Kieran Levis.com

15 November 2009

The sharpest comments I’ve seen on Rupert Murdoch’s latest pronouncement  were from Cory Doctorow on BoingBoing and John Gapper in the Financial Times. (In an interview, which is available on BoingBoing, Murdoch said that he planned to charge for the content on News Corp web sites, and that he might even bar access from Google and the BBC, who had been ‘stealing’ stories.) You’ll have no difficulty finding Doctorow’s brilliant blast, since BoingBoing would no sooner put a price on its pages than it would ‘tear heads off adorable baby animals’, but if you’re not a subscriber to ft.com you might not be able to read Gapper’s measured analysis .  The FT is one of the very few newspapers that gets away with charging for its content online.

‘Gets away with’ might suggest that I’m in Cory’s camp on the philosophical debate about freedom of information and whether it always ‘wants to be free’. I am mostly, but we’re talking about at least two different kinds of freedom here – free as in love and free as in lunch. The fundamental problems with charging for news content are practical rather than ethical: if you have something that is valued by readers and unique, you can charge for it; if you don’t, you can’t. It’s basically that simple, but a lot of media executives still don’t get it, or can’t quite bring themselves to believe it.

In the good old days, the media industry was special – it scarcely thought of itself as a mere industry, nor of what it sold as products, which scarcely competed with each other at all. Each book, each film, each newspaper title, each record was unique – works of art in some cases. There could be no adequate substitutes for unique objects, and their price supposedly reflected that unique value.

These illusions were shattered shortly before the Internet became a mass medium, when Microsoft brought out Encarta, an encyclopaedia on a CD-ROM, and in three years destroyed the illustrious Encyclopaedia Britannica’s business. Encarta was not just an inferior product – it was downright mediocre. But it was vastly cheaper – at most $50, and quite often free with the purchase of a PC – and it turned out to be good enough for most of the people who had been shelling out up to $1,500 for a complete set of Britannica.

For those who had eyes to see, this tragedy taught several lessons: that there were acceptable alternatives to even the most superb information products; that price is always important; that prestigious products are often over-specified for the needs of their customers; and that it’s extremely difficult to compete with someone whose business model is radically different from yours. Microsoft didn’t need to make money out of Encarta – it just wanted a reason for more consumers to buy PCs. Britannica’s model was built on enormous production costs and a large sales force. In a cut-price world both were unaffordable and the shrunken business that now bears the name is a shadow of its former self. The business model of printed encyclopaedias is broken.

As everybody now knows, the Internet has done much the same thing to news. Hundreds of sources are now available online and almost all of them are free. Why would anyone pay for content whose equivalent is available elsewhere for nothing? It’s no good blustering about those shameless thieves, Google and the BBC. Even if Murdoch were able to organise a cartel of press barons and persuade some people to pay to peep at the Sun online, there would always be free alternatives.

The fundamental reason why most information is now free is that it’s easy to copy, the marginal cost of transmitting it is close to zero, barriers to entry are low, there are hundreds of competitors and, in the case of news, customers don’t see that much difference between the products. Murdoch played a big part in commoditising his industry – in 1994 he started a price war that pulled most British broadsheets down market, where they have mostly stayed.

It’s not so much that information wants to be free as that it has to be highly differentiated before anyone will pay for it. The FT has over 100,000 online subscribers and the WSJ close to a million, but these are narrow markets where the product is uniquely valuable to customers and still these titles are nothing like as profitable as they once were. They at least have a good chance of surviving but most papers will die if they don’t find a radically different business model.

It is conceivable that a micropayments system will eventually emerge that will bring some succour to struggling papers: lots of clever people have been grappling with this challenge for a decade and a half now. But even if it comes off, it won’t restore the kind of customer loyalty and reliable revenues that once paid for so many good lunches.