Martin Langeveld has written a post proclaiming the impossibility of charging for online news. While I think his fundamental conclusion is correct, I think that his analysis is both incomplete and misleading.

His initial premise is controversial. Namely, that charging for access to online news has price sensitivity; or, that demand is elastic according to price. Mr. Langeveld presents some numbers which he says “come from the top of my head” and concludes that newspapers can never match current
online advertising revenue with subscription revenue.

I don’t know how accurate his estimates are. There may even be a much larger drop than he predicts given any charge at all. Economically, the conclusion would follow from an assumption of moral hazard; as people consuming news currently don’t have to pay, they’re likely to over-consume news. If you start charging at all, they will stop “over-consuming” to that degree. Of course, perhaps we want citizens of a democracy to “over-consume” on news, so that they are informed – but that’s a philosophical & normative debate.

And, as some commentators have pointed out, his estimates of advertising revenue may be flawed. There may also be greater leeway for premium content, micro-fees, etc one people are signed up and you have their credit card information. Cross-selling and up-selling, in other words.

Regardless, it’s less important that the systematic shifts in “news media”.

First of all, the costs of (1) publication, and (2) distribution have dropped to “effectively zero” for small publishers. This means, basically, that newspapers have dramatically more competition – they are no longer the only game in town.

Secondly, the role of newspapers is the modern age is unclear. Their role pre-internet was clear; that is, they did three things. They (i) aggregated news [local, industry specific], (ii) published news, (iii) distributed news to people interested, and (iv) connected advertisers to an audience.

The problem is that on the internet, there is no value add from (ii) and (iii) [publication and distribution], then that leave only aggregation as a value-add. However, modern technologies have (arguably) “solved” the aggregation problem, and in a much more elegant way than newspapers (who acted as gatekeepers). Online aggregation, based on search technologies, can locate and present related content after it’s been published – from multiple sources, and arranged via topic.

Newspapers lose their gatekeeper power. They devolve into brands – filters, really, who guarantee a certain minimum quality – as well as content production companies. It’s easy for newspapers to pair a photo with a story, because they employ both photographers and writers.

But that’s a much weaker position than their previous one. It’s also one with lower barriers to entry, and thereby more competition. The low cost of publication and distribution means that anyone can set up a blog and start writing; and with Google Adwords and similar technology, the advantage of (iv) – selling advertising – is also much reduced, so anyone can make money.

And, when all your competition is free (or advertising supported), it’s hard to charge for your content. Most industries have learned that it’s hard to fight the “laws” of supply and demand – the newspapers are no exception.

Related posts:

1. Henry Porter: a Marxist condemnation of Google misses the point
2. Newspapers Cannot Afford to Reduce Supply
3. Newspapers need to stop obsessing about Google