The media industry needs to get healthy but we won't get there if we think about the Internet as the reason that consumers have stopped paying for content. Instead, we need to take a dispassionate view of mass media content and ask ourselves why the Internet is a reason that consumers should start paying for content.
A Brief History
For 30 years, the people closest to the leading edge of digital media have discussed the best way to get the user to pay for content.
Only about 10 percent of the total information collected everyday in the newspaper's newsroom and features desk...is actually used in the paper, and yet, according to most surveys, the reader only reads 10 percent of what has gone into his paper. It seems, therefore, the whole agony of distribution is undergone in order to feed each reader just one percent of the material that has been so expensively collected.("Goodbye Gutenberg" Anthony Smith, 1981)
That was 1981! Today, the relevant way to paraphrase Mr. Smith's insight is; the reader willingly pays for access to an infinite amount of content even though they are only able to absorb the tiniest slice of what they pay for. This makes sense. The audience for mass media cannot be expected to predict which content they will want to see in the future. Breaking news, new needs, time management and serendipity play a role in the content the consumer decides to ingest each day. The value of mass media to the consumer is much greater when they do not have to micro-manage their needs.
The holistic view of mass media overwhelmingly suggests that consumers are easily persuaded to pay for distribution but only rarely do they pay for content in a specific and direct manner. Advertisers underwrite content while consumers pay for distribution services.
The insight matters because we need new ideas that will get the consumer to help pay for content in the digital era. To get there, we need to develop strategies with the opposite mindset of what is currently in vogue. We need to stop blaming digital technologies as the reason that consumers stopped paying for content and recognize that digital technologies may actually be the opportunity to get the consumer to pay for content when they were never willing to do so before.
As the Internet grew up, it seemed like charging for content was a question of finding the technology that would make the payment easy for the consumer. The follow-up question seemed to be how much we could charge for media content. But, we reached the point where the payment could be "one-click" and the price could be pennies yet we never did figure out how to scale the idea of charging the user for content. It turned out that the challenge was the premise of the whole idea.
Advertising revenue ramped up and the urgency of these questions died down until recently.
Today's Sense of Urgency
With newspapers going out of business on the one hand and TV programs showing up all over the broadband Internet on the other, media companies have returned to this question of getting the consumer to pay for content with a new sense of urgency.
Walter Isaacson has been savvy enough to dive right into the middle of this critical challenge by telling the newspaper industry what it wants to hear.
There is, however, a striking and somewhat odd fact about this crisis. Newspapers have more readers than ever. Their content, as well as that of newsmagazines and other producers of traditional journalism, is more popular than ever -- even (in fact, especially) among young people. The problem is that fewer of these consumers are paying. Instead, news organizations are merrily giving away their news. According to a Pew Research Center study, a tipping point occurred last year: more people in the U.S. got their news online for free than paid for it by buying newspapers and magazines. Who can blame them? Even an old print junkie like me has quit subscribing to the New York Times, because if it doesn't see fit to charge for its content, I'd feel like a fool paying for it. This is not a business model that makes sense.("How to Save Your Newspaper" February 5, 2009)
Traditional media pundits like Mr. Isaacson seem to be having some kind of epiphany that the Internet destroyed paid content. The digerati are trying to be empathetic while pointing out that they have tried all manner of things without success.
It is popular to blame the Internet. It is easy to say that the consumer should pay for quality content and then wash our hands on how to make that happen.
The reality is that the audience never paid for newspaper content. The audience paid the newspaper company to deliver the paper to their door and now they are paying an Internet Service Provider for distributing the content to their computer. The audience is still paying for distribution; they are just migrating to a digital distributor because it is better, cheaper and greener than newsprint.
Media Consumers Never Paid for Content
Step back and try to confirm Mr. Isaacson's premise that consumers paid for mass media content in the analog era. Set aside non-mass media (books, movies, and music) and there isn't much evidence to support his premise. While the consumer never articulated what they would pay for in the past, actual behavior indicates that advertisers have always paid for the content and the consumer has always paid for the distribution of the content.
In TV, the consumer paid for the hardware -- the TV and the antenna -- that made distribution possible and got all the content for free. In the Cable TV era, the consumer paid the distributor of content a monthly subscription fee but continued to get the content for free. Throughout this entire era, the advertisers paid for the content and the consumers paid for the distribution. Radio is the same.
Consumers pay for electronic media without linking their investment directly to content. The idea that a consumer would challenge his cable bill because NBC dropped his favorite prime time show is incomprehensible.
Just like Mr. Smith's observation about newspapers, we see the consumer paying for the distribution of content even though the amount of content they use is a very small fraction of the amount that is distributed. Paying for content "al a carte" is an awkward concept for the consumer. When it comes to mass media, the consumer doesn't even buy "prix fixe," they buy everything on the menu and just eat whatever they feel like at the time.
The same holds true for magazines and newspapers. The consumer is paying a fee for the effort it took to gather all the content in one place, get it printed on paper and then get "all the news that's fit to print" distributed conveniently.
As printing technologies became more sophisticated, some consumers received different editions of a magazine or newspaper than did others. Sports Illustrated started including expanded golf content that went only to the readers who were avid golfers. But the avid golfers did not pay for the extra content, the advertisers did. When big newspapers started creating customized local sections, the subscriber was never asked to pay for it. It wasn't just that ad revenue was easier - it was evident that the audience did not want to manage this kind of content/price decision at all.
The growth of online media revenue aligns with the history of analog media. The ISPs were the distributors of the content and they had little trouble getting the consumer to pay. The content that was delivered to consumers, although unique in many ways, was free. Advertisers got involved and that was how the content got paid for.
The Internet did not change the fundamental dynamic.
Examples from the Modern Era of Media
NETFLIX: Blockbuster monopolized the home movie rental business but never realized that they were benefiting from a narrow window of media transformation. Blockbuster charged for the movie itself so the foundation of the business was an Achilles heel. Going to the store put too much of the distribution burden on the consumer and having to pay for specific content during specific windows of time was a less than ideal consumer experience. Netflix went the other way. Netflix charges a monthly subscription fee for distributing movies to your home via the mail. The fee is the same if you keep one movie in your home for 3 months or if you mail movies back and get new ones every few days. The consumer pays for a distribution method and there are no fees specific to the way that they tap into the content. Even with the limitations of snail mail, this was an idea that allowed David to defeat Goliath because the core consumer insight was better.
AOL: In AOL, we have the complete picture of distribution and content in the digital era all in one Petri dish. AOL was a huge success thanks to its subscriber model. At its peak, AOL had more than 20 million homes paying something like $20 a month for AOL. It was a sweet business but it was a media distribution business. AOL was a leading ISP in the dial-up era. In order to fuel their distribution business, AOL used its cash flow to flood the consumers with dial-up era content. With email, entertainment, recipes and rich magazine style content, AOL fed their subscribers 100X the amount of content that any one dial-up user could ever hope to experience. They did it very well. But, as AOL lost its role as a distribution provider, it clung to the notion that it could hang on to subscriber fees because of its compelling content. Even with their going-in advantages to convert the consumer to arrangements where they paid directly for content and with many of the best minds in the Internet and media businesses all focused on this objective, clinging to the false notion that consumers pay for content nearly destroyed the company. Only when AOL threw in the towel and committed to a model where advertisers paid for the content did the company begin to climb out of the deep hole that it dug for itself.
KINDLE and the iPod: It's too early to draw conclusions with certainty, but e-readers appear to be an effective method to get newspaper and magazine readers to continue to pay a subscription fee for content. This is a new form of distribution that blends the benefits of the legacy form-factor with the advantages of digital technologies. If the consumer likes a new distribution solution, that can go a long way towards getting them to pay for the content more directly. The iPod did this for music. The music industry had to get used to the idea of making less for content than it did in the analog era but they all signed on when the alternative was that music would be free. Apple has a big success because they are selling a brilliant integration of content and distribution. Kindle type devices can do the same thing for books, magazines and newspapers. The hardware manufacturers profit because they offer a new and better distribution system. The "printed" media gets a new lease on life because the consumer starts paying more directly for their content.
Exceptions that Prove the Rule: There are exceptions to the principle that consumers don't pay for content. However, the scope of these exceptions represent a rounding error in terms of total revenues generated by subscriber fees for distribution and advertising revenues that underwrite content.
One exception worth exploring is the consumer's willingness to pay big money for an entire year's worth of episodes for a TV show that has already aired. Some years ago, Nielsen did a survey of college students to see what the most popular TV shows were on campus and "Family Guy" was #1. That was awkward because "Family Guy" had been cancelled the previous year. It turned out that "Family Guy" episodes were being passed around on DVDs the students had brought to school with them. From the point of view of the college students, this was just a different manner of content distribution; they didn't assume that the surveys only wanted to know about broadcast distribution.
Paying for a whole season of TV shows all at one time in order to watch them whenever you want, as often as you want and with no commercials is a successful example of selling the content - or is it? For the slice of consumers who do this, it appears that the TV broadcast is more like a sampling opportunity. These consumers have decided that the traditional distribution method for these shows is no longer the best method for them. So, whether it is via their iPod or their DVD, they are willing to pay specifically for the content if that gets them a much preferred method of distribution.
This makes sense. Many TV shows today like "24," "Lost" and "Heroes" have complex plots which unfold over many connected episodes. A portion of the fans for these programs find it hard to fully appreciate the shows via their orginal distribution. One episode a week, available at a time determined by the network and filled with long, distracting commercial breaks is simply not a satisfactory distribution solution for this kind of programming. But, the content remains very appealing to some viewers so they are happy to pay for a better form of distribution.
Where to Look for Opportunities
When we start with the premise that consumers haven't paid for content in the past, we gain visibility into new ideas that make sense for the digital era.
It's not micro-payments alone that will save the future for professional quality media content. On the other hand, the idea that the consumer will always pay for distribution that massively over-serves their needs is not a foregone conclusion either. Paying $2500+ per year for cable/broadband/telephony/mobile in order to gain access to a million times more content than you could ever possibly need is not going to work out so well for the media industry either.
We need solutions that improve the relevance of content for individual consumers without expecting individual consumers to be able to predict exactly what they want. The Internet has exploded the supply of content but digital technologies have only just begun to filter and sample that content for the consumer in an effective manner.
Content providers who used to enjoy control over the method of distribution are feeling a lot of pain but their content remains vital and appealing to consumers. Rather than stomping our foot like Mr. Isaacson, it is better to focus on new solutions that tie content and distribution together in ways that create great consumer experiences.
We don't know what the other side of this transformation will look like but we have guidance;
It is time to think about distribution and content holistically. Digital technologies are not the enemy, they are an enormous opportunity to improve the relevance of content to the individual consumer. Don't think so small as micropayments for one article at a time and don't take for granted the current ability to charge a big fee for massively over-delivering irrelevant content. Look in the middle.
Somewhere in between asking the consumer to buy content "al a carte" and asking the consumer to pay for the whole menu, new "prix fixe" solutions are going to mature.
A Final Word from Our Sponsor
While we are at it, let's not lose sight of the value of the advertising supported model. We are in the middle of a complex media transformation and a brutal recession. At times like this, pundits like Bob Garfield want to convince us that advertising is dead.
Advertising works. In the digital era, the consumer finds it very easy to ignore irrelevant advertising but they are quicker to engage with relevant advertising than ever before because the Internet makes engagement easy.
Be careful not to throw the baby out with the bath water in pursuit of the goal of getting the consumer to pay for the content. The advertiser remains happy to assume that role so long as we can offer a reasonably scaled and engaged audience. We just need to apply our new resources to help the advertiser better align their message with the right consumer at the right time.
Media companies can create new and better advertising values and it will still command a premium relative to the costs of distribution. Now that digital efficiencies have greatly reduced the cost of distribution, media companies need to look hard at the overhead that is a hangover from the analog era.
Some legacy media executives complain that they are trading analog dollars for digital pennies as advertising moves online. That is a valid concern so we can't drag our feet when it comes to rethinking overhead costs from analog dollars to digital pennies as well.
We can reduce overhead, improve advertising value and find new consumer revenue models built on interesting combinations of content and distribution all at the same time. We need to be more disciplined about who the consumer is and what they really want as we build our new solutions, but the solutions are just waiting for the imaginations of new media moguls to find them.
Digitally, Location Is Where It's At
Wall Street Journal Aims to Win Over The New York Times's Local Audience
Loading comments… 
I especially liked your point that in digital media advertisin
Thanks for your effort.
95% of display ads are designed to generate a click which is why they are avoided. It is kind of amazing how many advertiser
By the way I love the fact that I can avoid FIX and Drudge and others just like I would avoid Prunes and Beets.
(No offense meant to prune and beet lovers.)
Now I promise to stop beating this analogy to death :-)
With the iPod, not only do you not have to buy a physical recording- you can just buy a few songs and not the entire album if that is what you want. You don't have to buy batteries for it. The idea of less physical stuff but the same musical connection is really appealing to a lot of people and I think that is one reason for the iPod's success.
Michael Kinsley made this observatio
"...let's look again at this notion that in every medium except the Internet people pay for the content they consume. It's not really true.
"...A few weeks ago a producer from Nightline contacted Slate while researchin
But, I'm not sure what you mean by saying in your piece, "We need solutions that improve the relevance of content for individual consumers without expecting individual consumers to be able to predict exactly what they want."
It strikes me that the Internet IS the solution for relevant content when consumers know what they want and need. What do you believe needs to be different or improved about the Internet to make it more relevant?
Regardless
The relevance of Internet content represents the advantage to consumers and advertiser
Here's what I meant about consumers not always knowing what they want; the news is much more than what we would have predicted we would want. Many Cornell alumni had no idea how interested they would be in sports news until their team made it to the Sweet 16. Many times I find myself reading a fascinatin
Serendipit
It's really had to charge for that kind of value and yet it is such a big part of the experience that great media properties create.
But, this becomes the purpose of having integrated media plans in the world that take advantage of, say, the serendipit
I agree with the others. Good conversati
"The advertiser remains happy to assume that role (of underwriti
Reasonable scale and engagement may have been enough for the profession
Unless and until the Kindle-lik
News is widely available in media that are already owned or subscribed to by the consumer (radio, cable), and renegade providers will keep it so; disseminat
Seems to me that providers are going to continue to be dependent on advertisin
Sadly, I think legacy media will chase after advertiser
Good bloggers already get it. Game developers