The Nebulous Kingdom

Murdoch's Walls and Balls

3/27/2010

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Two of Rupert Murdoch’s UK newspapers will be behind a paywall starting in June.  I don’t agree with everything that Jeff Jarvis has written on Murdoch (http://www.guardian.co.uk/commentisfree/2010/mar/26/rupert-murdoch-pathetic-paywall), least of all his description of the state of Murdoch’s “balls” (or lack thereof), but I’m in consensus with him that Murdoch doesn’t seem to fully grasp the economics of content on the web.

1.      General news content is cheap

This is especially true in the United Kingdom, where you can pick up a rag at the tube for free.  General news is widely duplicated and readily available through multiple Internet outlets.  

2.      People will still be willing to pay for content but only (and at the risk of sounding clichéd) high-quality content

I cannot stress the term high-quality enough.  It seems sometimes that the average newspaperman believes that he is producing high-quality content.  Not true.  High-quality is a portion of the Economist, the New Yorker, the Wall Street Journal, and the New York Times.  

Truly average news doesn’t always provide value for the attention it gets, much less any incremental fees.  Those papers will have to settle for the few advertising pennies they earn, the handful of paper subscriptions they’ll get from people over the age of 50, and any government subsidies they can wangle (I hope not).  Putting average content behind a paywall (ahem) is cutting your own throat.

3.      You don’t know what is high-quality until you read it – and by then it’s too late to charge for it

People will only pay for content when they believe that it will be high-quality.  The only way to ensure that is to have an established high-quality brand, of which there are truly very few (think the Economist), or to build such a brand by using “personalities” (think Paul Krugman) and/or giving away content.  

A content business model based solely on “personalities” is unlikely to be lucrative, however, since the personalities, as owners of the scarce resource, will capture most of the value.  Giving away content to build a brand has worked very well for niche content providers such as STRATFOR or John Mauldin, who keep selected content behind a paywall but give away a high proportion of their material.  Their examples point the way for owners of a differentiated “expertise” or specialized arena to sell efficiently what they know into the market for knowledge.  (This also opens up interesting possibilities for someone that can provide infrastructure for this growing tiny niche-content provider model.)  It is still not completely clear, however, whether the content giveaway model can be lucrative in the mass-market. 

4.      User interface – micropayments or distribution channel -  can help (but it’s not the endgame)

If you make it easy for people to pay, there will be more people who are willing to pay.  You show me a snippet that engages my interest and make it easy for me to pay a dime, perhaps I’ll pay that dime.  Easy is one-click, no login, no credit card number required, no visible third-party involved.  Easy is harder to do than it looks.  And you still have to engage my interest, which is getting harder to do with the flurry of socially mediated content coming my way.

Some newspapers with a credible brand will be able to take existing subscribers and move them onto a digital subscription on a Kindle-like device.  Even with a generous estimate of 2 million Kindles sold (http://digitalbookworld.com/2010/how-many-kindles-have-really-been-sold/), that’s still only 0.7% of the US population.  This is a stopgap, not a business model.     

5.      The old models are going to be defunct (duh)

Look at the data:
http://www.naa.org/TrendsandNumbers/Advertising-Expenditures.aspx 

In 2009, newspaper advertising revenues were at their lowest since 1995.  You can blame it on the recession, but they peaked in 2004 and have been sliding ever since.

As a share of U.S. media advertising expenditures, the slide looks even worse, though I would take this with a grain of salt (a lot has happened since 1949):
http://www.niemanlab.org/images/Share-of-market-4908.PNG  

Will all newspapers be dead?  No.  Is the model dying?  Look around at the dinosaur carcasses.

What’s left?  Yikes.  I hope a true re-imagining of the business model that takes into account the new economics and a return to quality “print” journalism.  We will see.
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