May, 2009

Up against the pay wall

newspapers1Zachary Seward has a very smart post up today at Harvard’s Nieman Journalism Lab blog about yesterday’s meeting of top newspaper capi in Chicago to discuss “Models to Monetize Content.” Seward lists four important but often-overlooked points  in the debate around newspapers charging for content online. Two in particular are worth underscoring:

2. Pay walls aren’t necessarily intended to generate revenue.It’s counterintuitive, but charging for the website may be an effective way to protect the print edition, which still provides 80-90 percent of income at most newspaper companies. In fact, MediaNews Group’s president, Jody Lodovic, recently told Editor & Publisher that while the company plans to erect pay walls, it doesn’t expect a windfall from them. “The whole idea is to stop the erosion from print to online and encourage people to become print subscribers,” she said.

It’s obviously not a great longterm strategy. But when we consider whether pay walls will work, it’s important to realize that newspaper executives may have a different definition of success here.

[…]

4. Even if pay walls are the future of newspapers, they aren’t the future of news. Newspapers face a very specific financial situation that’s driving their choice to charge for content or not. These companies are giant ships with dim prospects for quickly turning around in this economic tempest, so naturally they will turn to stopgap measures. It would be a mistake to read much more into it than that.

I would add another: Too often, the argument in favor of pay walls is addressed at the wrong problem.

To hear newspaper publishers tell it, their biggest problems online are copyright infringement (aggregators and other third parties that “appropriate” content) and free riding  (people consuming content without paying for it).  And if those are your main problems, simply putting everything behind a pay wall might make sense. It would certainly reduce free riding and would raise the bar for aggregators.

Trouble is, those are not only, or even the biggest, challenges newspapers face online, and putting all their efforts into solving those two problems isn’t really going to get news organizations where they need to be.

Copyright infringement and free riding are essentially market problems: They undercut the scarcity of a good or service by which value is created and maintained in traditional commodities markets. Putting your content behind a pay wall would restore some measure of scarcity.

But the Internet is not a traditional marketplace. It’s a network. Value is created in a network not by scarcity but by use, through network effects. The extent to which content is aggregated and recontextualized online is not a measure of appropriated vaule but in a proportional reflection of the positive network externalities it generates by virtue of being embedded in the network.

The big problem confronting news organizations (and indeed nearly all traditional content creators online) is that they lack the tools (i.e. applications), organizational structures and the economic models to internalize (i.e. capture) those positive network externalities.

In fairness, it’s not at all clear yet what those tools and organizational structures should be. It will take time to experiment with different types of apps, different ways of organizing metadata, different modes for aligning production costs with revenues. And, as Seward points out, many newspaper companies may simply be out of time, having squandered the last decade first ignoring the problem and then focusing on the wrong problem.

But eventually, new types of news organizations will emerge, with business models built around internalizing positive network externalties. Whatever the new tools and structures turn out to be, they’re likely to be geared toward promoting the use of content, not restricting it.

Pay walls may even turn out to have some role to play in supporting as a feature of or supporting the new tools and systems. By themselves, though, they’re bound to crumble.

IP Justice

supreme-courtThe Wall Street Journal has a story up this morning on Supreme Court nominee Sonia Sotomayor’s record in intellectual property cases and its possible implications for her tenure on the high court should she be confirmed.

As a young lawyer in the mid-1980s, before becoming a federal district judge, Sotomayor handled IP litigation at Pavia & Harcourt, including a semi-famous case in which she represented luxury handbag maker Fendi in a trademark infringement action against makers of knock-offs, which ended with thousands of counterfeit Fendi bags being crushed by a steamroller in the parking lot of Tavern on the Green in Manhattan–a stunt that became known as the Fendi Crush.

As a district court judge, and later on the Second Circuit Court of Appeals, Sotomayor authored opinions in a number of copyright and other IP cases, including having the first crack at Tasini v. New York Times, a seminal case involving the right of newspapers and other publishers to include the work of freelance writers in electronic databases such as LexisNexis without express permission. Sotomayor sided with the Times, but here decision was ultimately overturned by the Supreme Court. Read More »

Paying for news

newspapersSpeaking of newspaper publishers, a group of leading news industry executives held a hush-hush meeting in Chicago today on the topic of “Models to Monetize Content.” In the room were top execs from The New York Times, Gannett, E. W. Scripps, Advance Publications, McClatchy, Hearst Newspapers, MediaNews Group, the Associated Press, Philadelphia Media Holdings, among about two dozen others (including, one hopes, one or more anti-trust lawyers).

Sessions included one on something called the Fair Syndication Consortium/Attributor, which was described in the program as a “presentation on technology/service to track content on the Web and to extract payments from third-parties and ad networks that have appropriated newspaper content.” Read More »

Music labels finally getting a clue

Interesting piece by Brad Stone in this morning’s NYTimes on the music labels’ shift away from imposing punitive terms on digital music start-ups in favor of terms that might let them stay alive long enough to actually create some business for the record companies.

imeem-universalStone uses as his hook the recent experience of Imeem, which was on the verge of shutting down because its ad revenue could not begin to cover the millions it owed the labels in licensing fees, but was given an 11th-hour reprieve when Warner Music Group agreed to forgive Imeem’s debt and both Warner and Universal Music modified their licensing terms with the online music service. That allowed Imeem to raise new financing and stay in operation.

“We are trying to figure out how to restructure partnerships and develop a healthier ecosystem where entrepreneurs can continue to innovate,” Warner Music’s Michael Nash told the Times. Read More »

Is Apple about to steal a march on mobile video competitors?

Media Wonk was away over the Memorial Day weekend so I’m just catching up on some stories that broke last week. One that didn’t seem to get the attention it merited was Kwame Jones’ scoop on Open Salon that Apple appears to be readying a plan to allow movie and TV downloads directly to iPhones and iPod Touches without their first having to stop first at a desktop or laptop hard drive. Jones posted some screen shots provided by a “geeky friend” who stumbled on links to “iTunes Movies” and “iTunes TV” crawling across the top of a new ad-supported iPhone app. The screen shots captured menu and ordering screens for movies and TV shows broken out by genre, season and other features.

Ars Technica expressed some skepticism about “the story behind this one,” declaring it “highly unlikely that Apple would run ads for such a feature through a network like AdMob,” or “that Apple would create an ad like that this far in advance, knowing that non-Apple-employees have a high likelihood of seeing it.” Read More »