Here’s the basic story line on the so-called original sin of newspapers in the digital age:
Foolish publishers started giving their content away for free online in some vain grab at traffic and potential online ad revenue, thus “training” people that news is free. Now they’re stuck in a world of their own creation, where the presumption is that journalism has no value.
It’s an effective story, not just because it has a catchy name, but also because there’s something so emotionally satisfying about seeing publishers hoist on their own petards.
But it betrays a fundamental misreading of media economics.
The less-sexy interpretation of this so-called original sin is that publishers were acting rationally, following a basic axiom of the business. Call it the Axiom of the Audience Imperative:
“In a competitive information marketplace the price of any media product ultimately will be driven down to the marginal cost of production and distribution.”
The logic is simple. If I can get one more reader/viewer without losing anything, my product is incrementally more attractive to advertisers. That means I can charge incrementally more, make my product a little better, get even more readers/viewers, charge still more, and away we go on the virtuous cycle that has built so many media fortunes over the years.
The axiom is not perfect, of course, because there’s never a perfectly competitive information marketplace. But it’s pretty powerful.
Consider broadcast TV: Zero marginal cost, zero cost to readers. Cable is not competitive, so all bets are off.
In the newspaper industry, the rule of thumb has long been that circulation revenue should at least cover the cost of production and distribution. (That’s not a true marginal cost, but it’s a reasonable proxy.)
Or magazines. I don’t know much about the business of publishing magazines, but I’d have to guess that the dollar or two I pay for my weekly fix of the New Yorker is pretty close to what it costs to print and mail.
So it’s not crazy for publishers to have made the calculation that free content online would unlock traffic >> ad revenue >> better online products >> more traffic >> more revenue and so on.
Alas, there have been two glaring problems.
First, ad revenue hasn’t been that great. Online ads simply aren’t as effective (yet) as print or broadcast. I can guarantee that when 45,000 people in our readership area see a full-page ad, that advertiser will get serious foot traffic. But 45,000 online ad impressions might produce 50 to 100 clicks, if you’re lucky, and you don’t get anywhere near as much residual branding value from a banner as you do from a print ad.
Second, the cost of online publishing has grown, at least for publishers with a print product. It’s not in the bits, it’s in the cost of lost, paying print readers.
Up until a couple of years ago, you could make the argument that the marketing value of a robust free website outweighed any potential erosion in circulation. I know I certainly made that argument, and I know of analyses (not any rigorous studies, unfortunately) that back that up.
But all that has changed. In the past couple of years, we seem to have reached a critical tipping point, where a robust free site is, for many marginal readers, a viable alternative to paying 75 cents for a print fix. I attribute it to a mix of factors, including better bandwidth, better computers, better news sites and aggregators and the fact that we’re all so much more engaged with the Web these days and comfortable turning to it for information.
Hence the rush of publishers to lock up sites. The cost of that marginal reader has grown, changing the equation.
Mutter is probably right that it’s going to be hard for news publishers to put the genie back in the bottle. I don’t think that’s so much because our original sin has somehow planted the notion in the mind of the reading public that content should be free, though. I think it has more to do with the fact that there are many more players these days in the online information game, and plenty of them aren’t tied to a print product. So they truly are in the near-zero marginal cost game, and they will always have a rational reason to provide open news sites.
But there is at least a chance that attitudes may shift a bit, especially if a broad swath of publishers start holding back. I’ll be thrilled if that happens. But even if it doesn’t, putting up walls may help incrementally to slow the decline of print sales, and that’s real money that can help more traditional journalism organizations — the ones that actually report and create news — get through the recession and start building their online futures in earnest.