The Great Debate on Micropayments and Paid Content, Part 1

I am a lover of roundtable discussions and debates, and have turned a long-running series of “virtual email roundtables” into the 5Across video roundtable here on MediaShift. Now I want to start a new series called “New Mediation” in which I take two people on opposing sides of a topic, and try to bring them to some kind of agreement or middle ground. If you have ideas for other folks and topics that need New Mediation, let me know.

Newspapers need to start charging for online content to survive. If newspapers charge for content, it will hasten their extinction. These are the opposing views in the very heated debate going on among newspaper publishers, editors, journalists and new media mavens. While pay walls for newspaper content have had mixed success — with the Wall Street Journal Online being the major shining example — the idea of micropayments for news stories is once again gaining supporters.

One such supporter is David Carr, the Media Equation columnist for the business section of the New York Times. He wrote a column last January titled, Let’s Invent an iTunes for News, blogs as part of the team at Media Decoder and tweets as @Carr2n on Twitter. According to Carr: “The opinions he expresses are his own and he has no specific insights into the New York Times business strategy, including, but not limited to, whether consumers should pay for content.”

On the other side is Mike Masnick, who runs the tech insight community Techdirt, and who has savaged the idea of micropayments for newspapers. Masnick launched Techdirt in 1997 and is CEO of Floor64. He has worked in business development and marketing at Release Software, an e-commerce startup, and in marketing at Intel.

The following is an edited email exchange that took place over the past few days.

Micropayments or Paid Apps?

Mediator: David, you wrote about micropayments as a possible option for newspapers online. How do you think a system like that would work, and are there parallels in other systems that have worked?

David Carr: Micropayments sound so ancient and debunked. Can we look upon them as payments for news applications instead? Facile, I know, but I think part of what the publishing industry confronts is a problem not only of precedent — news not only wanted to be free, it has been — but of nomenclature. If we look at payments for content as a way of accessing applications that animate the devices we stare at all day, they make more sense.

A while ago, I talked about an iTunes for news and I got clobbered because I missed the point that “21 Guns” by Green Day will have much more enduring value than say, the media column I wrote for Monday. But that doesn’t mean my column is worth nothing. If it were bundled with an array of other content from the same vertical, along with alerts for same, it might begin to have some nominal value. And if it were attached to archives, relevant videos and aggregation of other similarly themed content, would it have monetary value? OK, maybe my column is a bad example.

I think that innovation in presentation and delivery of news customized to specific devices with features that serve not only to inform the user, but convenience them as well have value. Not all news content is worth money — much of it is commoditized and should live outside pay walls and be free for the scraping, or to serve as context for all kinds of cheap network ads. But as we move into verticals, there are precedents, including the Wall Street Journal. I could lever my way to almost any story on that site through specific search approaches, but I choose to pay because I want archival access, alerts, and the ability to move freely in serendipitous ways across the entire site.

I pay for Consumer Reports, I have contemplated paying for access to the database of recipes at Cook’s Illustrated. I’m not much of a sports guy, but I know people who pay for sports information, either to make them killers in their fantasy league or because they can’t get enough about their offline heroes. Are there other publications or kinds of content I would pay for in their digital versions? Dunno, most of them haven’t tested my level of interest. Most of the web is and should remain free, but professionally assembled content curated by editors who share either my sensibility or interests might pull some, not a lot, of money out of me.

And while I don’t want to make a need-based argument, the ad-only model will clearly leave newsgathering in a very diminished state, regardless of economic recovery. If nobody is paid to make phone calls and report, the data stream will attenuate to the point where consumers might be willing to pay for something besides thin, generic gruel.

And lastly, if charging for content is such a non-starter, why was Google one of the organizations that submitted proposals to the Newspaper Association of America to enable micropayments? Yeah, it was off-the-shelf technology so far, but those guys aren’t dumb and they must see that the consumer will eventually pay for some specific kinds of content.

Mike Masnick: First off, thanks to Mark for putting this together, and to David for taking part. I’m a big fan of your work, which I do find valuable, though it doesn’t mean I’d pay for it.

And that leads me to my first point of response. You talk about value and price as if they are one and the same, but they are not. In economic terms, price is the intersection of supply and demand in a competitive market. Value, from the buyer’s perspective, is simply a piece of the demand curve. But in a market, the buyer has choices, and different things have value to the buyer — but it doesn’t mean he or she will pay for all of it. Instead, they make decisions, and if there are reasonable alternatives — even if not quite as “valuable” — they’ll drift towards those alternatives.

It doesn’t mean that your writing isn’t valuable. It just might mean no one will pay for it. That’s how economics works.

So, what will people pay for? They pay for true scarce value. The problem is, as much as you or I wish to believe that our own writing is so perceptive and brilliant that it’s scarce, it’s not. We need to learn to live with that. You talk about what you do pay for, and what struck me was that it was never really the content that you were paying for. It was always some other sort of value: with the WSJ it was the real-time alerts (you’re paying for timeliness and convenience), with Consumer Reports you don’t say why exactly, but as a fan of CR’s work, I would guess it’s the fact that it saves you time and money (two scarcities).

Most news content doesn’t provide anything scarce like that.

Will tollbooths sit empty online?

And that brings me to my big problem with micropayments. They’re based on this false belief that people will be willing to pony up a small amount for content when there’s so much competition out there that will be free. You suggest it’s paying for the “news application,” but that’s not true. An application worth paying for is something that adds real value. My complaint all along about claims about charging for news is they all seem to think that if they put up a pay wall people will pay. None of them — that I’ve seen anyway — talk about adding additional scarce value to make it worthwhile. The micropayment idea is a punt. It’s putting up a tollbooth on a 50-lane highway where the other 49 lanes have no tollbooth, and there’s no specific benefit for paying the toll.

Your argument that an ad-based model won’t work is also a bit of a red herring, as it assumes that there really are only two options out there: pay wall or ads. I’d argue that’s not true — that there are many other models, including hybrids. Also, it ignores the flipside of the equation, which is that some of the new models have very different cost structures.

Finally, you point to Google’s pitch to newspapers. I wouldn’t read too much into it. My (admittedly cynical) take on it is that (a) with all the newspaper guys complaining so much about Google, the company felt it needed to offer something to show that it was “helping”; (b) that [this] “help” is really designed to just get newspapers to try a micropayment solution as soon as possible to learn how it’s a monumentally bad idea. It’s helping newspapers out of their misery, rather than helping them adapt.

And Google has gone down this road before. I don’t know why everyone forgets, but Google bet BIG on people paying for video content when it launched Google Video. It was mainly a pay site. And it failed miserably and YouTube took over the online video world, eventually leading to Google shelling out almost $2 billion. Google makes a lot of mistakes when it comes to paid content.

David Carr: Why so serious, Batman? We’re only talking about the future of content and (gulp) how I buy groceries for my posse. And I am saddened to learn that my work can have value, but it may not be the kind that people might pay for.

Mike, I think you’re right in that easy often trumps something with more perceived value. As Clay Shirky has told me enough times so I am finally beginning to understand, good enough is frequently good enough. MP3s won not based on their audio quality, but for other properties, like being, um, mostly free and eminently shareable. But there is a business under file sharing in CDs and increasingly, vinyl. It’s a niche business, but I think that reading high quality news is increasingly a niche business, albeit mass niche.

I say that because people already pay the New York Times hundreds of dollars for daily access to the print product and the Times Reader. It is a matter of public record that more than 800,000 people have subscribed to the newspaper for more than two years. Isn’t there some kind of digital business on the margins of that based on a much lower cost delivery structure? Quality papers like the Times could leave generic news out front free for the scraping, and [build] a leaky wall like the Wall Street Journal to allow the rest of the content to remain visible and, after a fashion, findable. I don’t know what the price point is, but I bet a bunch of people would pay some kind of access convenience charge for the whole magilla. And even if people will only pay for “scarcities,” as you call them, those can be created; and by the way, the market seems to be creating some informational scarcities on its own.

Putting up a big dumb wall is doomed, so I’m all for the kind of hybrids you flick at in your post and think those models are just beginning to be worked out. Providers of professionally produced content can have a hierarchy of readers and an array of services, from free to highly customized and pricey.

And your point about Google is well taken. They’ve succeeded, wildly, in one business — paid search — and have wandered around like the rest of us in other content models. But with the introduction of Fast Flip on Monday, I think you are beginning to see the outlines of a non-media company really working on the issue of presenting content and making it pay.

The Prospect of Collusion

Mediator: With so many newspaper publishers looking at pay walls, micropayments, etc., the usual argument is that if they all decided to start
charging at once, there would be less cheap alternatives. The 50-lane toll-booth you mentioned might have 45 people taking tolls and just 5 not taking tolls. At that point, people will be enticed to start paying something. What say you, Mike, to that argument that a possible antitrust exemption would allow the publishers to work together even closer?

Mike Masnick: The collusion argument is a fun one, because it sort of highlights the actual problem. The second a bunch of newspapers collude (legally or not) to put up a pay wall/micropyament system at the same time, the happier every competitor in the world just became. Collusion like that only works if those colluding control the market. In this case, as much as they want to believe they do, they don’t. That 50-lane highway turns into a 500 or 5,000 or 500,000 lane highway overnight, and those 49 tollbooths get ignored. The thing is, everyone has their own steamroller/paver machine right now. And, no, I’m not just talking about “participatory journalism” or “citizen journalism,” though that may be a part of it and may represent quite a few lanes.

I’m talking about other professional news organizations with professional journalists who can see ahead a few steps and recognize that many of their biggest competitors just took themselves out of the market. If I’m running a major newspaper the night that everyone starts to charge, I’m dancing for joy because my competitors just stepped out of a huge market and left it to me. And don’t think there aren’t news execs who get this.

So, sure, go ahead and charge. Collude away. It just hastens their irrelevance.

And, David, that kind of suggests the problem with your last statement: sure some people will pay. But, how many and for how long? You say it’s a niche business, and it’s very, very niche — and unlikely to grow that much. [Steven] Brill [of Journalism Online] talks about getting 10 percent to 15 percent of the current readership to pay. Newspapers should be thrilled if they get half that. I’d be amazed if many of them got 1/10 of that.

In the meantime, it may be true that other business models have been slower to develop, but newspapers have always been about building a community and selling that community to those who want to reach them (usually advertisers). Putting up pay schemes turns away that community and makes it that much harder for newspapers to build out their own core business … They’ve never figured out how to be sustainable as a consumer-pays entity, what makes you think it’ll suddenly work now?

The problem remains: putting up a pay wall/micropayment solution is economically inefficient (you are limiting a resource, rather than increasing value). That only works when you have a monopoly. Even with collusion, the newspapers don’t have a monopoly.

David Carr: Mike, let’s talk about “economically inefficient.” Take the Washington Post, a pretty well-run, well-led outfit. They lost $143 million in the first six months of the year. Pay-for-content critics always talk about the folly of the turn toward the consumer; but I say, as opposed to what? Sticking with the current paradigm will have a tendentious end for those who fail to innovate significant new lines of revenue.

A broad swath of newspapers are not looking into pay content as a matter of collusion, but survival. You talk about being the lucky newspaper that bystands a move to paid and then jumps in on all the free ad dollars. Who might that be? With each passing month, there are few and fewer players and I think it behooves publishers who are acting in the interest of their shareholders and readers to experiment with different hybrid models.

Most newspapers have re-engineered the cost side to the point of damaging the asset and have to look at revenue. Should they look to Web display ads for salvation? Please. Inventory more or less doubles every year, which means they’ve no ability to create scarcity, no leverage on price. And Web ad buys and prices are down across the board. That “huge market” that has your theoretical publisher hugging himself hasn’t been so huge lately. And when they step into that market with the legacy costs and relatively high costs for professionally produced content, they are competing in a market where hits are hits and the victory goes to the one who is selling ads the cheapest.

Yes, newspapers should have invested money in new technologies and approaches back when their margins were in the 20 to 30 percent range, but they didn’t and now their backs are against the wall. The turn toward readers makes sense at this point. Newspapers can find out their true value in the marketplace and come up with a business to fit that going forward. In a sense, it is an old story. Newspapers have always used two pedals to lever their way through difficult times. When advertising dipped, they have always turned toward readers. This is different in that they are taking something that has always been free and are trying to charge for it, which is daunting, but it is not without precedent. Water and MP3s come to mind.

Just a word about community. The newspaper that manages to come up with a hybrid of free and paid will end up selling many eyeballs that have paid for the privilege of being there. And that “wantedness,” a hoary old magazine concept, will once again allow publishers to start selling premium audiences for premium prices as opposed commoditized eyeballs.

*****

Thus ends Part 1 of the great debate. Continue on to read Part 2, in which the Mediator gets the two parties to find some common ground.

Photo of Mike Masnick by Dennis Yang via Flickr. Photo of tollbooth by Foggie Gee via Flickr. Photo of Washington Post newspaper by Mike Avery via Flickr.

Mark Glaser is executive editor of MediaShift and Idea Lab. He also writes the bi-weekly OPA Intelligence Report email newsletter for the Online Publishers Association. He lives in San Francisco with his son Julian. You can follow him on Twitter @mediatwit.