Clay Shirky – The Paywall Problem

by peterjukes

The “paywall problem” isn’t particularly complex, either in economic or technological terms. General-interest papers struggle to make paywalls work because it’s hard to raise prices in a commodity market. That’s the problem. Everything else is a detail.

The classic description of a commodity market uses milk. If you own the only cow for 50 miles, you can charge usurious rates, because no one can undercut you. If you own only one of a hundred such cows, though, then everyone can undercut you, so you can’t charge such rates. In a competitive environment like that, milk becomes a commodity, something whose price is set by the market as a whole.

Owning a newspaper used to be like owning the only cow, especially for regional papers. Even in urban markets, there was enough segmentation–the business paper, the tabloid, the alternative weekly–and high enough costs to keep competition at bay. No longer.

The internet commodifies the business of newspapers. Any given newspaper competes with a few other newspapers, but any newspaper website compete with all other websites. As Nicholas Carr pointed out during the 2009 pirate kidnapping, Google News found 11,264 different sources for the story, all equally accessible.* The web puts newspapers in competition with radio and TV stations, magazines, and new entrants, both professional and amateur. It is the war of each against all.

None of this is new. The potential disruptive effects of the internet on newspapers have been observable since ClariNet in 1989.* Nor has the business case for paywalls changed. The advantage of paywalls is that they raise revenue from users. The disadvantages are that they reduce readership, increase customer acquistion and retention costs, and eliminate ad revenue from user-forwarded content. In most cases, the disadvantages have outweighed the advantages.

So what’s different about News paywall? Nothing. It’s no different from other pay-for-access plans, whether the NY Times’ TimesSelect* or the Harligen Texas Valley Morning Star.* News Corp has produced no innovation in content, delivery, or payment, and the idea of 90%+ loss of audience was already a rule of thumb over a decade ago. Yet something clearly feels different.

Over the last fifteen years, many newspaper people have assumed continuity with the analog business model, which is to say they assumed that readers could eventually be persuaded or forced pay for digital editions. This in turn suggested that the failure of any given paywall was no evidence of anything other than the need to try again.

What is new about the Times’ paywall–what may in fact make it a watershed–isn’t strategy or implementation. What’s new is that it has launched as people in the news business are re-thinking assumed continuity. It’s new because the people paying attention to it are now willing to regard the results as evidence of something. To the newspaper world, TimesSelect looked like an experiment. The Times and Sunday Times look like a referendum on the future.

via Clay Shirky.