On Commoditization of Content

This a quote (long) from What Were They Thinking?: Unconventional Wisdom About Management by Jeffrey Pfeffer (2007), on commoditization of content

This raises the question of why one would buy a paper whose quality and uniqueness is declining because of inadequate investment in staff; why not just buy the paper from which the Chronicle gets a lot of its stories and which has invested in its own, unique news gathering and reporting? The point is that the more newspapers cut their quality, the less incentive there is for anyone to subscribe. So subscriptions fall, more cuts are made, and the death spiral continues, if not accelerates. The only thing that can possibly provide competitive advantage in a saturated media marketplace is the quality of the writing and the ideas. An undifferentiated, unoriginal product of low quality is not going to save any company in the newspaper, or for that matter any other, industry.

Prices of undifferentiated, unoriginal, non-unique, low quality content with unlimited supply will hurtle towards its marginal cost. In the case of digital content the marginal cost is $0. Facing commodotization, newspapers should not be lowering their price to $0 but stop producing such undifferentiated content.

The new media experts are right in saying newspapers cannot succeed by erecting pay walls for their online content – but only half right. If you are not adding unique value, you cannot capture value by erecting pay walls.

It does not matter to customers what your costs are

The arguments on paying for online newspapers focus on the cost of running the news operation including the news desks reporters, editors, web site etc. Proponents of pay to read say readers must start paying because of these costs. On the other hand those who argue that information must be free focus also on the costs, the marginal cost, and a make the case that it costs you nothing to serve one more reader and hence it must be free.

The cost arguments are irrelevant. One can charge for a product only because of the value it delivers to the customers and not because it costs the marketer to produce. Similarly, free argument based on marginal cost does not hold either. If the readers can get the same content elsewhere for free, the content becomes commodity and its price will spiral down to $0.00. It does not matter that there are fixed costs to producing and distributing commodity content. Content can only be charged if it has differentiated value.

There is an Ad in today’s WSJ on their news sports coverage. It says

“When we report on sports, we focus less on what you’ve already seen happen and more on what will happen next”

That is differentiation.