I’m Not Going to Pay A Lot For That Content!!!!

May 22nd, 2009

Steve Shannon
316929914_238392ea55_m.jpgThe headline of this post paraphrases the great boxer and pitchman George Foreman. Before he got into the grilling business, George “wasn’t going to pay a lot for a muffler.”

Apparently, he and countless others don’t want to pay a lot for the electronic editions of books either. Motoko Rich of The New York Times writes, in this article, that customers of Amazon have balked at paying $15 for the electronic edition of David Baldacci’s newest novel “First Family.” Most e-editions for Amazon’s Kindle reader are priced at $9.99, while the average hardcover book has a cover price of $26.

The argument advanced by these consumers: the costs of paper, printing, and distribution are out of the equation and the price of the electronic edition should reflect it. Sounds right to me. But Rich reports that such expenses generally run 12.5 percent of a hardcover’s average retail price. If that is the case, then $3.25 should cover those costs.

Continuing to follow the logic advanced by the consumers, an e-book should then have an average retail price of $22.75, not $15 or even $9.99. What’s going on here? It turns out that Amazon is likely subsidizing the books – paying publishers $13 for each $9.99 book it sells. Thirteen dollars is the same price Amazon also pays publishers for a hardcover version. The subsidy from Amazon probably encourages adoption of its Kindle reader, which then makes the owner beholden to Amazon for their e-book purchases.

Who’s right?  Publishers? Retailers? Consumers?  Who knows, but that’s the beauty of capitalism.

More importantly, for those of us in PR, what does it mean for the news media, which faces a similar conundrum in the pricing, revenues, and profits of the print versus electronic realms? Personally, I think it means that publishers and news consumers will both have to give a bit to continue to create, sell or receive quality news.  For news publishers, it means finding a way to charge for content they’ve so far given away for free on the web. New consumers will have to acknowledge and pay for the quality of that content with their wallets, their demographic info and/or consuming advertising, along with the editorial. Much like the book publishing example above, the market will take a while to find its equilibrium, but find it, it will.

My bet is that we’ll see a plethora of free and paid news (and topic) sites, and perhaps hybrids of both. My other bet: paid audience will be prized by PR professionals and marketers. That is where the ever-desired “influentials” will reside, as quality content for news (or any topic) will likely be monetized rather than free.

One thing you can be sure of, no matter what models news media sites end up with, BurrellesLuce will be there to monitor them.

One Response to “I’m Not Going to Pay A Lot For That Content!!!!”

  1. Bob Stock says:

    Richard Fernandez, a very astute public policy analyst who runs the Belmont Club political blog, sometimes discusses this issue. And unlike most blogs, the comments section also generates cerebral and interesting discussion. (Apropos of this subject, his blog is currently free to read but there are hints he is going to a subscription model).

    For example, in this post, he writes:
    In the coming year the dying newspaper industry will probably explore two tracks in order to survive. The first and most obvious is for newspapers to acquire some kind of public funding or bailout money to keep providing the “essential service”. But that is unsustainable. The other would be to implement a system of microcharges for each use or citation of original material, regardless of who uses it. In that way, journalists or original news sources could get revenue from any use of their material, whether the user is a “newspaper”, a broadcast network or an online publication or blogger. The future survival of journalism and punditry is probably dependent on creating this new distribution model to replace the old newspaper and broadcast driven one. Ads will no longer provide the bulk of the revenue. User micro subscriptions and payments will.

    In the fascinating discussion that follows in the comments, including speculation on the future of newspapers (as opposed to journalism), other ideas are presented such as:

    We all understand that news costs something to generate. Journalists, even Robert Fisk, have to eat. Someone has to pull the news together somehow so that you can find what you want. Micro-charging is one potential way of doing that, but as Mr. Fernandez notes that model has substantial problems. The worst is that it maintains the cumbersome current system of resolving the transaction costs. Click a link and it’s a penny off your master account somewhere, but the cost of charging you that penny could well be more than a penny. That sort of hassle factor simply won’t fly. How often would you click the television remote if it cost a nickel each time you changed the channel?

    There is another solution, and that is tiered news access through your broadband provider. To the extent you want news you pay a monthly fee and get access to that tier without additional transaction costs. This is similar to current cable/satellite TV models — if you want the NFL network, you pay extra. Bundling of news then would be done not by newspapers, web aggregators or journalists but by broadband providers who would cut deals with news providers in the same way they do with movie studios and TV networks. This has the advantage of keeping the suits in charge of news, instead of independent journalists such as Michael Yon. The suits own the news providers and make deals with the broadband providers who then tier the news for you to consume.

    This, of course, doesn’t work in a ‘net-neutrality’ world, so watch that die a slow and quiet death when Pinchy finally figures out that Comcast is his best friend.

    Better still for the suits and the ‘elites’, it maintains ideological journalism because a tiered news model provides, within certain limits, a guaranteed income. An enterprise that can’t deliver might be dropped from a tier, but one that shows it is getting a certain ’share’ (views, clicks, however you wish to measure it) stays in the tier. How do you best do that? Bundling, of course. That drives the eyeballs to you.

    You thought bundling would die, right? The Web 2.0 was going to make the bundling wildly different news (sports, business, gossip, local, national, world, style) into a single package as dead as an Edsel. Nope, bundling lives because it allows the marketing department of the broadband provider to sell you something quickly and easily, and to hide the costs of that bundle in a single access fee. And that’s where the profit lies.

    Bundling is the model newspapers have used the last four centuries. Instead of bundling via newsprint, they’ll bundle on the web through the broadband tier.

    Mr. Fernandez (under his pseudonym “wretchard”) brings up the following idea about a possible future “market” for “on-demand” journalism:
    Moreover, the ad model doesn’t really capture all the value people would be willing to pay for a piece of information. To do that we need a more efficient market.

    On that market we could trade not only existing original information, but prospective original information. Suppose we could create a mechanism through which “assignments” could be funded. Essentially the readership would become the editorial board of a journalist. What’s needed is some way to do this in an abstract way, almost like seeing a bid and fulfilling it. Some online journalists with large followings already do this, usually by raising contributions for trips, research, equipment, etc. Personally, I’d be willing to pay five cents for a journalist I think is credible to go and research the issue of President Obama’s birthplace, for example, or maybe one cent to guy to ask a certain question in Waziristan. We might also be willing to pay some small amounts for confirmation or collateral information. Certainly people who are following news of commercial import might find it cost effective.

    If such a market could be created, then its goal would be to provide either better quality information at as much or less than the old newspapers could or the same quality for a much lower price. I think it could because the new model would potentially make it possible to mobilize resources at any level of granularity and return information when aggregate demand for it grew beyond the cost of providing it. The market has to make that transacton easy and transparent to both suppliers and providers somehow.

    Whatever emerges won’t work if the reader has to pay more money for less information. It will only work if the reader gets a much better and more reliable information product for as much as or less than before.

    As they say, Read it All!

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