November 12, 2010

(Re-)Defining Value

Filed under: current affairs,internet,marketing,media — Erik Dobberkau @ 10:38

Before expanding on yesterday’s post, I would like to point to some great articles (last link only available in German) and a video related to the topic. What they all agree on is that you can’t transfer the physical business model to the online or digital world. What I want to argue today is that if you take this for granted, you shouldn’t expect the financing works as it used to.

First, advertising. As stated before, advertising in the old media still is a bet. You buy physical space or a timeslot, hoping to attract the eyeballs of those who are reading the article next to your ad or watching the programme around it. You do so because you believe that this will help you to stay on top of the mind of the “consumer”, so she eventually buys your brand instead of the other. This kind of advertising focuses on the Attention-Interest-Desire part, not Demand or Action. Same with a full page ad for your new car model. The odds of someone seeing your ad who actually needs a new car right now are ridiculous. It’s a bet about staying in the game. On the other hand, if a local market advertises for discount tomatoes on Saturday, their chances of selling those tomatoes go way up with this fraction of the readership who are going to the market on Saturday anyway.

How does it work online? Since the invention of banner ads, their price has only ever decreased. Because on the web, the idea of advertising is not only Attention through Desire, but Demand and, most important, Action. The web offers a huge benefit for advertisers: The can measure effectiveness and ROI a lot easier than offline. And that’s what they’ve been doing. So today the problem for content providers is the clickthrough rate of an ad or their page, because it determines price, and thus revenue.

Second, value. Clay Shirky has nailed it pretty well: Online, newspapers (magazines not as much) offer nothing but a commodity. There is too much content, too much other news to compete with, not mentioning the billions of other pages that want our attention at least as much. And the user will not see a point ever in paying for an abundant resource. What makes it even worse is already said in its name: current affairs. Here today, gone tomorrow. The whole situation is paradoxical: To ensure the level of quality a paper wants to maintain, it needs to run a network of correspondents, distributed over the country or even the world, that’s why we see dozens of microphones and handheld recorders popping up once an MP comes out of parliament. But we as the users are not satisfied with reporters only parroting press releases. What we want is background information, an analysis how this fits into the big picture, not a filtered story merely tweaked to make a title page to cause public outrage.

What publishers are trying to sell us on today is that their value is the guarantee of free (i.e., independent) information because of its network. Which is not true. A publisher’s major asset is the level of control he has (or used to have) because he owns the physical printing press, allowing him to reach more people more efficiently and simultaneously than a real person could. Who controls the most channels has the most power, just like in every other industry, and as a result he can charge the most money from advertisers or put pressure on politicians or other organizations. After all, it is hard to monetize an abstract concept like freedom, but on the other hand, the history of monetizing control is even older than money itself. Now, empowered by the web, everyone has a printing press. And everyone is using it.

Especially the print press used to be nebulous organizations which shrouded themselves under the argument of “quality journalism that must be paid for”, and they still do today. But today we expect everything to have its price, and this price’s structure be made transparent. This is what my last post was about. Once it’s clear what the actual price of an article (of whatever quality) is, it’s our privilege as users to decide whether we’re willing to pay for it or not. Value is not the total manufacturing cost, it is a subjective attribute, how much what someone is saying matters to us. This brings us to another component of value: trust. A source I trust has a higher value than the one I don’t trust. The boiling question then becomes if there is a source I trust and it starts charging for its contents, will I switch? What are the readers’ criteria for re-decision?

Third, payment. I had a brief email exchange with Marcel Weiss, a German blog author, yesterday and he said that the 10 cent model was not going to work because the emotional transaction cost is too high and the handling of these small payments itself would almost cost as much. The emotional transaction cost is covered in the value section above, so I can focus on the money here. Clay Shirky also wrote that these small payments have the connotation of being nickeled-and-dimed, which is not a positive one, and users will flee in favour of subscription-based or subsidized offers. Wired’s Chris Anderson currently also believes future financing will comprise subscriptions and advertising in equal amounts. Fine with me, though I tend to believe that this model works more for magazines than newspapers. Magazines have always focused on their readers and how they can delight them, that’s why people subscribe, a regular piece of delight that cares about what they care about.
Marcel also said that there is a high probability that people will only lurk until the article is accessible for free without ever paying. This is completed by Clay’s point that small payments don’t add to the conversation. That’s right. The payment is a bare necessity. People who don’t care enough aren’t going to pay, but I don’t think this can be applied in general. Peer pressure is enough to make people pay. If in the long run a magazine or paper can be financed by subscriptions and ads, and puts content on the web for free but, say, only a basic version, that’s good. But I don’t think we users can expect full media broadside (journalistically neutral, of course) for free (i.e., entirely subsidized by a third party) from any provider.

Fourth, professionalism. It’s not as much about you and your workmates having the same conversation topic in the morning as it is about seriousness and reputation. Everyone can publish today because they have the button on their blog. But that makes them neither a publisher nor a journalist. And we need to acknowledge that a journalist is not a reporter and a reporter is not a journalist, so they must be treated differently. As I wrote above, we users demand more than the press release, therefore we need to treat the crafting of an article as work. Labour. Something the one who does it must be compensated for. On the other hand, the ones writing these articles need to treat their jobs more serious again. Over the past decades, journalism has been going down a road leading to its own demise, on the verge of which it is dwelling now, and that’s why people see ever less reasons to pay for information that’s available in better quality elsewhere for free.

That said, the question really becomes if a journalist needs a publisher. Do musicians need record labels? The history of the past decade has given the answer. There’s no difference whether a journalist wants to sell his article to a publisher or releasing it on his own. If he does the latter, the only thing he needs is a big enough audience, either several hundreds who subscribe for a small fee or several thousands who visit his site and click some ads. Of course it takes longer to build an audience. So this is nothing I would recommend a seasoned (but unknown) journalist to do. It just takes too long. But if you’re young and only starting, that’s the way to go, because then you remain independent.

November 10, 2010

How to Finance Online Journalism (Freemium 2.0)

Filed under: business,current affairs,internet,marketing,media — Erik Dobberkau @ 22:30

In the last few weeks the debates on the business models of online journalism (which can be extended to any online business) have been boiling high, and it seems there are three alternatives at the moment:

  • Make everything free: This model is based on advertising, so it’s not really free, but a user or reader doesn’t have to pay extra. The downside for the provider of the service is of course that having ads on your site doesn’t generate much revenue when the monetary transaction depends on a user action (someone must click the ad). Pay-per-click will become the dominant payment model because it allows for exact measurement. This will result in decreasing revenue, so it’s not profitable in the long run. Free can also be combined with voluntary payments through Flattr or other (micro)payment services where users can donate.
  • Paywall: Users have to pay to see whatever content (and ads). But this permanent barrier prevents the spreading of the content too, so you’re less likely to gain audience because they eventually discover it.
  • Freemium: The free part of your content has only basic functionality. To enjoy the full service (premium), users will have to pay. This usually works very well but doesn’t seem to make too much sense for, say, a newspaper.

All of these three models have their individual up- and downsides and none alone seems to be sensible for online newspapers in particular. That’s when I got struck by this idea: Why not combine all of them? Here’s how it’d work.

Premium component: Users can subscribe for a monthly or annual fee and access all of your content. No hassle.
Paywall/free component: In case of a newspaper, each article has (i.e., is assigned) a monetary value (longer features with lots of photographs are expensive, short articles cheap). Users can read the headline and an excerpt (5 lines or so) for free, and if they want to read the whole article, they have to pay. Not a lot, maybe 10 cents. Once enough people have read the article and it’s been paid for, it becomes available for free until the end of time.
Example: an article’s value is €400,- , including the journalist’s royalties, photo royalties, rent, electricity, whatever expenses need to be covered (in proportion), so after 4,000 people have read the article (not including subscribers), it goes free. Why are subscribers not included? Because they’re paying for comfort, not access. I think it goes without saying that ads will be there as well (though I hope interruptive banner ads will go away soon in favor of relevant contextual ones).

Not only is this a reasonable pricing and revenue model, it also pays tribute to what people care about. The more often an article is read, the faster it goes free, the sooner it will be linked to from other sites, the more the idea spreads.

At this point you might want to ask “But why would anyone stop cashing in when people are coming to see it?” See, the logic is this: Good article/hot topic—lots of readers—incoming links—more readers. It’s not going to work the other way round. It’s always a bet. What’s new is that the financing is split between subscribers and casual readers: Subscribers are pre-financing, paying readers (and ads) re-financing. And free makes you a good person.

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