Are Credit Cards Killing the Future of News?
I was reading a blog about the connection between paywalls and democracy.* I had a couple of issues with it:
- Seriously, is it so hard to make a site not look like it's from 1995? I'm having post-boyband-trauma-stress-disorder induced by the font alone.
- He doesn't actually make the case that there is a connection, simply asserts it and then says some tech-hatey stuff.
But, I believe there is a connection. I also believe that there is an important place for professional news in open societies. Finally, I believe that the credit card model is detrimental to the evolution of news.
Professional News
Please note: this is not about "traditional" media vs "new" media. The distribution platform is immaterial. This is about professional journalistic organizations versus "citizen journalists". There have been many more and better people who have talked about the role of professional journalism. Just like the ubiquity of cameras doesn't make everyone a photographer, the ability to broadcast or post, doesn't make everyone a journalist. In my view, there are certain types of stories in which citizen journalists have an important role.
But there's a type of story that requires patience, resources, and skills that aren't available to just anyone. As importantly, in order to serve their real function of making more facts available for the public debate, stories have to be written by someone who's not being sponsored by any part of the issue and they have to have the credibility that only comes when you are consistently right and have something to lose by being wrong. (Look at the list of Pulitzer Prize winning stories and ask yourself whether an independent blogger could have been able to write these stories. Or whether an independent person willing to commit the time and resources to writing these stories would be impartial.
The business model of news
CraigsList started the decimation of the newspaper business model. Classifieds used to be a major driver of income for newspapers. But then classifieds were free, real-time and open to anyone with an internet connection. The newspapers didn't see it, because like most businesses, they courage and energy it takes to change is more than the ability to form hypotheses about why the change is just a fad.
But, if the newspapers don't have to pay for the physical production and distribution, shouldn't they be able to survive without that income? Well, let's assume (and it's a race whether a cost effective small-run printing or a reasonable alternative to print comes first) that physical papers are cost neutral (the amount of money to produce and distribute can be completely offset by the amount paid.) That still leaves the production of the news. The journalists, the editors, the fact-checkers, the designers, the photographers. All these cost money.
But aren't those paid for with advertising? Well, when the means to produce and distribute become cheaper, there is more competition. But advertising works off a volume model. And since the internet champions the idea that "information wants to be free", news gets lifted and republished and excerpted and people don't go to the original.
So you get news that is part of a recirculation strategy. Yahoo! and AOL have become respectable news sources, though their strength is mainly in finance, sports and entertainment. But their model is subsidized by habit-forming products (i.e., mail) and highly monetizable search.
Does that mean that the NYTimes, the Washington Post and SJ Mercury News are doomed? Or will they be co-opted by online companies? Is journalism meant to become the transcripts of television reporting?
Well, this post is not about the future of news media. If you want that, go read paidcontent.org - every day - or one of a hundred books on the subject.
PayWalls and credit card fees
This post is about my opinion about how a reasonable approach for the future of news is being blocked by a cost structure that people don't stop to think about.
I will assert that advertising alone is not sufficient to support professional news.
Here's some quick math: Let's assume the Average CPM for a banner ad is about $11 for a news article (the reality is much more complicated, but this is a reasonable number to anchor on). Let's assume that New York times gets a premium of $14. For their huge multimedia project "Snow Fall", they generated about 4MM page views (I'm adding in the tail.) Because it was such a big deal, let's assume they could get $100 for thousand impressions (that's what CPM means). That means Snow Fall would have generated $400,000 in gross revenue off of traditional ads. And that's considered a success story.
However, David Remnick recently noted that it cost the New Yorker about $500,000 to produce a recent big piece (I think it was about Scientology, but I have to admit that I heard him talking on the radio, so if I'm messing this up, please let me know). So, let's assume that Snow Fall was only $400K to produce. And what you're left with is that the best the newspapers can hope for is cost neutral.
But, you say, let's look at more innovative forms of advertising (as Om Malik suggests in his article about Snow Fall). Well, there are two problems:
- Innovative formats do not retain their premium pricing for long.
- "Innovative" advertisements start us down a pernicious path. There is nothing inherently wrong with "native advertising" (in fact, I'm a huge proponent that advertising, if executed correctly in its messaging and targeting, should be received as content), but there is a difference between advertising being received as content and advertising being presented as content.
Get to the point already - what does this have to do with credit cards?
Ok, so, now that we've ruled out advertising or classifieds as being able to support professional news on their own, what about people paying for it directly? And that brings us back to paywalls. The problem with paywalls is that they are still working on the model of news as a bundle. You need to pay a subscription to get access. Unless it's a specialized publication which can be a business expense, there doesn't seem to be a large appetite for this at the moment.
But what about a la carte pricing? What if I only want to read one more story after I reach my 8 per month limit? Not happening. Why? Well, how much would you pay for one story? We'll start at the iTunes bar: $0.99. Chances are, you're not paying that for a single story. Well, how about $0.25? That's less than what you'd pay for the physical paper. So, sure you'd shell out $0.25 for full access to that day's paper (or perhaps to the story as it progresses.) But how are you going to pay? Use your credit card.
What's the net on that $0.25? Well, for a high volume company like the new york times, they can probably get a good rate of 1.6%+0.30 per transaction. Oh, what's that? At $0.25 they lose money. As a matter of fact, to make the same $0.02 per page that they could make with a highly inflated advertising rate, they would have to charge closer to $0.40 (assuming that they have relatively low fraud rates). Now you get to a fundamental rock and a hard place. The willingness to pay number is below the breakeven number. Mainly because of the credit card pricing models. (And let's be clear: PayPal charges pretty much the same, even though their model is based on getting people to pull out of their checking accounts, which has a very low cost, and charging merchants as if everything were credit card.)
So, what are the options?
There are other ways of managing
- create a credit system, where you have to put in a minimum of $5, but you can pay out of that in smaller increments
- there are different options, like Dwolla, that could potentially be used to manage these types of microtransactions
- work out a different agreement with the credit card companies (perhaps get a partnership where only one type of card is accepted)
- skip the whole concept and stay with bundled pricing
- charge a one-time only fee. A person who self-identifies using a credit card provides a lot more information about themselves which can be used to get higher CPMs for advertising (because the ads can be better targeted, rather than this search retargeting, which just gives you ads based on searches you did recently.)
- Make a deal with a payment processing company in which they waive the set fee and charge only the percentage - in return, the processor can monetize the data differently
It is more likely that we will see some issues arise with the ways advertising tries to "innovate" in the news (to be clear, I believe that news is different than entertainment in this regard. As annoying as product placements may be in video games and tv shows, it's not pernicious). When these issues start to erode the trust that people have in news organizations, it will lead us back to a place where we will see direct payment. But that path will be slowed as long as the price remains high. The price will be perceived to be high as long as it persists in the current bundled format.
Let's hope that this can get figured out before it comes to that.
* Ironically, I went back to the article today and discovered that it's behind a paywall. They're asking €4 for access just to that article. Good luck with that.