The Economic Reality of Free Online Content

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Includes: DJ, GHC, NWS, NYT
by: Jeff Jarvis

Curmudgeonly contrarian Nick Carr picks his head up and comes to the defense of TimeSelect — after it is dead and buried — but misses some obvious economic realities. Carr quotes a Financial Times columnist who quotes a University of Chicago study (warning: a PDF filled with formulae) that points to the Washington Post and argues that the paper and its online site were not complementary but competitive and so the Post should have tried (as the Times did) to get money out of its online audience while the getting was good.

But this ignores the essential economic fact here that newspapers are no longer monopolies. With the internet, they gained new competitors the world around and lost the pricing power that their monopoly over production and distribution gave them. So it’s foolish to judge the Post or Times in isolation as if they could demand and get money from consumers who can now go to plenty of other sources.

Carr et al also ignore the economic reality of Google and the link becoming the new means of media distribution. If you hide your stuff, it cannot be found. And so long as you are hidden, your competitors will grab that distribution and marketshare from you.

Fred Wilson quotes a commenter on Carr’s blog, SidneyV, who instructs:

In periods of fundamental technological change & discontinuity, leaving money on the table may well be a smart strategy. . . . Sam Walton (whose descendants collectively are now the richest people in the world) pointedly refused to price the goods at the “going rate”, which a Harvard Business School prof of that time would have considered stupid. So Times would have been better off if they had recognized it at that time. At least they are smart enough to recognize it now. . . .

BTW, in late 80’s, Larry Ellison, nobody’s fool as a businessman, enunciated it thusly: in early markets, maximize marketshare, not profits. NY Times should have become *the* go-to place for news & views online. They always had the breadth & depth of content. The fact that they let a whole lot of other sources jump ahead speaks volumes of their failure of vision.

Carr thinks the Times left money on the table by taking down the wall. I think they burned money by putting it up. And once again, nowhere have I seen a decent financial analysis of the cost of TimesSelect: the cost of marketing to acquire subscribers and cope with churn, the cost of customer service, the cost of ad revenue lost, the cost of traffic lost to other sections and advertising lost there as a result. Clearly, the Times made that analysis and tore down the wall.

Matthew Ingram also rebuts the study Carr so dearly wishes to rely upon, first quoting the its conclusion regarding the Post: “Removing the [news website] from the market entirely would increase readership of [the newspaper] by 27,000 readers per day, or 1.5 per cent.” To which Matthew responds:

He therefore concludes that the Post has lost $5.5-million in newspaper revenue as a result of providing its news online for free. Does that make any sense? It might to an economist, but I would argue his thesis fails the reasonability test. If the washingtonpost.com website were to disappear or be locked behind a pay wall tomorrow, does anyone really think that 27,000 people would suddenly go out and start reading the paper edition?

Gentzkow clearly does. I think they would be more likely to just go elsewhere for their news, such as Google News or Yahoo News or MSNBC or CNN. It might be tempting — and make for a much simpler business case — to argue that a product like the Post competes primarily with its own website, and vice versa, but I don’t think that is the way things work.

Rob Hyndman also points out to Carr and company that lots of the people formerly known as readers like using the internet and wouldn’t it be foolish for a newspaper such as the Post or the Times to push them to competitors by putting up a pay wall?

Note finally Alex Patriquin’s analysis at Compete.com of NY Times op-ed audience since they took down that wall: “…[T]he Opinion section has more than doubled unique visitors, while the overall NYTimes.com site has grown by roughly 10% in the same period.”

Carr accuses of me being a member of the free-content hallelujah chorus who, he says, “take as a personal affront any attempt to charge for ‘content’ online.”

But Carr misinterprets me and projects a motive on me that is not there. I’m not saying necessarily that I want content to be free; hell, I’m a writer for a living and if I could be paid for my writing — and paid more than I am — I’d be delighted.

Instead, I am saying that content is free and companies like the New York Times and writers like me (and my students) as well as Carr had damned well better figure out how to work with that essential economic reality. Wishing that you could charge as if you were still a monopoly protected by the size of the gas tank of your nearest competitor’s trucks is foolhardy and dangerous. Carr’s analysis is as wistful as it is incomplete, sloppy, and hazardous.

And — this is what blows Carr’s mind — one response to this new networked economic reality is to view other media sources — your paper, the other guy’s news web site, your writing readers’ blogs — not as competitors but as complementary sources that enable you to do what you do best (and get the maximum value you can for that via advertising) and link to the rest (saving you the expense of inefficiency that news media still carries from its legacy today). One response to competition everywhere is to open up to collaboration, enabling you to identify and exploit your greatest value in a new economic reality.