Friday, January 22, 2010

NY Times Online to Charge Readers

January 22, 2009, 8:00 a.m.

What Readers Will, and Won't Pay For
(brought to you by*)

The New York Times, clearly at least one of the world's most highly regarded and influential newspapers, is betting it can make more money by charging those who read it online than by continuing to let them read it for free. Frank Ahrens, "The New York Times announces a plan to charge readers for online content starting in 2011," Washington Post, January 21, 2010.

That may not be as safe a bet as first appears.

For your sake and mine, this is not about to become my definitive work on the future of the newspaper industry. But I will make some comments.

1. "Everything You Know About Intellectual Property is Wrong." Sixteen years ago John Perry Barlow provided the world an insight, and for those in the intellectual property business, a warning. Barlow has been a cattle rancher from my old stomping ground around Pinedale, Wyoming, lyricist for the Grateful Dead, and co-founder with Lotus developer Mitch Kaporof of the "eff" (the Electronic Frontier Foundation), still going strong at, and about to celebrate its 20th birthday February 10, 2010.

It was early in the age of the Internet, and World Wide Web, but he saw what was coming. Among other things, he observed, "copyright," which came to us from a time when it was necessary to protect the bottle more than the wine -- the book, or reel of film, you could hold in your hand -- expressly provides that "ideas" cannot be protected. Indeed, Section 102 of the current Copyright Act still provides that the Act only protects "original works of authorship fixed in any tangible medium of expression." John Perry Barlow, "The Economy of Ideas; A framework for patents and copyrights in the Digital Age; (Everything you know about intellectual property is wrong)," Wired 2.03, March 1994.

Indeed, he leads his seminal article with a quote from Thomas Jefferson, including this passage:
"If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea . . .. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me."
[Although Barlow does not cite a source, it can now be found online: Thomas Jefferson to Isaac McPherson, 1813. ME 13:333.]

2.Free razors. Charging what the market will bear for everything you have to sell is not necessarily the road to riches. John Perry explains how, while other bands were hiring security guards to keep concert-goers from bringing tape recorders into the venue, the Grateful Dead encouraged fans to make tapes of concerts and share them as widely with friends as they wished. Grateful Dead's grateful Dead Heads soon not only made the group richer from more ticket sales, but CD sales as well. As a result, not only did the group create goodwill, and get wider distribution among potential new fans with this approach, it turned out that as often as not those who got the music "for free" were sufficiently impressed to want to buy the higher quality CD version with the liner notes.

Someone else's more recent Wired article puts the story in context:
"He [Gillette] sold razors in bulk to banks so they could give them away with new deposits ("shave and save" campaigns). Razors were bundled with everything from Wrigley's gum to packets of coffee . . .. By giving away the razors, which were useless by themselves, he was creating demand for disposable blades. A few billion blades later, this business model is now the foundation of entire industries: Give away the cell phone, sell the monthly plan; make the videogame console cheap and sell expensive games; install fancy coffeemakers in offices at no charge so you can sell managers expensive coffee sachets."
-- Chris Anderson, "Free! Why $0.00 Is the Future of Business," Wired 16.03, February 25, 2008.

3. Newspapers understood the part about giving away the content for free. All of which brings me to one of my favorite Seinfeld bits. Jerry and Elaine are at the rental car counter. He has a reservation. The rental car company is out of cars. Here's how it goes, followed by the YouTube video.
Agent: I'm sorry, we have no mid-size available at the moment.

Jerry: I don't understand, I made a reservation, do you have my reservation?

Agent: Yes, we do, unfortunately we ran out of cars.

Jerry: But the reservation keeps the car here. That's why you have the reservation.

Agent: I know why we have reservations.

Jerry: I don't think you do. If you did, I'd have a car. See, you know how to take the reservation, you just don't know how to hold the reservation and that's really the most important part of the reservation, the holding. Anybody can just take them.
Larry David and Bill Masters, "The Alternate Side," Season 3, Episode 11, broadcast December 4, 1991.

In other words, newspapers understood the part about giving away their content for free, they just didn't understand the part about having to substitute some other revenue stream to make up for the lost advertising and subscription revenue stream.

As Frank Ahrens explains in the Washington Post story with which I began, quoting the Financial Times' managing director Rob Grimshaw:

"[I]t was a 'huge mistake' for publishers to give away their product. So why did they? Grimshaw said newspaper publishers realized they did not understand the Internet, so they hired Internet experts and 'let them do whatever they wanted and whatever they said was the right thing.'"

Imagine someone in the home building business, building unique homes from the buyers' architectural plans, being told about manufactured homes.
"I tell you, Bubba, this is going to be big. Now's the time to get in on the ground floor, so to speak."

"So what do you suggest I do?"

"Construct a facility where you can build them and get started."

"Yeah, and then?"

"And then announce you're going to start giving them away. You'll have customers breaking your door down."

"Wow. You really think so? I think I'll do it. If it worked for Gillette with razors it ought to work for me with manufactured homes."
No, I don't think that's exactly how it happened in the newspaper business, but it's not far off.

4. What I predict will, and won't, work. When I was teaching at the University of California, Berkeley, law school, I subscribed to the New York Times by mail, which was the only way to get it. It came about three days late, but it was still able to inform me of stories before they appeared in the San Francisco Chronicle. I urged the company to start a West Coast edition, which eventually it did.

In Iowa City, once the Times became available online I actually preferred the online to the hard copy edition. It wasn't the cost; the Times is one of a number of papers that give away hard copy editions for free to college students in an effort to win back the younger readers they have been losing (and will need to someday replace the rest of us) -- a classic example of the triumph of hope over experience.

When I heard the paper had mortgaged its building, I even tried to make a charitable contribution to the Times. After all, we're willing to contribute to Iowa Public Radio and Iowa Public Television. It turned out there was no way to make a contribution to the Times. I would have subscribed to the hard copy as a way of getting the paper some money, but our newspaper recycling bin is already a heavy load to carry to the curb as it is.

So I sent an email to the guy managing the two electronic editions asking for information. I knew enough about both of them to know that I wouldn't use either; I'm accustomed to, and find fully adequate, the format of what's available for free. But I would at least feel less guilty, I explained to him, if I was sending the Times money for something, even if I would never use it.

He never replied, and I decided that ended my charitable obligation to the organization.

Now, it turns out, I'll have another chance next year. But I'm not sure just how many others like me there are out there looking for a way to contribute their hard earned money to a large, for-profit corporation.

Like every other newspaper, the New York Times circulation is down, but the daily and Sunday circulations still hover around one million daily and 1.4 million Sunday. So the paper's starting off with something between 1/3 and 1/2 of one percent of the American population. Richard Perez-Pena, "U.S. Newspaper Circulation Falls 10%," New York Times, October 27, 2009, p. B3. Can it expect to continue to hold even that many when it starts charging readers for online access; readers who (a) have grown accustomed to the idea that "information wants to be free," both in general and with respect to the content of the New York Times in particular, and (b) have access to other nationally respected, influential newspapers that will not charge -- as Frank Ahrens reports his Washington Post is not, now, contemplating?

He also reminds us that,
"The Times Co. tried a pay wall around content from its opinion columnists in 2005 -- a feature called TimesSelect -- charging $49.95 per year for online access to such writers as Maureen Dowd and Paul Krugman. The Times got 227,000 subscribers to sign up, but abandoned the plan in 2007; behind the pay wall, some of the paper's star writers had been effectively removed from the national conversation.
Online ad revenue has not, so far, come close to replacing the lost hard copy advertising income. As the Financial Times' Rob Grimshaw calculates, it takes 4 billion page views a month to produce $50 million a year -- which, as I calculate it, means a return of roughly 1/10th cent per page view (if that's something that interests you).

The Times supplies no details. It says it will fill us in on those later this year, or early 2011. But it refers to a "metered" service. If it means that literally -- that the reader will owe an incremental amount more for every story hit on, or every word displayed on the screen (for stories that carry over multiple screens) -- I predict it will fare no better than TimesSelect. There are many ways of "reading" the Times' relatively thorough (long) stories: glancing at a headline, reading the lead or the first few grafs, scanning the entire story, or reading it carefully word for word. Although the quality and value of each of those approaches varies widely I don't know how they can be variously monitored, metered and priced.

What readers have shown a willingness to pay for so far are online services that are essential to their lives or professions, or actually produce money for them. The Financial Times and Wall Street Journal are two examples of newspapers that many people in the business community, banking, investing, and some academics (e.g., corporation and securities law professors; business college faculty) simply must read every day if they are to hold their jobs, let alone prosper. Moreover, since those in business are relatively wealthy to begin with (and some academics get discount subscription rates) the added daily cost of the paper (hard copy, online, or both) is of no more significance to them than a second cup of Starbucks coffee.

As for the rest of us, Consumer Reports is an example of a magazine that pays for itself many times over -- hard copy, online or both -- for millions of American consumers smart enough to know it's not true that "you get what you pay for," and want to go into the marketplace (brick-and-mortar or online) fully armed with the facts.

When a friend asked me why I listened to the BBC during the night, I responded without thinking, "Because I like to be informed." (He laughed. It is an odd habit, I admit; but the BBC seems to be the only source of journalism that regularly reminds the listener that there really are more than five or six countries in the world, and that those nations' most important stories are not always wars and natural disasters.)

How many people are there who are equally compulsive about their desire "to be informed" -- about matters beyond their work or potential future income? More significant, how many of them are willing to pay -- in the quantity and way that the Financial Times' and Wall Street Journal's readers are -- for the mere, non-remunerative satisfaction of being generally informed? And even among them, how many are willing to pay one source when other, somewhat similar sources, remain available for free?

I don't know the answers. I don't even know all the questions. But the Times, and the rest of us, will at least have some of them 18 months to two years from now.
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source, even if I have to embed it myself. -- Nicholas Johnson

1 comment:

John Neff said...

Good column Nick.

I would like to see the NYT continue to publish so I hope that they are able to find a solution to their finical problems. If they charge between $1 to $2 per week I will send them a check and hope that it works. If they charge more than that I wait and see what happens.