iTunes and the News Shakeout

David Carr at the New York Times wrote an interesting piece two days ago wishing that an iTunes type of solution might rescue journalism.  

I’ve had the pleasure of working in both industries, having in the past worked with music and movie producers to protect their content online, and being currently engaged in trying to help news outlets with their online presence.  So I thought I could add some perspective.

First, lets agree that demand for news is high, and that consumers distinguish between good news sources and bad ones.    My own demand is so high, in fact, that the amount of money I spend getting the news is higher than ever, if you factor in the cost of broadband and computer hardware and apportion those costs based on how often they’re used to access news.  The $3 per week that I pay to get a print edition is in comparison minor.

On the supply side, news outlets are running eachother out of business.  Ten years ago, many of them started publishing content on the web free of charge.  The expense was relatively small and could be subsidized by their print operation.  Perhaps they thought the presses would always be generating revenue, or that online advertising alone would be enough.  Unfortunately print operations can no longer afford to subsidize digital delivery.  As Carr quotes Craig Moffett of Bernstein Research:

The notion that the enormous cost of real news-gathering might be supported by the ad load of display advertising down the side of the page, or by the revenue share from having a Google search box in the corner of the page, or even by a 15-second teaser from Geico prior to a news clip, is idiotic on its face.

The market for news, in other words, is not in an equilibrium state, and bad business models are being shaken out.  They’re giving away their product, and putting up pay barriers online would ruin their market share unless their competitors followed suit.  As Jeff Jarvis pointed out in response to Carr’s article, there’s no scarcity, and without scarcity, they can’t fetch the price they need to support production.

The music industry did not have this problem.  They never gave it away for free.  If, ten years ago, they had similarly thought that free digital distribution would be a good business model, they would be sinking fast.  Although it is easier for the music industry to move as a whole and prevent the sort of painful shakeout the news industry is going through.  They have the RIAA.  The news industry does not.  

The music industry also doesn’t have the Associated Press, whose business model is ruinous for the online news business.  The news industry is collectively paying them a large amount of money to virtually eliminate product differentiation and competitive advantage, such that one paper publishing their content online for free ruins the ability of anyone to successfully charge for digital access.

Where will things sit after the shakeout?  Here’s a scenario.  News organizations continue staff cutbacks to the point where the news that consumers demand has become scarce and is being produced by only a few companies.  Those companies will not see any advantage in being a member of the Associated Press, and will be in a position to impose pay barriers.   You’ll have two options:  mediocre free coverage, citizen journalism, and punditry; or paid access to a quality news outlet.  

The Wall Street Journal has close to one million online subscribers, and charges $1.99 per week for a digital-only subscription.  There were rumors in 2007 that they would remove the pay barrier, but they seem to be sticking with the subscription model.  Smart move, I would cling to it and hope to outlast free competitors.  That it has been even remotely successful when so many others are giving it away is telling.  As competitors fold and cut back on staff, their competitive advantage and subscription revenue will increase.

As Moffett points out, online advertising will not support the news.  The demand exists, so something else will.  iTunes may not be the right model, and The Wall Street Journal offers a fine model for the future, but Carr is thinking in the right direction.  Some good advice also comes from Edward Roussel:  let the fire run its course.  It will burn down competition until only a few are left.  I submit that those few will start supplementing ad revenue with access fees.

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After posting this, I realized how depressing it is that newspapers are under greater strain than record labels.