Charging For Content – Google Vs. Murdoch

Much will be said and written about the reported news that Mr. Murdoch is close to signing a deal with Microsoft (source NPR), disallowing Google from searching and indexing his company’s content and getting paid by Microsoft for the search access.  We will hear more about how content is free or wants to be free, how it is commoditized and how people can get free content from somewhere else. The most vocal proponent of them all, Mr. Jeff Jarvis,  described WSJ’s move as, “it is suicidal”. At the other extreme, Mr. Murdoch described Google as, “stealing my content”.

The truth, however, lies somewhere in between.

On the content wants to be free argument:  This is an extreme position treating all contents as the same and treating all customers the same. The value of content is in the minds of the customers and it varies across segments. For instance, my WTP for WSJ opinion pieces is $0. There are news articles that add no unique value and hence by definition are commoditized. While other articles, even thought they have high value, fail to capture value because of alternative free means of accessing these articles (WSJ articles can be accessed for free through Google searches).

On customers don’t want to pay for content: It is a widely accepted notion that customers do not want to pay for access to content. There is no basis to these and any marketing research studies done are not rigorous enough. This is the very definition of Conventional Wisdom, and going against it will be seen as disastrous move.

Onit is suicidal”:   It definitely is not. WSJ still makes a great portion of its revenue from paid subscriptions. It takes a lot more Ads and CPM to get the same amount of revenue. For someone running one of the top sources of business information we should give WSJ the benefit of doubt that they did the revenue models and calculated loss of revenue from Google traffic. If they were not monetizing much of current traffic, it is not a devastating loss and it offers future revenue potential from subscriptions.

On the stealing argument: This is another extreme claim. What is true is Google can and does monetize search results with search Ads and it does not share those revenues with WSJ or with any other source. One thing Google or other search engines do is lowering customer’s reference price for the articles, preventing WSJ and others from capturing value. It is not that far off for Murdoch to get recover some of that by asking Google and Microsoft to pay for indexing access.

On charging for content: Charging for content starts with value,  communicating that value, and protecting that value through reference prices. How can you credibly communicate value of a newspaper or a Journal? WSJ is taking the approach of showing what is possible from reading, sometimes even drawing suspect causations based on correlations. Another example is Elsevier, which is communicating value of its online journals articles through by making (again somewhat suspect) causation arguments showing new research grant.  Both WSJ and Elsevier may be using causation argument when none exist but they are trying and spending resources on creating the value proposition while most others do not even know how to communicate theirs.

This is not a battle between Murdoch and Google or other search engines, this is the beginning of the efforts by content producers, those who create value,  to capture their fair share.

Free To Fee

Sooner or later businesses are going to realize the difficulties in running a high fixed cost business and free business model. Specifically newspapers that have been giving away their online version for free.  The free online version not only cannibalizes print sales but also sets a low reference price that makes moving from free to fee difficult if not downright impossible. For any neswpaper the simplified revenue model can be written as:

Revenue =  Subscription revenue + Single copy revenue + Ad Revenue

In the past, newspapers made the assumption that Ad Revenues are going to grow and drive total revenue, hence they did everything they can to increase “eyeballs” and number of page views. What they failed to see is what they are giving up and whether the increase in Ad Revenue is better than loss from subscription revenue.

The question is ,

Is ↑Δ Ad Revenue  > ↓Δ Subscription revenue?  Or is this an assumption they used to make the newspapers free.

As the assumptions turned out to be false, they are starting to look at subscription revenue (online and paper versions). There are two challenges to this reversal to pay-to-read scheme:

The first problem is the reference price. Readers have been getting it for free and will be reluctant to pay for what used to be free despite the value they get. Any price increase that does not first focus on improving the reference price in the minds of customers will fail.

The second problem is making sure the newspapers offer unique and differentiated content that is not available for free elsewhere. Editor of Financial Times, which charges for complete  access to its online version FT.com, has  this to say

“If they feel it’s distinctive enough … you’ve got to be different” … “it’s the people in the mediocre middle that are going to be the meat in the sandwich”.

Let us look at these problems with The New York Times as our case study.

Recently The New York Times is polling its readers for their willingness to pay. They asked their website readers if they are willing to pay $2.50 to $5 per month for access.  Instead of asking their readers for their willingness to pay for a monthly fee, NYTimes should focus on improving the reference price for access to the web version.

One way is to have a “value meter” that is running prominently in each page and showing how much a reader saved from the free version. This is similar to what Amazon.com does with free shipping.  There are many other ways to improve reference price. ( I admire Amazon.com for its strategy and decision making based on analytics rather than on fads and gut feels).

Regarding unique and differentiated content, it is a hard task. One way could be is to create scarcity. For instance they could make available only the current day edition free and charge for access to all archives including the previous day version. If the article is adds value to readers even after a day, week, month or year then they should be willing to pay for it.

Going from free to fee is an uphill battle. Unfortunately all these could have been avoided if the newspapers have did the analysis and scenario planning before they made their online versions free.