The Clash Over Free Online Content October 19, 2009
Posted by gjchatalas in Uncategorized.trackback
The economist Milton Friedman insisted that “there’s no such thing as a free lunch.” His feeling is that no matter the label, something “free” always costs the recipient in some manner. However, Chris Anderson, in his new book Free, says the theory has lost its resonance in the digital era; free is the new price model. At the same time the establishment media is at wit’s end over free distribution of their content.
The July/August issue of Columbia Journalism Review featured a series of essays titled “No Free Lunch” discussing the challenges facing news organizations, and how they might be able to recoup some money for the content they produce.
“Open for Business,” by Michael Shapiro, suggests a free/paid hybrid, whereby some subscribers subsidize the free content. While society is indeed accustomed to free content, the fact remains that people do pay for in-depth and exclusive information they deem valuable. Sports sites provide “insider information” for a fee. And online versions of established publications have successfully utilized the “freemium” approach described in “Free,” in which some content is free, but there are costs to access enhanced information and services. Among those in this category are Consumer Reports, The Wall Street Journal and Congressional Quarterly.
The catch, of course, is that there has to be something that people are willing to pay for, and this requires an investment in reporting and creating content of value. This is where the paying customers also come in handy; they help underwrite the cost of producing more quality content that brings in both paying and free eyeballs. This fits into freemium’s 5 percent rule: the small percentage that pays for a premium version end up covering the costs for the many who access the content for free.
Clearly the establishment media created many of its own problems. They opted for the network television model: free access, mass audiences and high ad rates. Perhaps news organizations should have taken the cable television model instead: subscription fees and ad revenues driven by quality content. Ironically this approach is what newspapers and magazines operated under for decades, before the internet led to some rash, and arguably faulty, business decisions.
And now many media giants such as Murdoch and the Associated Press are circling the wagons, adamant about putting a price on the content. They believe that what they produce is valuable and merits a fee.
But just because media companies facing a crisis want to change the game, it doesn’t mean the people will necessarily go along. At least that’s what is indicated by a study by Hsiang Iris Chyi of the University of Arizona, “Willingness to Pay for Online News: An Empirical Study on the Viability of the Subscription Model.” The 2005 study randomly surveyed 853 Hong Kong residents, and found that very few would be interested in paying for information they’ve become accustomed to having for free. And those that were willing to cough up the cash tended to be both older and newspaper subscribers, demonstrates a generation gap rather than an income disparity. The takeaway from Chyi’s report, though, is that it will be difficult for media companies to rely on a subscription model for economic viability.
Rather than prying open the wallets of a generation used to free online content, Free suggests news organizations need to find ways to generate revenue within this new economic reality.
Slides:
Resources:
Chyi, H.I. (2009). Willingness to Pay for Online News: An Empirical Study on the Viability of the Subscription Model. Journal of Media Economics, 18(2), 131-142.
Osnos, P. (2009). What’s a Fair Share In the Age of Google?. Columbia Journalism Review, 48(2), 25-28.
Shapiro, M. (2009). Open for Business. Columbia Journalism Review, 48(2), 29-35.
Response to: Willingness to Pay for Online News: An Empirical Study on the Viability of the Subscription Model.
The findings of Chyi’s study on subscription based news services is not surprising. It has become painfully obvious that requiring a user to pay for news is not an economically viable model. As Anderson describes in Free, news, like almost all information in the digital age, will be consumed for free if there is the will and ability to do so, which there is usually plenty of both. The added complication to the news industry is that their content is a commodity. Unlike some magazines or other forms of specialized and niche content, differentiation between one news source and another is not great enough for most users to agree to pay. Where does this leave the newspaper industry? In very similar places its old media brethren, music and TV/movies, find themselves.
One aspect that makes the search for a viable free model tougher for news than it has been for TV/movies and music, is that news does not have the luxury of any built-in scarcity in its consumption. In Free, Anderson comments that the music industry will always have a scarcity of concerts to benefit from. There are a finite number of bands willing to play a finite number of dates for a limited capacity audience. Also, music has the benefit of being a very lifestyle-friendly medium, lending itself to merchandizing revenue. The movie business has similar benefits, although not as scarce as concerts, the experience of going to a movie theater to watch a film is difficult to fully replicate, although increasingly sophisticated home theater systems are putting that to the test.
What kind of model can news publishers find that will provide the differentiation or ancillary revenue needed to survive. Unfortunately, no one has created a successful model yet. Even more shockingly, with all of the evidence to the contrary, organizations such as News Corp or going to try and put Pandora back in its box and begin charging for access again. It will not work unless they can provide a tremendous amount of enhanced value to the user. As Chyi and Anderson have shown, getting consumers to fight through the mental transaction cost of paying for content is a difficult proposition.