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January 28 2010

18:03

The danger of the wall

The European, a German online news service, asked me to write a commentary for a debate on paid content. Here it is in German. And here’s the English text:

I have nothing against charging for content, if you can. After all, I’m selling a book. But I believe building pay walls around online news is a bad business decision.

The discussion about charging for content rises from a sense of entitlement—“we deserve to be paid,” which is an emotional argument—rather than from rational economics.

Charging is an attempt to replicate an old business model in a profoundly changed media economy that is no longer built on scarcity—on publishers’ control—now that everyone can publish. The new link economy rewards openness and collaboration.

Charging is also a distraction from the real goal: profitability and sustainability. We must rethink the entire ledger of the business of news, starting with costs, which must and can be reduced through collaboration, working in networks, and through the efficiency that comes with the specialization the internet demands.

More important, charging brings many costs:

• It creates the expense of marketing (when, online, your audience will market you for free, if you deserve it).

• It reduces audience.

• It reduces advertising revenue.

• It reduces links and clicks, which reduces Googlejuice, which reduces discovery, which limits growth.

But more than any of this, pay walls curtail a news organization’s relationship with its public, with its customers. On the internet, it’s in those relationships where value lies.

The New York Times plans to charge its best customers—its most frequent readers—while enabling what Rupert Murdoch calls the worst customers—those who stop by once from a search engine or an aggregator—to get what they want for free. That might make sense if you are selling a scarce resource: those who drink the most wine pay the most. But online, content and news are not scarce. They are the magnets that draw readers to you so you can build a valuable relationship.

Online also brings new opportunities to find value there. Hubert Burda said at DLD that Focus Online is profitable not because of advertising but because of ecommerce. The Telegraph in London brought in a quarter of its profit a year ago from direct sales of everything from clothes hangers to wine. So media companies are becoming in part, retailers. Does it make sense to put a toll booth at the door to your store to keep people out?

Once you have a lasting relationship, there are more ways to serve customers and make money. Some newspapers are holding events. Some are charging for education. Some are even selling real estate. But to do this, you need to invite, not drive away more readers.

There is one more cost to building a wall, a cost to journalism. Alan Rusbridger, the innovative editor of the Guardian in London, just delivered a monumental speech arguing that charging “removes you from the way people the world over now connect with each other. You cannot control distribution or create scarcity without becoming isolated from this new networked world.”

Rusbridger also warns that there are competitors lying in wait to step in when news organizations build walls. “Let’s not leave the field.” Rusbridger said, “so that the digital un-bundlers can come in, dismantle and loot what we have built up, including our audiences and readers.”

Charging could be dangerous business indeed.

November 13 2009

15:36

My advice to German media

I have an op-ed in today’s Welt Kompakt newspaper in Germany giving my advice to a German mediasphere that I see becoming more protectionist. It’s not online (ironically) but so you can see the play, a PDF of it is here and here. [Update: Here's the piece online.] This is my original English text:

* * *

At the Müncher Medientage, I spoke to 500 German executives from my home in New York and dared to give them some advice about their fate. I urged them to learn these lessons from watching American news companies shrivel and die: Protectionism is no strategy for the future. Every company in every industry (especially media) must be reinvented for the post-Guttenberg age—for the Google era. And the only sane response to change is to embrace it and find the opportunity in it.

I have been impressed with the innovation and openness to change I have seen in German media: Axel Springer shifted a large proportion of its revenue to digital; Bild equipped Germans with video cameras to report news; Burda invested in the networks Glam.com and Science Blogs; Holtzbrinck innovated in its incubator; WAZ created a world pioneer in DerWesten.

But when the times got tough in the financial crisis, I suddenly saw German media looking for an enemy to blame for their problems. The head of the Deutscher Journalisten-Verband called for legislation to condemn Google as a monopoly, an enemy of the press. Dr. Hubert Burda, a digital visionary I greatly admire, urged that copyright law should be expanded to protect publishers, whom he said deserve a share of search engines’ revenue. Chancellor Merkel is considering such changes in copyright. A group of publishers issued the Hamburg Declaration saying that all online content need not be free (though that has always been completely in their control).

Schade. In these pronouncements, I hear echoes of American media’s funeral hymns. I see companies resisting the new reality of the internet age by trying to preserve the old rules of their old industry. Take, for example, Rupert Murdoch vowing to put all his news properties behind pay walls just because that’s how media used to operate—when that will only reduce audience, traffic, influence, and advertising just at the moment when growth is needed most. He is even threatened to block Google. That is simply suicidal.

Though I sympathize with media’s economic nostalgia, I must say that swimming upstream against the internet is futile. The better idea is to go with the flow of the internet, to see and exploit its opportunities.

Rather than fighting Google, learn lessons from it. Google understands the new economics of media. That is why it is successful—not because it exploits old media companies. Those old companies still operate in the content economy, begun 570 years by Guttenberg, in which the owner of content profited by selling multiple copies. Online, there needs to be only one copy of content and it is the links to it that bring it value. Content without links has no value. So when search engines, aggregators, bloggers, and Twitterers link to content, they are not stealing; they are giving the gift of attention and audience. Indeed, publishers should be grateful that Google does not charge them for the value of its links.

This link economy brings three imperatives for publishers. First, it requires them to make their content public if they want to be found. That is their choice, but if they retreat behind pay walls, hidden from search and links, they will not be discovered and they only create opportunities for new, free competitors. Second, the link economy demands specialization: Do what you do best and link to the rest. This specialization also brings a new efficiency that can make publishers more profitable. Third, in the link economy, it is the recipient of links who must exploit their value. That is still the publisher’s job.

Google has earned an estimated 30 percent of online ad revenue because it serves advertisers differently—and better. Here, too, Google understands a new economy, one based on abundance rather than scarcity. Publishers, even online, still sell scarcity as if the internet were print: only so many ad positions for so many eyeballs—what the market will bear. Google instead charges for clicks; it sells performance. Thus Google takes a share of the risk and that is what motivates it to place advertising all over the internet, to create more relevant positions for ads that will perform better for both the marketer and Google. That is why advertising has shifted to Google—not because it is enemy of the media but because advertisers prefer it. We call that competition.

The most important lesson to learn from Google is that it grew huge not by trying to acquire and control content on the internet, as publishers do. Google doesn’t want to own the internet, only to organize it. So Google created a platform that enables others to succeed with technology, content, promotion, and advertising revenue. That is Glam’s model, too, creating networks of hundreds of independent sites and then helping them succeed. I believe that platforms and networks will form the basis of the future of media—and much of the next economy.

At the City University of New York Graduate School of Journalism, where I teach, I am running the New Business Models for News Project, envisioning a profitable future for news if regional newspapers covering cities die. Though national news brands—whether this publication or the Guardian or The New York Times—have a future, regional newspapers across America and Europe are in trouble and some will die. Yet I am confident that journalism in those cities will not die, because there is a market demand for news, which we believe the market can meet.

We believe that news will emerge from ecosystems made up of many players—journalists, citizen journalists, citizen salespeople, volunteers, technologists—operating under different motives and means. Today, in America, we see hyperlocal bloggers earning $100-200,000 a year in advertising; these are real businesses. We see an opportunity to help them make more money by creating local, regional, and national advertising networks. We see the opportunity for a new newsroom to continue beat and investigative reporting and to work collaboratively with these networks. Without the cost of print and distribution, these new news organizations become smaller but profitable.

If you are trying to protect old jobs in old structures of old companies in old industries, then you might see my vision of the future as a threat. But if you embrace change and innovation, then you will see opportunities to reimagine and remake journalism, to find new ways to gather and share news collaboratively, supported by new revenue, reaching profitability thanks to new efficiencies.

Publishers will not get to that bright future by urging government to protect them from innovators and competitors. No, if we want anything from government, it should be universal broadband to encourage society’s migration to a digital economy, and a lack of regulation to assure a level playing field for innovation.

I hope that once the desperation of the current economic crisis subsides, my German media friends will not try to retreat to their old models but will instead continue to invent new ways and to again become leaders in innovation. That is the only sensible path to survival and success.

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