Arnold Kling  

The Elusive Pricing Model for Journalism

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Joshua Gans discusses a pricing model for long-form journalism that appears to be i-tunes-ish.


Put simply, $0.99 makes sense in the world of $0.99 but it is less clear it will carry the weight in the would of free.

I have been thinking about this problem ever since Varian and Shapiro's Information Rules (and indeed before that, because Hal Varian had stimulated my interest in it).

My first thought was the micropayments were the answer. However, Clay Shirky made a convincing case that "mental transaction costs" with paying a few cents per article were too high.

My second thought was bundling. Over ten years ago, I wrote,


the "silo" model tries to maintain an anachronistic wall between the content in one silo and content in other silos. In the world of physical magazines, it certainly makes sense that a subscription to "Business Week" does not entitle you to read "Forbes." Clearly, they are two separate physical collections of paper.

On the Internet, however, this distinction is not a physical necessity. Most consumers in fact pick and choose articles from a variety of online magazines. In contrast to the physical world, consumers can engage in extensive content aggregation without imposing meaningful costs at the margin.

I proposed instead that as a consumer you would pay an annual fee to belong to a "club" that allows you to access many journalistic efforts at once. Today, I could see Amazon adopting that model.

A few years later, I decided that patronage was a more likely model. I wrote,


In the future, it may very well turn out that both independent journalists and newspapers will require philanthropic support in order to operate. At that point, newspapers, with their high overhead, will be less likely to survive than independent journalists. However, I am sure that the New York Times and a few other newspapers will have sufficent nostalgia value in the eyes of some future wealthy mogul to ensure ongoing funding.

Note that the venture Gans is discussing was launched with what I call the micropatronage model.


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COMMENTS (14 to date)
Bruce Bartlett writes:

It sounds to me like you are suggesting the Netflix model for journalism.

Mark Little writes:

Just curious. From your research on this, do you know what the business model of premodern, preurban, newspapers was like? Were newspapers in 18th and first-half 19th century America profitable businesses, or were they largely vanity projects of wealthy publishers or subsidized by political factions?

(Delivery costs must have been very high, but I think the practice back then was for the recipient to pay the postage.)

Note that some journalists, such as Michael Yon, do seem to fund themselves from reader donations.

E. Barandiaran writes:

Arnold, do you know of any U.S. library that has adopted the club model for academic journals and to which one may access paying a fee?
Thanks.

Jake Russ writes:

An example for you:

Baseball writer Joe Sheehan is making his living with an independent e-mail newsletter, instead of belonging to a more established news site. He seems to be making it work with PayPal as his payment mechanism. His 'experiment' has been going on a few years now and his estimate is that 1500 people will pay him $29.95 for the 2012 subscription cycle.

N of 1, but there you go.

Andreas Moser writes:

I try to solicit donations from my readers by promising extra services to those who do and by trying to exploit the "community spirit": http://andreasmoser.wordpress.com/2012/01/29/paywall/

So far, I only received 2 donations though. :-(

Grant Gould writes:

Amazon already has adopted that model for back-catalog movies and TV (Amazon Prime Instant Video); it would surprise me if they weren't also pondering it for more recent (and expensive) media as well if it proves a success in its initial form.

Chris Koresko writes:

These are some interesting ideas, and as plausible as any I've seen so far, but I'm still not convinced.

The first question I have is whether it can be demonstrated that the existing “Big News” organizations should survive. Their defenders will claim that they represent a fundamentally necessary part of our democratic system. Is that true? Or would something else -- like the blogosphere, for example -- be an adequate (or superior) substitute?

I don't know much about the origins of our current media system, but my impression is that in the early days of this republic there were a plethora of small newspapers and pamphleteers intensely competing with each other. The subsequent consolidation was driven by... what? The economies of scale in printing and distribution? If that's it, then the Internet might naturally be expected to reverse this consolidation, tearing down the centers of power and giving rise to a cacophony of voices. Can that really be called market failure?

It also hasn't been demonstrated that the value of the Big Media products is actually better than what's available elsewhere.

The old system in which the news was created and distributed by a relative handful of large organizations made it possible for the public to be kept ignorant of significant events. We've all heard horror stories of unreported or misreported events which were “outed” by bloggers. Remember the Lewinsky affair? The ACORN videos? The two hundred billion dollar manned Mars mission? The D.C. snowball fight? Before the blogs, the Big Media could effectively make news disappear, and they did it. Even Stalin's “man-made famine” and some of Saddam's abuses went unreported until long after the fact, apparently because reporters agreed to suppress them in exchange for access to the dictators.

That effect becomes a lot more dangerous when Big Media shows a strong bias toward one political party and one political philosophy, as the modern Big Media do, and when government seeks to define whom among the media count as legitimate news sources, as the current White House does.

It seems to me that attempts to preserve the status quo are misguided.

Bob writes:

I'm curious how this relates to the theory that in well functioning markets things should always be sold at marginal cost. The marginal cost for an extra pageview of an online article is effectively zero. So the cost of delivering news is dominated by fixed costs, and the supply curve should slope downward. If you can get more people to pay, you can charge them less each.

Has the "markets always price at marginal cost" theory been superseded by some newer theory that explains the market behavior of good that have zero marginal cost? Or is this an unexplained wrinkle that economists sweep under the rug? Or is there some other explanation?

Thomas Esmond Knox writes:

"It seems to me that attempts to preserve the status quo are misguided."

It seems to me you could test a few glossary hedges in there.

Nevertheless, I like it.

But what does it mean?

Jim writes:

It is time to consider that given the 'free' access to specialists and experts in virtually every field, we no longer require journalist 'intermediaries' in the number we now have.

Especially since most of them are determined to skew the facts in favor of child-like shallow cultural memes.

I suggest that all pricing and 'news' strategy mechanisms begin there, which implies a number of workable and profitable restructures given the low price of technology:
- value-added aggregation with related links and historical access.
- direct expert opinion.
- disciplinary niches.

Journalism must change. There is almost no value add to existing on-line newspapers; even their historical database (which costs them almost zero) is behind a paywall, one of the only reasons I might actually visit them. They have leveraged their data not at all, which is one of their competitive advantages.

Their coverage is 2 inches deep because they turn every story into the Enquirer version. Even their life and living sections are now mostly outdone by Internet specialists who have found a way to profit from their online models.

They deserve to go away. Innovators will replace them.

Daublin writes:

I have the same response as Chris. While it is very interesting to think about how to fund journalism in the Internet age, but the word "journalism" invokes all kinds of media that I'm not sure are very good to begin with.

Blogs are already such a good replacement for traditional media that the additional value to be added is relatively small.

For interesting economic models for selling the written word, I would think more about book-sized works. Fiction and non-fiction. The same arguments apply, but the content of the works being exchanged is more clearly valuable.

Kevin Driscoll writes:

I think blogs are great, but there is definitely room for a better blog experience. Most blogs you go to have only the content created by that author, accompanied by links to similar blogs and a comments section. This model works pretty well, especially for independent writers, but I think there is room for the Facebook of blogs.

The biggest thing I think they can add (after thoughtful and enjoyable posts) is a sense of community. You could do a lot to foster more discussion between users and funnel people to other blogs through the discussion. I also think no one has nailed the online discussion UI. Forums and comment sections just aren't very good for debating or having a conversation.

Rivals.com seems like a good example in the field of sports journalism. They charge a monthly fee for 2 primary things. The first is the community and forums which allows interaction among fans of one team and harassment of fans of other teams. The second is they leverage their scale to cover more athletes in more depth at the college level than individuals could. I love South Carolina football and I'd get a lot more from Rivals then from the local paper, ESPN, or the University itself.

Sam writes:

What about the flattr model of micropayments? [ http://flattr.com/ ]

As a user, I decide on a monthly budget, say $40.00/mo. When I like an item (article/picture/drawing/joke/whatever), I click the flattr button on the creator's website. At the end of the month, my budget is split between creators in proportion to my total number of clicks.

It seems to be working, and it addresses two big problems with micropayments - 1) high transaction cost of individual payment and 2) risk of exceeding budget in a period.

[url revised. Please do not submit private--including secure--urls to which you may be privy as a subscriber to a site. If a url reads "https" rather than "http", that probably means it's a url that is private to you and unavailable to other readers.--Econlib Ed.]

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