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The problem with 'free'

We pay for the Herald, but not for its website; we’ll give money to Sky while we let the state-owned TVNZ struggle. As business thinkers proclaim the age of the free and Rupert Murdoch heads a fightback, Matt Cooney asks if we really know the value of a dollar. Plus keep on giving.

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We pay for the Herald, but not for its website; we’ll give money to Sky while we let the state-owned TVNZ struggle. As business thinkers proclaim the age of the free and Rupert Murdoch heads a fightback, asks if we really know the value of a dollar.

In September 2006, street warfare broke out in London. Pitched battles were fought on street corners, in subway stations and bus shelters. Harried commuters found themselves caught in the middle, liable at any time to be confronted by a foot soldier crying out orders from above: Getcha free newspaaaper!

This was a war that only Rupert Murdoch wanted. He decided to challenge London’s evening newspaper, the Evening Standard, and his chosen method was the make his new title, thelondonpaper, free. The Standard responded by launching its own free daily paper, London Lite. Never mind that Londoners were already spoiled for choice in newspapers, or that local councils now found they had nearly a million extra discarded newspapers left in trains, gutters and wastepaper bins per day. Murdoch wanted a circulation war, and he had it.

But wait a minute: is this the same Rupert Murdoch who just announced that he’ll start charging for access to all News Corporation websites? “Quality journalism is not cheap, and an industry that gives away its content is simply cannibalising its ability to produce good reporting,” he told analysts in an earnings call in August. “The digital revolution has opened many new and inexpensive distribution channels but it has not made content free. We intend to charge for all our news websites.”

And yet content in Murdoch’s papers has always been free, or close to it. Thelondonpaper is out-and-out free for readers; the cover price of The Times, The Sun, The New York Post and nearly every other newspaper on the planet doesn’t come close to covering the raw cost of just printing and distributing each issue. Effectively, all the content and a decent chunk of the raw material is paid for by advertising.

Content, clearly, is free when it suits Rupert Murdoch.

His competitors like his plan to charge to erect a paywall. Most would love the Dirty Digger to spectacularly fail—but they’d be even happier if he succeeded, because they’d be doing the same thing the next day. Murdoch, after all, is the man who introduced most of the planet to the idea of paying for television. That hasn’t worked out too badly for him.

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The world is packed with contradictions about the value of content. We pay for Sky TV while we let the TVNZ struggle with a miserable economy, even though we own TVNZ. We’ll pay for a single copy of the New Zealand Herald, but not for nzherald.co.nz, even though the website includes archives stretching back years, video content and blogs, search facilities, intelligent suggestions of similar articles and interests, and it’s much more up-to-date. We’ll happily give Flickr some cash to host our family snaps but we expect Google to look after our email for free, even though for many of us couldn’t work without it. We’ll pay for the software as a service we get from Xero, but not the services via software of the National Business Review.

For years, we’ve all been trying to move our products into premium markets, but Google proves there’s profit in the pennies. At a certain point, charging is more trouble than it’s worth

It’s easy to dismiss the problems of the ‘free-conomy’ as something unique to media. Murdoch, Coleman, Packer, O’Reilly—such poor little rich boys! But what’s media’s problem today will be yours tomorrow. Before this, it was the problem of the music and film business, where free—illegal downloads, amateur productions, filesharing software—brought the entertainment industry to its knees.

Who’s next? Well, any industry where value exists in intellectual property that can be stored, shared and promoted at near-zero cost. The hit list includes:

Telecommunications, where the marginal costs of a voice over IP call are effectively zero (Skype is already eating into international call revenues, and Google Voice has the potential to destroy the telcos’ business).

Software, where Microsoft is under attack from open source and software as a service.

Market research, where it can’t be long before Google uses its massive reach to generate surveys and ‘crowdsource’ product solutions.

IP management, where the only protection of a business remains in jurisdictional boundaries; once that boundary is removed (as is already happening), global patents and trademarks can be managed in one location.

Education, design and medical advice, where the essence of what’s offered could be served online (you can buy logo design for less than $10 apiece).

Free is a meme that will assault your industry sometime. What happens in music, film and media does matter.

So it’s not surprising that many content providers have cried “enough!”. Murdoch promises the paywall will arrive within a year; the New York Times is expected to soon introduce its version. In Australia, Fairfax announced in August that it too will charge for access to its sites, and the New Zealand operation followed suit a few days later. And here, the National Business Review is leading the way, charging for some of its content from July.

For most of them it won’t work, for a bunch of reasons. Here are three. First, readers are not going to support the infrastructure that once was paid for by advertising. The cost of delivering content online is so much cheaper than print that there shouldn’t be any need to charge consumers, but the advertising revenue isn’t there. Put simply, print is a much better delivery vehicle for advertising, and it commands a higher premium. Sure, you can measure the clickthrough rate of ads on websites, but that just confirms that clicks are not that common. When was the last time you clicked on a banner ad?

Most banner ads on websites now—including marquee sites like CNN and the New York Times—are for low-rent products of the lose 28lbs in 2 weeks! variety. Says Michael Carney, strategic planning director at Media Counsel: “Clickthroughs from banners and skyscrapers has always been a bad idea, ever since the Internet started.” Yet it’s still the dominant form of advertising online.

Second, paywall-protected sites are near invisible on the Internet. Search engines can’t index their stories, bloggers don’t link to them and aggregators know nothing of their content. Without search engine traffic and links from external sites, people aren’t going to find their way to your site. And there’s nothing more frustrating than great content that nobody sees.

Third, the Internet has changed our perspective on content. We’re starved of time, overrun with information and sceptical of our sources. With millions of outlets online, all of them competing for attention, people feel they’re doing the content provider a favour by reading their content. As Chris Auld recently commented on the Idealog blog: “The most expensive part of being a news reader these days as actually taking the time to read the news.” That leads to a whole new definition of value: Auld, for example, happily pays for The Economist’s audio edition. Chris Anderson’s book Free is available as an unabridged, seven-hour audiobook from Audible.com for, er, free; the abridged three-hour version costs US$6.95. You pay for the time that the editing process has saved you (note to Herald beancounters). It’s a perfect example of Anderson’s belief that free product lines will generate alternative sources of revenue (see sidebar ‘Keep on giving’).

Even so … I wish the publishers’ plans to charge would work. I like the idea of an Internet ecosystem with space for every type of venture: professional, amateur, aggregated, paid-for, ad-supported, sponsored, free and every permutation thereof.

Some publishers certainly will convince online readers to pay for the privilege. When Murdoch bought the Wall Street Journal last year he said he’d remove the Journal’s paywall, but it’s now his favourite asset. The Journal website does some clever things: it allows Google to index it, and if you visit from a Google search you’ll see that page for no charge. (This makes it easy for the technically literate to work around the paywall, but also makes it easier for bloggers to link to the Journal too.) The content is so compelling that many people just can’t do their jobs without it. And, as Lance Wiggs points out on his blog, it’s reasonably priced. Wiggs pays the Journal US$151 a year; by comparison, the Australian Financial Review wants AU$1,308 to use its unremarkable website and the NBR wants $298 a year for a handful of stories each day.

There aren’t many Wall Street Journals around, and so most of us who create content are going to need to find another way to make money online. Here are some suggestions.

Work out how cheap you can be. For years, we’ve all been trying to move our products into premium markets, but Google proves there’s profit in the pennies. Jeff Jarvis, the author of What Would Google Do—and an inspired and acidic commentator on the news business at buzzmachine.com—says the trick is to use scale and technology to make your products as cheap as possible. At a certain point, charging is more trouble than it’s worth but you can make money with ads, extra services and marketing data.

Don’t be panicked into charging. There’s a recession on. “That’s reduced the volume and rates of advertising overall, but that doesn’t signal the end of advertising as way to pay for media,” says Media Counsel’s Carney. “Cinema and Sky are up largely because people want cheap entertainment.” If you can wait till the economy tilts upwards before making drastic changes, you’re more likely to manage the process.

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The ad-supported model will improve. We’ve yet to see advertising that truly takes advantage of the interactive technology, online or over the air. The set-top box will introduce a far better advertising model once ads can be customised to suit the viewer. “The future for free to air TV looks rosy, thank to Google AdWords, which is the new model for advertising,” says Carney. “TV is becoming non-linear, meaning that technology like MySky, TiVo, XBox and Apple TV—the box is not important—allows us to watch whatever we want, went we want. So ads can be contextualised, made relevant and useful to you.” To convince us to watch them, of course, those ads will need to use marketing data to serve up something we actually want to see.

The Internet has changed our perspective. We’re starved of time, overrun with information and sceptical of our sources. With millions of outlets people feel they’re doing the content provider a favour by reading their content

Don’t presume your product is still valuable. Technology is changing the channel and, just like advertising, the old format may not suit the switch. But traditional content might draw your audience—and then you can offer them interactive, customised, paid-for services. Sky succeeds today because it’s the only broadcaster that has the products that people want and can’t get elsewhere, particularly high-profile sports events, and the free-to-air fare isn’t sufficiently compelling. But that advantage may be eroded by the arrival of on-demand television, narrowcasting and hyperlocal coverage.

Similarly, the Herald may decide it should move to a paid model, but accept that it won’t sustain a large newsroom and layers of management. The Herald might end up being smaller than the NBR. Metro might be bigger than both, but not under the current management. (Visited metrolive.co.nz recently?)

In August, the leading US news website, MSNBC.com, showed it understood what was coming. It bought Everyblock.com, a hyperlocal news site for US cities. MSNBC already has the mass media stories; soon it will have reach down to street level. That’s value.

Differentiate. Give the punter something they can’t get elsewhere. Go for niches, localise, create customised channels from data, user-generated content and specialised knowledge. If it’s important to them, people will pay.

Ignore the trolls. When the NBR announced its paywall, a common reaction was an insult and a promise never to visit site again. Fine! Don’t let the door hit you on the way out.

It’s tempting to see the reaction of the media barons as a generational thing. Murdoch’s biographer, Michael Wolff, seems in no doubt. “Yesterday, his company, News Corporation, posted the biggest losses in its history,” Wolff wrote on his Newser.com site following the earnings call. “In response, [Murdoch]—who as recently as a year ago, when we last spoke, had yet to go, unassisted, onto the Internet—announced that he would shortly make his newspapers available online only if you paid for them.” Wolff reckons this is Murdoch’s last stand.

What would a younger Murdoch have done? Twenty-five years ago he cut a swathe through Fleet Street by ridding his titles of outdated infrastructure. He moved journalists out of their familiar Fleet Street surroundings, secretly built a new printing plant that used an offset press rather than labour-intensive hot-metal typesetting, and promptly sacked 6,000 printers when they struck in protest in 1986. The resulting ‘Battle of Wapping’ raged for over a year before the printers gave up. The rest of Fleet Street soon followed Murdoch’s path.

Today, Murdoch is seeking to protect the status quo. Someone else will have to reinvent the business of content.

Because free does work. In 2006, few people believed that London could support two free afternoon newspapers, but three years later thelondonpaper and London Lite are still distributing almost a million copies a day. The loser—aside from the environment, that is—has been the incumbent: the Evening Standard’s attempt to go upmarket never quite worked, and its readership is withering away. The Standard is a Fleet Street institution and even its equally iconic owner, the fourth Lord Rothermere, lost his faith in the title that his family has owned for decades. Earlier this year Rothermere sold the Standard to a Russian oligarch.

He kept London Lite, though.

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