Bezos needs to reinvent business model, not news
IT IS roughly 10 days since the Washington Post announced that Jeff Bezos, the founder of Amazon, was buying the paper, in the most exciting case of convergence between the new media and the old since the merger of AOL with Time Warner.
It is often assumed that journalism is technologically doomed. The internet, it seems, is turning news and analysis from a thriving industry employing millions on decent incomes into an unpaid hobby for philanthropists or self-promoters. This fatalism is unjustified. If news and analysis have value to customers, then the people providing these services will find ways to get paid. It is often claimed that news has become worthless because internet distribution involves zero marginal cost, but this is poor economics. The true cost of news lies not in distribution but in the re- search, composition and editing required for high-quality writing. These costs are as high as ever.
The challenge to newspapers, therefore, is not the internet cliché that “information wants to be free”. It is the failure of traditional media companies to devise business models that turn the new distribution technology to their advantage.
This is why the news businesses must look for salvation to managers such as Bezos, who treat the internet neither as a curse nor as a libertarian utopia, but rather as a very efficient mechanism for getting consumers to spend money.
If you want to make a profit from selling news, you must charge consumers its cost of production plus a profit margin. Traditional media executives fail to understand this elementary business principle because newspaper costs have always been subsidised by advertising.
The essential economic problem of the news business is that, on the internet, this subsidy disappears because search-based classified advertising of the kind pioneered by Google is infinitely more effective than display ads that push unsolicited messages at readers, whether in print papers or on news websites. The survival of news media, therefore, will depend on charging consumers directly for what they read.
Unfortunately, as they start to do this, traditional media companies are stampeding in the wrong direction, towards subscriptions that demand payments from regular readers. This model tries to recreate the traditional local newspaper model of serving relatively small numbers of “loyal” readers, instead of the millions of casual users who can be reached on the internet.
Much internet reading will always be casual rather than loyal because nobody will buy annual subscriptions for more than a few websites. Yet, thousands of sites feature items of interest to millions of readers, who could be turned into profitable customers. If, say, 20 million occasional readers spend as little as $1 (about R10) a year on a website, this will create twice as much revenue as 100 000 subscribers paying $100 each.
The business objective must surely be to secure both revenue streams, and this is where Amazon’s success in managing large numbers of small transactions could come in.
According to internet gurus, readers demand free content and find it in abundance. But this consensus is being disproved by events. More newspapers are erecting paywalls and demanding subscriptions, eliminating free content. Meanwhile, consumer resistance to internet payments is disappearing as traffic moves to mobile devices, where data downloads are far from free.
The confluence of these two trends creates the right environment for websites to levy micropayments for high-quality online content. With consumers now paying hundreds of dollars annually for internet downloads, newspapers are crazy to cede all this revenue to telecom companies while offering their content free to non-subscribers or completely locking them out.
What newspapers need are easy, frictionless mechanisms for charging their casual readers small amounts. Bezos and Amazon could provide this, and if they do not, somebody else will. — Reuters