What Would Micropayments Do for Journalism? A Freakonomics Quorum

The notion of micropayments — a pay-per-click/download web model — is hardly a new one. But as a business model it hasn’t exactly caught fire, or even generated more than an occasional spark.

Lately, however, the journalism community has become obsessed with the idea. This is what happens when an existing business model begins to collapse: alternative models are desperately invented, debated, attempted, rejected, etc.

In recent days we’ve seen Walter Isaacson, the biographer/pundit who used to edit TIME, write a TIME cover story in support of micropayments; in a Times Op-Ed, Michael Kinsley begged to differ; a not-quite-micropayment system for blogs, meanwhile, called Kachingle, will launch next month. In an interview, its founder, Cynthia Typaldos, says that she had the idea a few years ago but that “Newspapers weren’t desperate enough … About a year ago, I said things are changing and now is the time to get going on this.”

Where will all this lead? We asked a group of people who have given a lot of thought to micropayments — William Baker, Alan Mutter, Clay Shirky, and Marshall W. Van Alstyne — the following:

1. How would micropayments best work?
2. How possible is it that micropayments could be applied to the majority of online content, and how would this affect both online and print journalism?

Here are their answers.

Alan Mutter is on the adjunct faculty of the Graduate School of Journalism at the University of California, Berkeley; he’s also a media/technology consultant and author of the blog Reflections of a Newsosaur.

“The widespread adoption of paid content among general-interest media would require a critical mass of publishers to agree to collaborate more earnestly, more broadly, and more smoothly than any group of humans in history.”

It won’t be easy for publishers to overcome the Original Sin of giving away their valuable content for free. But it could be done. Theoretically. The most logical way, as detailed here in my blog, is some sort of micropayment system. Here’s how it would work:

Consumers would use their credit cards to fund accounts that would enable them to purchase online content through a system deployed at the largest possible number of participating websites. After a customer charged up her content-buying account, she could click a button to authorize payment whenever she wanted to watch a video, view a picture, listen to a podcast, or read an article.

One problem with this solution is that it wouldn’t work for one publisher if a competing publisher decided to provide the same, or nearly identical, content for free.

The other gotcha is that content would have to be secured so that someone who bought it could not turn around and provide it to a friend or, worse, publish it on the web for free. Although protecting content for unauthorized use is a formidable technical problem, it has already been solved reasonably well by a number of companies.

Has it been successfully done?

While most publishers to date have declined to invest in the implementation of such systems, the few companies that sell content by subscription — ranging from Consumer Reports to Congressional Quarterly — have been successful in building loyal audiences and revenues. Very few publishers have tried to sell articles one at a time.

The amount of the charge per article would be up to individual publishers, but presumably would be kept to pennies, or even fractions of pennies, to encourage maximum readership. Consumers might not like being micro-nickled and nano-dimed for every article, but they would get over it if the content were sufficiently unique and compelling. Remember, this works only if the content is unique and compelling.

Although a specialized newspaper like The Wall Street Journal successfully has required subscription access to its entire website, the widespread adoption of paid content among general-interest media would require a critical mass of publishers to agree to collaborate more earnestly, more broadly, and more smoothly than any group of humans in history. Could it happen? Theoretically. But don’t hold your breath.

What effect would this have on publications’ online readership?

There naturally will be fewer consumers for online content requiring payment. On the other hand, publishers could require advertisers to pay premium rates to pitch their wares to this valuable, loyal audience.

What effect would it have on print publications?

Print-advertising sales generate the preponderance of revenues for most publications, and those sales subsidize the content published online by most newspapers and magazines. Because online ad sales produce only about 10 percent of ad revenues at the average newspaper, it would make sense for newspapers to try to get paid something for the content they publish on the web. They already charge for copies of the physical paper, even though this does not cover the full costs of production and delivery. With ad revenues falling by double-digit rates at most publishing companies, every little bit of new revenue would help.

Marshall W. Van Alstyne is an associate professor in the Information Systems department at Boston University and a research scholar at M.I.T.

“Putting micropayments on news is like putting tollbooths on an open ocean.”

Micropayments won’t solve newspapers’ pay-or-perish problem, at least not under current proposals. There are many reasons why micro-scalping readers won’t work, but let me start with two: the unique properties of information goods, and inefficiency.

News is not like an iTunes song; it’s perishable. Today’s front page is tomorrow’s fish wrap, and we don’t need to replay it. If anything, a reader benefits more from a second source than repetition from the first. Facts are delivered; songs and movies are created. Facts also can’t be owned, so when the Internet places geographically dispersed media in direct competition, the price of facts falls to marginal cost. In digital markets, that’s zero.

Micropayments introduce friction into an otherwise frictionless world. This means that no matter how efficient they become, it is more efficient to bundle. If a person makes one or two transactions with a news source, it’s more efficient to aggregate lots of them and bill a single advertiser once. If a person makes frequent transactions, it’s more efficient to aggregate those and bill that person once as a subscription. Any increase in micropayment efficiency improves bundling efficiency at least as much, because the gains accrue over more transactions.

Putting micropayments on news is like putting tollbooths on an open ocean. Internet users, awash in a sea of information, will avoid new barriers by navigating around them. And frankly, the interests of a free society are rarely served by building barriers between the people and their news.

Then how do we support great investigative journalism? Let me suggest three business models that just might work for newspapers and for users.

1. Bundle a media platform onto a technology platform. Charging technology vendors a modest flat fee to put ad-free content on cell phones, e-book readers, and laptops makes them more valuable and can cover a lot of market share. This is a bundling model that “feels” free: users pay no incremental unit cost for updated media they receive. It also eliminates ads.

2. Version and process information. Free ad-supported news can coexist with paid premium versions. Faced with a choice of an ad-supported free New York Times and a faster-loading, more graphics-rich version for $1/year, I suspect even digerati would choose to pay. The business question then becomes how to add enough novelty, speed, customization, community, and proprietary analysis to convert a $1 subscription into $10 or $150. Bloomberg charges for information processing on top of stock quotes and does just fine.

3. Invert the whole business. Use the friction of micropayments to solve a consumer problem and stem the flood of information from advertisers vying for their attention. Advertisers can bid for limited units of people’s time. This increases ad revenues and helps match particular ads to particular people. Vendors will bid low to rent New York apartments to sports fans checking scores for the Oakland A’s, but bid high to offer next week’s tickets. Publishers need to give up on the idea of profiting from distribution and focus on the idea of matching people to content.

The trick is not to add new types of costs, but to add new types of value.

William Baker is an executive-in-residence at Columbia University who is investigating “new media business models,” and is former C.E.O. of the Educational Broadcasting Corporation, the licensee of Thirteen/WNET and WLIW21 New York.

“Consumers must learn to associate costs, even small ones, with regular access to reliable news.”

Saving journalism in the U.S. is critical to our free society. In America, most of the serious reporting is done by newspapers which are in extreme economic distress.

With the 56,000 or so feet-on-the street journalists at the 1,400 plus newspapers, currently proposed models which involve only philanthropy will not work. It would take endowments of tens of billions of dollars. It would be an unthinkable Apollo project even before the current economic meltdown.

I see a combination of advertising, subscription, philanthropy, and micropayments to be a solution. It will take all of these as one segment grows and another shrinks to get us through this very dry desert.

Unfortunately, micro-payment models have not been thoroughly tested. The most successful subscription model is Consumer Reports, which has about four million paying online subscribers and another four million print subscribers. Consumer Reports takes no advertising. But the newspaper industry, with the exception of The Wall Street Journal, has been hesitant to attempt that approach. I’m not sure why. I have graduate business students at Columbia and Fordham working on models.

Perhaps a workable micropayment model is akin to what Skype does: you load up your account with, say, $20 and let the system automatically charge you a certain amount per click or story (maybe ten cents). Think of The New York Times with its tens of millions of online users going that route. Yes The Times will lose some, but it will keep many others because of the power of the brand name and its journalism. Will it work? How much is there to lose? I’m hoping to try this model at smaller newspapers and see what happens.

I’m a big believer in philanthropy and can see some place for it as an add-on to help with investigative reporting and other costly journalism. But I wouldn’t count on it to be a home-run savior.

It’s an unavoidable relationship: for good information to flow from journalists to readers, proportional revenue must flow the other way. Consumers must learn to associate costs, even small ones, with regular access to reliable news.

Clay Shirky is an adjunct professor in N.Y.U.’s graduate Interactive Telecommunications program and a digital media consultant in New York.

“The fantasy that small payments will save publishers as they move online is really a fantasy that monopoly pricing power can be re-established over we users.”

Online, small payments only work when the collector of those payments has end-to-end control of delivery, generally by controlling the hardware or software the user has access to. (This is true of all metered billing, in fact.) Whether it’s long-distance rates, iTunes purchases, or in-world currencies for online games, the core attribute of successful systems is the ability to prevent the users from expressing their preference not to be nickel and dimed.

Put another way, the fantasy that small payments will save publishers as they move online is really a fantasy that monopoly pricing power can be re-established over we users. Invoking the magic word “micropayments” is thus grabbing the wrong end of the stick; if online publishers had that kind of pricing power, micropayments wouldn’t be necessary. And since they don’t have that pricing power, micropayments won’t provide it.

To a first approximation, articles will be priced at free (which is only to say that what seems to be happening online is what’s actually happening). This is because the competitive loss of hiding them behind a paywall reduces the users’ ability to share them with friends, and it is this secondary distribution that creates the most important new opportunities online.

Users like sharing. We like it so much, in fact, that we are willing to reward amateur outlets that enable it at the expense of professional ones that forbid it. (This is how Wikipedia rather than Britannica became the English-speaking world’s encyclopedia of choice.) This strong preference for sharing in turn means that nickel and diming us not only raises the cost of a piece of content, it sharply lowers the value as well, because payment systems have to forbid such sharing in order to function.

This in turn opens the door to publishers who reward sharing rather than fight it, which creates the competitive pressure that destroys small payment regimes.

Applying micropayments to the majority of online content isn’t possible, because it’s not possible to establish a monopoly on news. Unlike iTunes, for example, which benefits from a legal regime designed to prevent sharing, discussion of events in the real world can’t be kept from circulation. (You can only stonewall things that are on your side of the wall.)

Publishers have been telling each other for years that eventually people will tire of being able to produce and share amateur content, rather than just consuming professional content, but the users don’t seem to have gotten that memo. Even if most traditional publishers formed a “cartel of news” tomorrow, all retiring behind a paywall on the same day, many net-native publishers, from Pro Publica to Spot.us to Off the Bus, would see their competitive advantage in attacking that cartel rather than joining it.


sunshine

You newspaper guys -- Don't worry so much!! People aren't stupid. There may be a faddish idea out there that online content should be free, but there is a much more longstanding idea that you get what you pay for. If it is a choice between pay for online subscription or the newspaper website shuts down, people understand that kind of choice. The newspapers that are good will get subscriptions.

andrew

Micropayments have failed so many times I am shocked this is even a conversation.

Avi Rappoport

I'm surprised no one has yet mentioned PayPal. It really does reduce the friction for small (but not micro) payments.

Alan Mutter and Clay Shirkey both suggest that there would have to be stringent limits on sharing, and I doubt that's going to work. Consumer Reports doesn't do it. Nor do other successful firewalled content providers, including ACM (Association for Computer Machinery) and Emerald. They provide articles in PDFs, and they are non-micro payments ($10 for one I got from ACM). But they do work.

Norm

http://robinsloan.com/epic/ anyone?
By using AI to collect, verify, and distribute 'news' (think of it as a method of turning something like The Times-Picayune Katrina blog/message board during the storm (that I can't seem to find right now) into a more traditional style story) and paired with opinion blogs that are always going to be free because everyone has an opinion.

I'm not entirely sure traditional journalists have a future except in some specific target periodicals.

anonymous

Just go non-profit, like PBS.

Alan

I agree with Professors Van Alstyne and Shirky. You cannot monopolise news and the value of second hand news, unlike artistic performance, is zero. And there are so many sources. If there was a cartel from newspapers, I can get news 24 hrs a day from any one of a dozen free news channels (all of whom have their own online presence too.)

It's interesting that Professor Shirky mentions iTunes preventing sharing. With the removal of DRM from most of their songs they are in effect allowing sharing.

I don't see how micropayments can work . I certainly wouldn't pay for individual articles and it's not technically feasible to prevent sharing anywhere. One idea I do think could work is Professor Van Alstyne's where vendors are charged a fee. I don't know anything about the financial arrangements between Amazon, Sprint and some of the newspaper and magazine providers who provide their content for the Kindle, but I'm assuming that Amazon are happy to subsidize by paying Sprint and the content providers so that they can sell more Kindles and beat off other e-book reader competition. A similar model exists with cell phones in Europe. Nokia's "comes with music" phones allows one to download as much music as you want from a library. This is free to the consumer and subsidized by Nokia. But it means they can take on the iPhone. (Although the network operators in turn subsidize the cost of phones so that consumers pay nothing - even the iPhone is free - in turn for an 18 month contract during which the operators hope that the consumer spends a lot on calls and data.)

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anonymous

With "free" information, people will only willingly part with their money if they have a vested interest in the person or institution providing the service surviving and thriving. 3 cents an article? Maybe not. $50/year to keep a Times journalist writing articles instead of writing fiction? Maybe.

Rich

I've seen the future of news, and it's embedded in the final comments by Professor Van Alstyne: "The trick is not to add new types of costs, but to add new types of value." Facts are free; information is not.

CT

For financial reasons I had to stop getting mail delivery of the NYT. I paint and I miss the images from the paper version.

Now that I am online, I would be willing to pay for news coverage. If you decide to go that way, could you eliminate articles generated by the Pentagon. Your NIE coverage on Iran last year was spectacular, with its timelines and visuals.

Create more value by hiring more journalists. Set the bar high for good articles and let them graze far and wide for data and new truth.

Keep up the good work.

Barry

I tend to think the micropayments idea makes sense, but not at the consumer level. One of the givens is that other websites can have free access to a news website and its content. Why is that so?

Shouldn't Google News, Real Clear Politics, Yahoo and the like have to pay any newspaper whose articles they link to? If not, why not?

Clearly, Google, Yahoo and others are getting wealthy on the backs of free content. Where was it written that they had to get it for free?

Those organizations already have advertisers and revenue streams in place. Why doesn't that money trickle down?

One man's opinion.

Francis

In the UK much of the journalism is rubbish and doesn't deserve to be paid for: it is mostly based on press releases from government and firms with next to no interpretation of the facts.

The answer to newspapers' problems is to turn towards quality: more investigation, analysis and interesting angles. Just ignore the press release gunk - we can get it free from anywhere.

jsd

Mark. K,

How are newspapers supposed to generate content to publish for our consumption if they don't have any money to produce said content? Their model *needs* to change if they are to survive. Were the website to go subscription based tomorrow, libraries will likely have subscriptions to read for free, just as they have the physical paper available for anyone. No need to freak out and call Hugo on us.

shaman

#6/Hunter has it right.

The problem is that the management (and owners, by extension) of these companies see themselves as a media channel - their "customers" (ie profit centre) are the advertisers, and the content (which attracts readers/viewers) is a cost centre.

The said fact is that giant, bloated corporations, much like their dinosaur counterparts, are incapable of quick adaptation. If AP was smart, they'd bypass the media boat altogether and fill this niche.

Failing that, new organisations will spring up that will provide content, letting the web be the media channel, and google being the delivery provider for advertising - just like Hunter/#6 describes.

Philippe

In somewhat of a compilation of Marshall W. Van Alstyne's 3 propositions, here's an idea:

The model I am thinking of resembles the cable TV model. Most cable subscription offers bundle content from a multitude of providers.

At this point, news organizations who would decide to charge a subscription fee for their content would risk losing a great number of readers because there are so many free alternatives. But what if all news organizations started charging at the same time?

As a news consumers, I accept the idea of paying for quality reporting. But if all news organizations charged for their content, I would be confronted with a frustrating dilemma: limit my sources by paying for a subscription to only one source, or get several subscriptions and pay for a large amount of overlapping information.

I consider myself a loyal NY Times "digerati," but I would have a tough time giving up the columns or analyses from other publications.

However, I would be more than likely to pay an annual subscription $10-$50, or maybe more even as much as my cable subscription to get unlimited access to all the top papers.

However, I think there may be a way for news organizations to find some common ground.

In this model, instead of have each publisher charging for access to its own content, the idea is to get largest news organizations together to create their own "Time Warner Cable" that would charge for access to all of their content.

In other words, customers would pay a subscription, $1/5/10 dollars/ month, to have unlimited access to all the content from the top news organizations, which would no longer be free.

Well to those who argue that it is like putting tolls on the ocean, I would say it is like putting tolls on the major fast-lane shipping routes: you would still have the option to navigate through ledges and shallow waters.

I don't like the idea of having to pay for online content, but it is only fair and vital to compensate news organizations for the invaluable service they provide us with. Granted, facts "can't be owned," but journalists do a job that most of us neither have the ability or time to carry out ourselves.

The other caveat to this model is: how do you distribute revenue? It's very easy: web analytics can give real-time data about key performance indicators such as traffic, time spent, number of articles read, etc. Each news organization would receive a portion of the total revenue equal to it's performance.

To one of Mr. Isaacson's initial points, this shifts the news organization's loyalty away from advertisers and back to consumers. Not that there couldn't be any advertising on these websites, but in order to increase their share of the pie, news organizations will have to cater to their readers' needs rather than to their advertisers.

In addition, the web-analysis structure used to apportion revenue, can also be used to provide all participating news organizations with homogeneous reader-browsing analytics to help them target their key customers.

For all its imperfections, this model would have at least one advantage: rewarding news organizations for the service they offer their customers.

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Bill

Why not work together & bundle online paper subscription fees as a "package" with internet services?

Similar to how cable providers offer premium packages, why not bundle together a bunch of subscription-based sites as a "package,"?

Matt

For the record, it's Columbia University, not Colombia University.

Mark K.

Please; dont you people realize that homeless old folks
need to read the paper too!
Stop talking about micro this micro that, ad's biz,
give the people the un-biased news!!!!
Please stop, lets be real??
You all have a little left in your retirerment funds!!
Our life on the street, is finding clean water to drink, something to make the belly feel full,
and for some of us... to read the papers!!!!
thank you again

mk

Shelli Johnson

Give me all the content I want, for free, and fill the pages with ads in order to do so. Advertisers should pay, not the readers. Free content will mean more readers. Readers will be happy and advertisers will line up and subsidize the news.
News is perishable. I understand paying for the newspaper or print magazine... the costs of producing/printing/distribute make it necessary. But online the costs are minimal in comparison. The ad model is the model... If I can have great news, provided in depth and for free, bring on the ads. I understand the news has to be monetized and paid for somehow.
Thanks
Shelli

Allan Hoving

Why not develop what I call a user-centric revenue model: give the reader the choice of how to support valued content and services: by straight subscription, occasional donation, free content for ad-viewing, in-text links (www.brandclik.com), transactional advertising, etc.

Every online community site ought to engage its members in not only content generation but revenue generation as well. Give them a stake, get buy-in.

Hey, kids, let's build a web site!

Hillary

take a look at http://www.minnpost.com/braublog/2009/02/17/6757/tip-jar_journalism_with_a_devilish_twist#94-6757 and the follow-up http://www.minnpost.com/braublog/2009/02/17/6772/devilish_tip-jar_journalism_published#94-6772. A local MN journalist successfully collected micropayments, with a twist.