Free Is Not An Aberration; It's Basic Economics

Overhype

from the understanding-free dept

A few folks have sent over Andrew Zolli’s short opinion piece over at Newsweek, suggesting that free content can’t possibly last. Normally, I wouldn’t even bother with such an opinion piece, since similar ones (nearly identical ones) have been debunked a hundred times over already. But Zolli runs PopTech, which is considered one of the better conferences out there, and if he’s spouting such nonsense, it deserves a response. Let’s start with the basics:

Unfortunately, as we’ve seen since, for companies whose core product is content–like every newspaper and magazine you read, including this one–the idea that we Internet visionaries sold is a total load of crap. We persuaded executives to compete with themselves online by setting up Web sites that offered for free the same content their staffs labored so strenuously to produce and sell in their print publications. The theory was that companies were supposed to make back the money by, uh, “monetizing the attention economy,” or some other similarly vaporous concept, that meant either charging customers later on, or selling advertisements, or both.

Compete with themselves, huh? First, this is hogwash. Most newspapers and magazines make the majority of their money from advertisements anyway, so putting their content out there for free is hardly taking away serious revenue. Newspaper subscription fees don’t even cover the printing and delivery costs. Magazine subscriptions are just as cheap. You know all those “deals” that give you magazine subscriptions for next to nothing? That’s because subscription revenue is meaningless. Ad revenue is what matters.

Second, being online doesn’t mean they compete with themselves. If these magazines and newspapers didn’t go online, then people would gradually come to ignore them, and favor the smarter publications that did go online, or which simply started online. Keeping yourself away from where people are is not a smart media strategy, but it seems to be the one Zolli is suggesting. So it was never “competing with themselves.” It was always about understanding fundamental economics.

Supply and demand. If the supply is abundant, prices go down. That’s not some techno-utopian “load of crap.” It’s what you learn if you pay attention in econ 101. If supply is effectively infinite, prices go to zero.

When I buy the dead-tree version of my local newspaper, I have no expectation that it should be free. If I pick it up and walk out of the coffee shop without paying, that’s stealing. But when I walk upstairs to my office and log on to the Web site for the same paper, I feel a divine right to access the entirety of that paper–and 10 years of its archives–for free. Yet when I use another little computer invented more recently (Amazon’s Kindle, say) to access that very same newspaper, I do pay. And I expect to pay. When the market floods this year with the iPad and its inevitable clones, I’ll expect to pay on those as well.

You may expect to pay, but it won’t be long until others recognize that it’s more valuable to give away that content for free, and then those who still put up a paywall will find it quite difficult to compete.

In the long run, the first decade of the Web could come to be seen as a momentary aberration–an echo of ’60s free culture when we all took the bad, digital acid.

Here, I’ll let Jeff Sonderman respond to this one clearly and concisely:

The assertion is that free was clearly a mistake, an aberration, is usually not explained or backed up with any facts, it’s just out there.

But any fair assessment of the facts shows that forcing payments for news is barely possible, and certainly not inevitable.

Begin with the fact that for the past two decades people largely have not paid for online news content. That’s not an accident, as Zolli suggests. That’s the status quo of a functioning online economic system. If someone says it’s going to change, it’s their burden to explain why. And so far, I don’t hear any good reasons. The most common is that because the news industry is in financial trouble, consumers must bail them out by paying — an insular, backwards view of the consumer relationship.

Along with the lack of evidence for “inevitability,” there is significant evidence against it.

The spark of the whole paid-content discussion was the realization that display ads online aren’t nearly as profitable as in print. The theory arose, if ads don’t work we have to charge the user directly. Here’s the problem: The same reason that the display ad model is failing is the reason paid content doesn’t work — there’s no scarcity online. There are infinite other places to buy ads, consume content or even watch kitten videos, for free.

Filed Under: content, economics, free