Reinventing the Economics of News

by Scott Karp · September 21st, 2007 ·

I read this article about the rise of free daily newspapers in the US and had a sudden realization about the perceived failure of news organizations to charge for news online. The New York Times has torn down the TimesSelect pay wall — does that mean that reading TimesSelect content online is now FREE?

What I realized is that, actually, it’s NOT free. To read the New York Times or any other newspaper online, I have to be connected to the internet — and that, in most cases, is definitely NOT free.

Broadband internet access at home is still in the $40-50 range. I pay Verizon extra to access the internet on my Blackberry. I pay extra to use my Blackberry as a tethered modem. Traveling to the New York the other day, I paid for WiFi access in TWO different hot spots because my tethered modem kept dropping the connection (not a coincidence I think). Companies pay for high speed lines for their employees. And we of course pay a lot for the computers and handheld devices that we use to access the Internet (e.g., iPhone).

I realized as I kept pulling out my credit card for public WiFi access that it’s the ISPs who now wield much of the monopoly power once enjoyed by newspapers. I read the New York Times everyday — and I still pay for the privilege. It’s just that I’m not paying the New York Times.

This is the fundamental flaw in the thinking about the future of news — the assumption is that newspaper subscribers used to PAY for NEWS, and online they get it for free.

But the reality is that newspaper subscribers didn’t pay for just for news — they paid for DISTRIBUTION. They paid for a highly useful package of information to show up on their doorsteps every morning…which was the ONLY way to get access to that information. That package included news, and many subscribers valued that part of the package, but they also valued:

Movie listings
Employment listings
Real estate listings
Cars for sale listings
Comics
Sports scores
Style section
Coupons
FSIs
Ads for sales at retail stories

Everyone is thinking about the shift in the economics of content in terms of paying for content, but what publishers are really facing is a shift in the economics of distribution. We’re still paying for a bundle of information to be delivered to our homes — it’s just that now that bundle is traveling via fiber optic cable rather than newsprint.

It’s not that “content wants to be free” — it’s that Internet access ISN’T free, and now that distribution and content have been unbundled, people are reluctant to pay TWICE — once for distribution (i.e. internet access) and again for content (paid subscriber wall).

So as news organizations seek new models to “pay for news” — to staff the newsrooms that do the reporting that create the news — they need to stop asking why consumers won’t pay for news anymore. Because they ARE paying to access news.

What needs to be reinvented is the economics of content CREATION, which has been cut loose from the economics of distribution. Fewer and fewer people are paying news organizations to distribute news — so they need to find a model that pays strictly for the creation of news.

That is…unless news organizations can once again become hubs of distribution — a destination for consumers to access a rich package of information. Right now, most news organizations are merely offering the same package of information online that they do offline — but the web is much, MUCH bigger than that.

That’s why search engines like Google, along with ISPs, have taken over the information distribution business — search offers people the whole web, while news organizations still offer the same old finite package.

It’s time to get out a clean sheet of paper.

Or perhaps more apt — a new Wiki or Google Doc — figuring this out is going to be a collaborative effort, like Jeff Jarvis’ Networked Journalism Summit.

Jeff is right to focus on the network. The new economics of news won’t be based on monopoly distribution channels — it will be based on networks.

Categories: Media Economics · Newspapers

17 responses so far ↓

1 Emmanuel // Sep 21, 2007 at 5:23 pm

You missed the point here, the content is not free because you pay your ISP but because you pay it giving your personnal profile details. I didn’t read anything about this but I ‘m quite sure profile is the real value added.
2 Ryan Holiday // Sep 21, 2007 at 7:10 pm

That’s a good point. Internet-think seems to exist in a bubble where transaction costs don’t exist–or at least, are not considered.

But couldn’t you find the equivalent for reading the paper at home? “I’m paying for the table I set it on, the time I wait for it to be delivered, it’s unreliability etc”
3 Tom Foremski // Sep 21, 2007 at 7:37 pm

Maybe the ISPs should be paying the newspapers since without them fewer people would find the internet useful. It is a cable TV model…
4 Scott Karp // Sep 21, 2007 at 8:03 pm

@Emmanuel, I haven’t heard many free registration sites bragging lately about what a boon registration data has been to enhancing monetization. More effective, it seems, have been implicit methods of gather information about users, like behavioral targeting — and search keywords.

@Ryan, that’s a bit of stretch — I can read a newspaper in the middle of a desert, but I can’t user the internet without a digital device.

@Tom, that’s a bit like Sam Zell’s suggestion that Google and other search engines should pay newspapers for their content. Now matter how high the quality or unique newspaper content is, there’s just too much other content — and applications — on the web to separate out the value with any leverage.

The problem with the cable TV comparison is that cable is still home mostly to content that’s very expensive to produce — while YouTube, blogging software, etc. has flooded the web with content that is very cheap to produce.
5 Howard Owens // Sep 21, 2007 at 9:52 pm

I’ve been harping on this theme in my blog for nearly two years — and a lot of people have told me I’m an idiot because of it.

In the old newspaper model, subscribers paid for distribution. Advertisers paid for content.

I think far more people realize this than some journalists are willing to give them credit for.

On the web, distribution of news (I’m not talking about creation, just distribution) is virtually nil on a per-reader basis, but the reader is paying slightly more than that to get web access to begin with. Readers are paying for distribution before they even get to your news site.

So many journalists, who continue to bemoan publishers “giving away” their content fail to get the basic economics of this reality.

The last mile is still the responsibility of the news consumer, not the publisher.
6 The new publishing paradigm — a tumblelog On Financial Success // Sep 21, 2007 at 10:37 pm

[…] Scott Karp challenges the traditional view of publishers regarding “… the future of news — the assumption is that newspaper subscribers used to PAY for NEWS, and online they get it for free.” […]
7 Leo Klein // Sep 22, 2007 at 12:37 am

I think this kind of arrangement is important to point out. It’s true for all content providers — not just newspapers.

I mean, how long before Encyclopaedia Britannica goes free?

At the same time, it’s interesting that the ISP’s think it’s “their pipes” and want to make content providers pay yet more.

I haven’t written about this for years and years but I’m growing to believe that issues of access and bandwidth are increasingly going to become fundamental questions for us to sort out.

I mean, in a networked world, if you’re not networked, you might as well be dead.
8 Max Kalehoff // Sep 22, 2007 at 6:55 am

Great analysis, Scott. But it’s by no means just news. Same for music, movies, games, social networks, porn, telephony, text and video messaging, etc.
9 Certamente! Quais conteúdos? É a distribuição, estúpido // Sep 22, 2007 at 11:05 am

[…] Advertisers paid for content“, estas e outras verdades elementares por Scott Karp em Reinventing the Economics of News. À atenção dos proprietários dos jornais portugueses que estão a atrasar-se, a atrasar-se, a […]
10 links for 2007-09-23 « David Black // Sep 22, 2007 at 9:24 pm

[…] Reinventing the Economics of News - Publish2 Blog “It’s not that ‘content wants to be free’ - it’s that Internet access ISN’T free, and now that distribution and content have been unbundled, people are reluctant to pay TWICE - once for distribution (i.e. internet access) and again for content (paid (tags: internet newspapers newspapersites journalism business strategy economics unbundling quotes paidcontent) […]
11 Amrit Hallan - Content Blog // Sep 23, 2007 at 11:46 am

Back when newspapers were important (they still are but not that much) people had more time at hand and the Internet wasn’t available. A good thing, at least I feel that way, is that online the newspaper content is available very conveniently through multiple devices. Any time you want to access news online, you can get it from hundreds of resources. Reading newspaper means just opening a new browser window and going to the website.

Personally, the biggest benefit of the declining newspaper circulation is environmental. So many trees are cut for newspapers all over the world. The more we access newspapers and magazines online, the less trees will be cut, at least for this purpose.
12 Henk Gianotten // Sep 23, 2007 at 5:37 pm

In the report on free sheets (DM) the figures used are incorrect. US is 6%, the world average is 8% and Europe is 32 percent. And not the 50 percent mentioned. WAN (World Association of Newspapers) provides the actual information. figures of 2006 were released in june 2006.
In spite of the wrong figures, free sheets grow and tackle a distribution problem.
13 Digital Cred : The newspaper freemium comes through your ISP; the premium’s in the archive // Sep 23, 2007 at 8:28 pm

[…] Karp has an interesting post that turns the newspaper publishing paradigm on it’s head. Scott contends that despite crumbling of the New York Times pay wall, people […]
14 paying for distribution « pat walters // Sep 24, 2007 at 3:31 pm

[…] not the first to make it). Newspapers become big businesses because they controlled distribution. Now they don’t. But that doesn’t mean nobody does. Broadband internet access at home is still in the $40-50 […]
15 Dan Greenfield // Sep 24, 2007 at 4:58 pm

Your point about distribution is well taken, though putting net neutrality and bundling aside, I have seen the cost of Internet access drop in my years in the ISP business.

Though a little off point, your posting also made me think of television news. Is Face the Nation or World News Tonight free? I don’t pay for the content, but what about the cost of my time to watch those commercials, let alone the television set and power bill and that ever rising cable bill? Makes me long for the days when all you needed was a pair of rabbit ears to get network news.
16 Every story should be a Web site, and a Web site should be a network hub - newsroomnext // Sep 25, 2007 at 7:21 pm

[…] Publish2 on news organizations becoming hubs of distribution; interesting because Scott Karp poses the idea of rich, digital packages that have the same information-product power as a newspaper in its entirety; […]
17 Transnets » Blog Archive » Payer pour les news? // Oct 17, 2007 at 3:40 am

[…] réponse n’est pas évidente. Karp pense, avec d’autres, comme Jeff Jarvis (voir ce billet ) que: “La nouvelle économie des news ne reposera pas sur des monopoles de distribution, il […]