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.