMDB, at 44, is probably the highest ranked site that is primarily focused on delivering unique content). But it's a vanishingly small fraction.

    I also don't understand your point about the phone calls. Yes, I'm paying for a service that delivers content. Does AT&T give money to the top 100 people who receive phone calls?

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  19. I don't think we mis-interpreted Mikey's point. Well maybe some of us did. I think Mikey was on the right track but he just didn't communicate it properly until his last comment. Of course it's in the ISP's best interest for their connectivity to have value. But they're not going to pay for that value; like any entity, that has to be passed onto the consumer. Asking the ISP to brunt the cost of web content is not realistic.

    But perhaps there is something to itemizing certain aspects of the web. I'm not sure how you'd do it, but I'd be all for it if someone can figure it out.

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  20. Bryan, I have to say I'm not familiar with Alexa although I'd be reluctant to use a global ranking in this case.

    The line that I posted was based on Nielsen NetRatings data for Feb of 09. Now, if you have objections with NetRatings I'm not going to argue the point. It's a flawed tool, but it is one of the two (I think?) major sources for U.S.-based usage and frankly it just happened to be the one I had handy.

    If we're looking at just U.S.-based usage that reach % for Craigslist goes from 1.8% to 17.9%; for the NYT it goes from 0.8% to 12.1%.

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  21. Why would we look at just US-based usage? I'd hate to have to change all my bookmarks from "www" to "usww". ;)

    But, just for the sake of argument, let's assume you could prove that some tractable set of websites constitutes some large fraction of websites. I still have two questions:

    1) Shouldn't other non-web services also be able to demand a fraction? How much goes to IM services? To Skype or Vonage? To Netflix (for movie downloads)? BitTorrents? iTunes? Hulu? If I used my ISP just to connect to my network at work, would none of my bill go towards content producers?

    2) If the newspapers were to do battle with the ISPs, what is their BATNA (best alternative to a negotiated agreement)? Shutting down their websites? It's not like they can restrict their traffic to only ISPs that pay -- no ISP runs walled gardens anymore. If anything, it's the other way around: the Seattle PI is *only* going to have an online version. So, without a BATNA, how would papers ever make progress in that negotiation?

    BTW, I'm enjoying the civil tone of the comments on this blog. Kudos to all.

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  22. I applaud the civil tone of the comments on this blog as well. Too many threads end up being name calling sessions at this point.

    What I think Joe Poz was hoping for when setting up this blog was to come up with some original ideas as to how newspapers can survive. If I may be so bold as to summarize, newspaper companies cannot:

    1) charge subscriber fees for web content
    2) produce a paper version that can compete with the internet for 'news as it happens'
    3) charge large fees for web advertising for their websites
    4) charge large fees for paper version advertising as the number of copies sold is declining
    5) capture this generation of kids (and maybe the previous generation) with a paper version because they are already hooked to online news

    So, what can newspapers do? Well, 5 years ago our city's newspaper collected a week's worth of data from the courts about a particular type of crime, and presented it objectively. The series ran for 9 consecutive issues. I bought every issue, and couldn't get enough. In fact, I'm waiting for them to review it to see if there's been any improvements.

    That's what I'd do if I were a newspaper publisher. Run 52 large issues (at the local, county, state and/or federal level) for a week from all angles. Then review them all a year later. Get website feedback as to which issues are most important to readers. Drop the ones that have been 'solved' and add new ones.

    Is this a good start? Or should they be going in another direction? Let us all know.

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