Paywalls and Collusion

The days of free news on the Internet may be coming to an end.

newspaper-paywall-chains

Felix Salmon starts a column on “How paywalls are evolving” with this:

Last week, I hypothesized that the publishing industry was going to informally settle on a single management-consultancy company to ask for paywall advice from. That consultancy, having seen everybody’s internal figures, could then tell everybody else what “industry best practice” was. It’s the time-honored management-consultancy m.o., reselling other clients’ confidential information, suitably anonymized, of course, so that everybody learns from everybody else’s successes and failures.

This is a winner-takes-all business: it works best if everybody hires the same consultancy. And now it’s pretty clear which consultancy is going to win: Mather Economics. They say they’ve worked for pretty much everybody, at some point, and that they directly manage some $2 billion of subscription revenues for their clients. And today, fresh off a $1.75 million funding round, the paywall provider MediaPass has announced that it’s going to bake all that Mather knowledge into its own product. Given all the data being generated and analyzed by Mather and MediaPass, it looks like they have a pretty unassailable position in this particular niche.

Well, good for Mather, I guess. But my immediate reaction was: Why is this legal?

One longstanding critique of newspaper paywalls has been that few of us are going to fork over money for ordinary news—as opposed to niche information valuable to our business—when there are so many quality sources outside of paywalls. So, the only way for, say, the New York Times to successfully implement a paywall was for all its peer competitors to also go behind a paywall at the same time. But, given that paywalls had a poor track record of success, that erecting them is somewhat expensive, and that putting them up cut down on pageviews and thus advertising revenue, a Catch-22 existed.

But apparently MediaPass is going to allow these companies to engage in virtual collusion. They will, through a third party vendor, share their business information so as to stifle natural competition so as to be able to mutually raise prices. More than that, really, since they’ll be going from free to pay; it’s an infinite price increase.

Further, the amount of data being collected an shared is frightening in its own right:

[A]lthough readers hate the kind of extreme opacity practiced by the FT, where there’s basically no rack rate and nobody knows what anybody else is paying, from a revenue prospective it makes a lot of sense. The FT knows quite a lot about its registered readers, so it can be quite effective at charging the highest prices to people with the greatest willingness to pay, while charging much lower rates to readers in, say, India.

[…]

I’s not all that hard to tell who’s likely to be willing to subscribe, and who isn’t. Print subscribers, for instance, are much more likely to be willing to pay for a digital subscription than a reader who doesn’t already pay for the print version. And people who visit frequently, and who read a lot of local news, or sports news, are also more likely to subscribe.

In general, the trick is to get as many subscribers as you can — because once a person subscribes, they generally turn out to be surprisingly loyal and price-inelastic. You can keep on charging their credit card, even at steadily-rising rates, and they’re not going to unsubscribe. And then, for the 90% of readers who don’t subscribe, it’s a good idea to find content for them, too. The paywall shouldn’t just be a “pay here or get nothing” option: the “no thanks” button should take you to valuable free content.

So, a group of ostensible competitors are pooling extremely valuable data—again, through a third party rather than directly—in order to fix prices against consumers at an individual level! If you took out the third party, that would almost certainly be illegal. Add in a vendor, though, and it’s suddenly a mere business model.

Paywalls may be the only sustainable model for high quality news. As such, they may in the long run be good for consumers. But the road there is paved with bad intent.

FILED UNDER: General
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Tsar Nicholas says:

    A funny point related to this phenomenon is that all of those young liberal journalism school grads who run off to join these media companies — to “change the world” — have no idea that they’re with major, cutthroat corporations, at which they’re nothing more than fungible revenue units, who can be bought and sold, like cattle.

    Eventually some enterprising top-tier business attorney with a history against big media — Joe Alioto, Jr., for example — will take on the paywall cabal with a big antitrust and unfair competition lawsuit. It’s inevitable. And the washed-up Hippies who run the related news divisions won’t be able even to grasp the various layers of irony.

    Ultimately this is a case of rearranging deck chairs on the Titanic. The more paywalls that go up the fewer the number of readers. Advertising revenue in this industry is 100x more important than subscription revenue. The less readers the less ad revenue. Meaning smaller companies. More layoffs. Less news coverage. Rinse, repeat. And someone out there will fill the void by not joining the paywall cabal, thereby increasing their own market share. Penny wise, pound foolish is not exactly a sound business strategy.

    That scene in This is Spinal Tap comes to mind. It’s not that the mass media is losing so much of its audience that it’s on the road to irrelevance. It’s that their appeal is becoming “more selective.” Glug,glug.

  2. rodney dill says:

    Sounds like it could be a boost for printed media. At least a delay in their demise.

  3. Add in a vendor, though, and it’s suddenly a mere business model.

    Here’s a business model. Take your stuff off the web and put it on a platform with a pay system built in…..like a tablet. When I got my Kindle Fire a year ago, I subscribed to three magazines. It’s so absurdly cheap and absurdly easy that, to me, it almost feels free.

    Tablet penetration may not be such that “take it off the web” may not be a viable option now, but give it a few years. It’ll be paid apps all the way down.

  4. OzarkHillbilly says:

    But the road there is paved with bad intent.

    They say the road to hell is paved with good intentions. I wonder where this road leads?

  5. JWH says:

    They say the road to hell is paved with good intentions. I wonder where this road leads?

    Poughkeepsie.

  6. john personna says:

    I am skeptical. The current situation is far too confused to be flattened easily. These companies, for instance, find it necessary to offer free access to incoming links via Google news. There are thousands of sources there. Nothing short of legislation could move them en mass.

    As an aside, it would be an interesting world if micropayments for page fetches had been possible early-on. Asking people to choose one or two “big” subscriptions is a rude fix.

  7. OzarkHillbilly says:

    @JWH:

    Poughkeepsie.

    Well hell, I didn’t lose anything there.

  8. rodney dill says:

    I wonder what the implications would be to a site like Drudge. Probably not good. Though Drudge’s detractors would likely enjoy it.

  9. Pharoah Narim says:

    No one under 40 has ever paid for news and they aren’t going to start–period. If the NYT and others want to invest in a business model with a generational time bomb built into it….proceed Gentlemen–proceed.

  10. JKB says:

    @OzarkHillbilly: I wonder where this road leads?

    Profit? But since profits are bad, at least in the minds of journalism school graduates, it may be like a evangelical moving to Las Vegas. Seems like hell at first but after a time, you start wallowing in the sin.

  11. @JKB:

    But since profits are bad

    Who told you that and why did you believe them?

  12. Davebo says:

    @James Pearce (Formerly Known as Herb):

    He read it on the internet and you can’t put anything on the internet that isn’t true….

  13. JKB says:

    @James Pearce (Formerly Known as Herb):

    Why, Occupy Wall Street for one. But also some guy named Barack Obama only he couched it in terms of “made enough money”

    Oh, and I also learned from OWS that Che Guevara is some guy who designs t-shirts for angry youth. Nothing like going into fashion design to make people forget your mass murder, I guess.

  14. @JKB:

    Why, Occupy Wall Street for one. But also some guy named Barack Obama……

    So you’re saying you find OWS credible……

  15. Andre Kenji says:

    The problem of paywalls is not the technology to create a paywall. The problem is to convince people that you have a valuable service preposition that deserves to be paid. If you don´t have a valuable service preposition people are going elsewhere, and there are cases where newspapers erected paywalls, just to lose influence and readers to people offering the same news for free(I saw that happens here in Brazil).

    People are simply thinking that their news offerings are so good that people should pay for it, and that´s a dangerous market preposition.

  16. john personna says:

    There was an interesting article here about computer programs which can write (some of) the news.

    Similar technology could certainly make a fair-use summary of a pay-walled story (if they don’t already).

    If the paywalls become too common, it just makes a market for “your free news!” (ad supported, of course).

  17. JKB says:

    @James Pearce (Formerly Known as Herb): So you’re saying you find OWS credible……

    As a source of what journalists and journalism students believe, yes.

  18. MarkedMan says:

    @JKB: really? “Occupy Wall Street” believes profits are bad? My impression was that OWS was an extremely loosely knit group of unemployed young people who were angry and frustrated and ready to protest…something. I don’t think you can point to any particular beliefs as being OWS beliefs. Of course, right wing talk radio and Fox News maps all kinds of drivel onto their bogeyman of the day, and for a time that was OWS. But you don’t confuse those sources with actual news, do you? You don’t honestly believe that when they explain to their audience, over and over and over, what their straw men ‘believe’, that it has any connection to reality whatsoever?

  19. JKB says:

    @MarkedMan:

    That would be “believed” not “believes”. Past tense.

  20. Ben Wolf says:

    And JKB successfully derails another thread, because OTB denizens let him lead them around by the nose.

  21. Val West says:

    @Andre Kenji: I currently reside in the U.S. and I thought the same as you. Now that several major newspapers have gone behind the paywall, I do find that my foraging patterns for hard news have changed, and I have to seek out more niche sources.

    If even the second-tier newspapers go behind a paywall, I am not sure what I’ll do. But I will seriously consider paying for a subscription to at least one major newspaper.

    Blogs are still a poor substitute for hard news. Most of their posts don’t give enough context to understand a linked-to story, you still have to go to the source newspaper, read the article, and then come back to the blog and read the post.