-By Patrick Ruffini
In this space yesterday, Scott Cleland laid out an argument for why business should launch a “counter-movement” against the ongoing revolution in media and the distribution of digital content, writing:
The recession has created new urgency for multiple content industries to find a better way to protect and monetize their property/content in the digital world. The dot-com bubble ethos that “information wants to be free” is like a gross mold destroying the incentives to create valuable content and distribute it digitally.
Cleland defends the business models of traditional media concerns like the New York Times, CBS, and MSNBC who generate $40-60 in revenue per user as exemplars of the “real economy” as contrasted to the pennies on the dollar per user generated by many Internet companies (the “ecommony” or digital commons). It’s easy to laud old media for how well they monetize their audience — until you run headlong into a profit-and-loss statement.
Conservatives and free-market advocates should want no part of a rearguard defense of old business models built around pre-digital media. (Indeed, many on the right will feel a certain sense of schadenfreude at old media’s decline, given traditional newsrooms’ bias against conservatives.) Above all, the free market is about enabling disruptive innovation — and like legacy industries before it, traditional media will once again be forced to adapt or die. This isn’t a socialistic commons. It’s the free market deciding that it wants to easily access any piece of content from a multitude of online sources, as opposed to in print or on TV or in online walled gardens, where distribution is closely circumscribed by geography or an elite group of editors deciding what you should read or watch.
Traditional media is bearing the full brunt of a tidal wave that’s just crashed ashore as a sinking economy has left them more vulnerable than ever. Just last week came the news that the Rocky Mountain News was ceasing publication, and the same fate may imminently befall the San Francisco Chronicle and the Seattle Post-Intelligencer as they decide whether to shut their doors or move to online-only. The causes of old media’s decline and the blogosphere’s rise are fundamentally rooted in a marketplace that has revolted against old media gatekeepers that limit your access to information.
Francis Cianfrocca captures this dynamic in a recent piece for The New Ledger:
Many journalists absolutely do see themselves as a coequal branch of government, the fourth estate taking its rightful place in the grand scheme. They are confident in their abilities and dismiss outside voices as inconsequential or irrelevant — even if their audiences are much the same in size. They believe themselves to be the arbiters of taste and judgment — one of the facts that helps explain their mad, bloodthirsty frenzy to exterminate those who owe them nothing but still manage to capture the public’s attention (the most recent example being Sarah Palin).
What can give rise to such an insular culture? Lack of competition. The rise of broadcast and telecast media, with partial public subsidies, is what enabled Columbia School journalists to act like they run the world. Now that they face real competition from the Internet, and the print media’s revenue model has been eliminated by Craig’s List, there’s no way for a strictly vanity-based, “substantive” press to survive.
The central problem in the newspaper revenue model lies in its awkward asymmetry. Newspapers sell ads not around content — though there is that too — but through classifieds set apart from content. Classified ad space is not particularly prestigious or special — like say, a one-page print ad in the New York Times — but for its ability to reach a large audience. Under the old model, a postage stamp sized ad in 4-point font could cost as much as $100. Craigslist lowered this to zero by removing the barrier to entry and making the ads searchable, charging only for a small fraction of ad listings in key markets — since it didn’t have any big newsrooms to subsidize. The result is that a large swathe of the market for classified advertising has been collapsed to the estimated $80 million Craigslist earns in revenue. Craig’s headcount? 24 people, or over $3 million in revenue per employee.
Craigslist is not a “gross mold” but a categorical efficiency. Old media has been checkmated not through trickery but through a better mousetrap built by new media.
In many ways, the newspaper industry is where the recording industry was ten years ago, when teens were swapping free MP3s — an example of a lawless commons if there ever was one. Digital downloads have since evolved to a viable paid model led by the iTunes music store — proving that most people will choose to pay for premium content, even when they could get it elsewhere for free. And smart artists are realizing that giving away tracks or allowing their sale for $0.99 is a gateway to a more lucrative revenue stream in concert tickets and merchandise. The transition is messy and ongoing, and traditional gatekeepers (the record labels) have been undermined, but the players that embraced the shift are finding that it is possible to make money in an Internet economy.
Using Cleland’s model, where traditional media generates far more revenue per subscriber than the Internet, it’s a wonder that old media companies are failing right and left while new media is still on the rise. A big part of the difference is that Cleland is comparing apples and oranges. Traditional media produces content and distributes it in a one-to-many manner which creates tremendous overhead. Internet companies like Google (for whom I consult), Facebook, and eBay-owned Skype are not content producers, but companies specializing in particular segments of online activity (search, social networking, auctions, online telephony). This means a larger customer base and no editorial staff, hence lower costs. Why would free-market conservatives have a problem with innovative business models that do more with less and actually generate profits?
Old media itself will have to undergo a similar shift if it is to survive, one that does not involve erecting new walls around content. In many cases this will mean the death of the print edition and a more focused online product. (Silicon Alley Insider recently reported that the New York Times could buy a high-end Amazon Kindle for each subscriber and deliver the paper wirelessly cheaper than it could actually print the paper.) The age of newspapers as an unwieldy mish-mash of hard news content, classifieds, and plain fluff is over. For the sake of the paid MSM journalism Cleland is so concerned with, traditional media will need to evolve. As a free-market conservative, I’m eager to see how traditional media innovates out of its current crisis.