" What the news market needs is a coordinating force to overcome the marginal price problem. It's a buffet model, rather than a la carte."
Jason Murphy, Publisher, Thomas the Think Engine
Some have always been free, like this one and The Guardian.
Some have swung back and forth, trying to find the best strategy, like the world's biggest and most influential publication, the New York Times.
- 2005: The New York Times builds a paywall for its website, charging for access to popular writers and archives while leaving much content free.
- 2007: It takes down the paywall (known as TimesSelect), making the whole site free.
- 2011: It re-establishes a paywall, of a very different kind. Readers would be able to access 20 free stories a month, but no more.
- 2012: it cuts the number of articles accessible under this “metered model" to 10.
By letting readers have 10 free stories a month, the NY Times accepts that the majority of clicks would be free clicks. Most of the news it serves is not to paying customers. A few hundred thousand paying customers cross-subsidise millions who browse for free.
Why exactly does the online news industry so often give away its product when the paper news industry successfully got people to pay?
The internet has changed the production side and the consumer side of the market for news.
THE SILENT PRESSES
The internet took advertising revenues from newspapers. That is well known but not in fact the most important factor.
The most important fact is it is now possible to distribute news for free. Once a website is up and running, each extra reader costs nothing to gain.
This may sound irrelevant to the price – while distributing news to the marginal reader is free, the whole operation costs money which must be recouped – unless you're very familiar with microeconomics.
The lesson of the history of economics is that marginal costs triumph over fixed costs every time in a competitive market.
Intense competition creates a problem.
If everyone raised a paywall every outlet would be better off. People would pay for news and the fixed costs could be covered by readers.
But any paid news outlet can gain many marginal readers by making itself free.
Game theory is the perfect way to grasp this sort of result, where strategic interactions create a suboptimal outcome.
Only where competition is thin can a paywall endure – for example at very well-established financial journals like the FT and WSJ. The Financial Times paywall model has just been endorsed by a take-over. Nikkei paid US$1.3 billion for the esteemed salmon pages of the business title.
But the FT is unusual. Intense competition for so much news means the marginal cost of distribution determines the price. The marginal cost of distribution is zero. And that's why so many news organisations are making losses.
THE CLAMOUR OF CLICKS
This strategic conundrum, brought about by the internet, is intensified by the impact of the internet on the consumer side.
The web has decreased lock-in to media brands.
On an average day I might visit between 10 and 50 different news websites, from around the world. This is a huge shift. As little as 15 years ago I read one newspaper a day and perhaps a magazine or two a week.
Readers therefore can't actually afford a yearly subscription to the many dozens of mastheads we might want to read in a year.
A payment per article might be affordable. But consumers tend to hate being nickel-and-dimed and, as discussed, making everything free is the dominant strategy.
So news organisations try to charge their loyal customers and give things away to non-loyal ones. This inversion of a traditional customer loyalty program is doubtless non-optimal from a revenue perspective.
The odd and unstable situation caused by the market's flux has permitted a revolution in media dominance. Corporate-funded news websites like this one have long existed, as have other entities not asked to make a profit, like – some argue - The Australian, The Guardian, various blogs, the ABC and The Conversation. What's different now is that these sites are rising in importance.
The existence of these types of outlets is good for media diversity but their current pre-eminence is not necessarily ideal. Free market, for-profit news has always been the leader. Can it be again?
THE CALL FOR A CLEARING-HOUSE
What the news market needs is a coordinating force to overcome the marginal price problem described above.
Luckily, there is precedent. The internet has had similar effects on supply and demand for other types of goods and those other industries reactions light up a path.
The music industry has Spotify and the moving pictures industry has Netflix.
In each case users pay money to a central company which makes deals with content makers to distribute content very conveniently. Consumers pay once and can access everything.
It's a buffet model rather than a la carte. The news industry is slowly thinking about doing likewise.
There are at least three new entities who pitch or have pitched themselves as the “Spotify for News."
They are (or were):
Blendle, a Dutch Start-up; Inkl, an Australian start-up; and Flud, a US start-up which died in 2013.
Each proposes a single interface with one easy payment, through which readers could access news from everywhere
These are all good ideas. What they lack is clout.
Why would I join Inkl to get free news when I can already get free news?
The coordinating force in this market needs sway. It needs to be able to entice readers to pay for news and simultaneously entice publishers to raise/tighten their paywalls.
As it happens, there exist two giant entities that have exactly that kind of sway.
Facebook and Twitter.
Either of these could end up being the Newscorp of the next century. The first step might be taking over Inkl or Blendl.
Imagine Twitter sets up a service called Twitter Freedom. Users pay a monthly fee and the promise Twitter makes is they can click links freely without ever hitting a paywall.
No more bouncing off the paywall at the Financial Times and the Economist. Fees collected by Twitter would be shared between Twitter and the destination of those clicks.
The papers might be happy three times over – more readers, more revenue, and the ability to tighten the exemption to their existing paywalls even tighter.
The news consumer would be happy too. They don't have to worry about micro-payments. They just pay once a month. And the experience is like being at a buffet. Have as much as you want and nobody ever reaches out and slaps you on the wrist, saying you've eaten too much.
The long-run success of the enterprise would depend on being able to ratchet up the proportion of the internet news content that was behind a paywall.
Facebook and Twitter would encourage news and content providers to erect paywalls in order to potentially collect revenue via their subscription programs, which would encourage people to join the subscription programs.
This graph – with purely hypothetical numbers – illustrates the principle.