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.

Correlation Causation Confusion

Here is a quote from today’s Journal’s opinion piece on minimum wage increase:

Study after study reveals that there are long-term career benefits to working as a teenager and that these benefits go well beyond the pay that these youths receive. A study by researchers at Stanford found that those who do not work as teenagers have lower long-term wages and employability even after 10 years.

What the study found is a correlation, but WSJ uses it to imply causation – not working as a teenager leads to getting lower long-term wages and employability. But isn’t is it possible that there is an underlying cause for both these observed characteristics (omitted variable bias)? Is it possible that the same reason that led to unemployment as a teenager is driving low-wages and employability in later years?

On the other hand, for those with high wages and employability is working as a teenager  just one tool? Would they have used any other means equally effectively to achieve what they want?

Correlation does not imply causation. The Stanford study was an observation, not a controlled experiment where they randomly selected teenagers, assigned them randomly to working and non-working groups and then years later look at their earning potential.

This is not the first time the Journal is pushing causation based on correlation. You can find more such causation confusion from WSJ here and here.

People Who Read WSJ Are 75% More Likely To …

Does reading The Wall Street Journal makes one more likely to get better jobs and bigger salaries?

The Saturday edition had a half page Ad for student subscription. You can find the claims made in that Ad here.


The problem with these claims is correlation does not imply causation. Regarding these claims:

  1. This is a survey, not a controlled experiment where they randomly assigned people to a control group and treatment group and followed them over years to see if there are statistically significant differences in their GPA, salary etc.
  2. There is omitted variable bias here. The same trait that made the students and others read the WSJ is possibly the driver behind their success. Self motivated and driven people are going to equip themselves with every possible tool and training to get ahead in life. If it is not WSJ they would have read other journals and newspapers to get ahead.  While the claim that “Journal helps the student get ahead with a robust set of career preparation resources”  is valid the following statement “Did you know students who read The Journal are 140% more likely to be starting a full-time job upon graduation?” is misleading because it implies causation.

Few  years back there was a TV commercial for WSJ that showed a man going up in career because of WSJ. The commercial starts with a man, walking in rain, stopping to pick a copy of WSJ from a news vendor to protect himself from the rain. He later runs into an executive of his company in the elevator, who upon seeing the newspaper in his hand offers him instant promotion.  It is one thing to use humor to imply causation, no one will take it seriously. It is however not factually correct when they use survey data and make a causation claim based on correlation.

Other reads: There was also an article on Fantasy Football that implies causation from correlation.

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.

Is the end of free online newspaper nigh?

I love reading NYTimes online version and  love the fact it is free. Every time I read it I feel like I should  click on the Google Ads on its news pages. Rationally it makes no sense for me to do that, and I don’t click, because it is not enough that I click on the Ads if not many are going to. If NYTimes wants to give their content to me for free, I am only happy to consume like any other reader.

Unlike Financial Times and Wall Street Journal many online newspapers like The New York Times are free. They exclusively rely on page views to  drive Ad revenues. As the Ad revenue shrinks, the free model is proving to be  a bad one.

This week’s big news was the end of Rocky Mountain News, print and online version. Closely on the heels, Newsday a Long Island daily owned by Cablevision announced that they will move to pay to read model. Cablevision’s COO says he wants to:

end distribution of free Web content and make our news-gathering capabilities a service for our customers.

He is absolutely correct, the line of thinking that news has value and hence customers should be charged for this regardless of the distribution medium is slowly taking hold. If the online version of a newspaper has been free all along, can it successfully convert the readers into paying subscribers? If the newspaper can gain more incremental revenue from subscription than it receives from Ad revenue today, it is the right decision. But how can it convince readers to pay for something they always received for free?

ZDNet’s Tom Steinert-Threlkeld wrote a blog post on whether on not Newsday’s pay model is an Optimum one.  He says,

It’s not like I don’t value it. I just don’t have to pay for it, on screen.

Of course the question is not whether we value are not, we all value the service we get from Newsday or NYTimes despite the $0.00 price. It is also not the question of communicating this value. Like Tom, most readers will not accept the transition from fee to free model because of their reference price frozen at $0.00.  So if the NYTimes or Newsday  want to charge for what used to be free they need to focus first on impriving this reference price.

To answer the question, will Newsday succeed? Without any move to improve customer reference price, they are not going to find it easy to convert customers from free to fee. Take the case from airline industry. US Airways started charging for coffee and soft drinks in their flights but after seven months they decided to rollback their unbundled pricing. My recent consumer behavior experiment shows that such a move would have been successful if they had considered improving customer’s reference price.

Reference price rule applies to valuing any service and especially with valuing free.  WSJ and has it easy because they never made their online version free. For everyone else who want to move to fee model, “it is the reference price, stupid”.

What it would take for WSJ to be free?

In the continuing discussion on charging for online newspaper and unbundling the newspaper, the next question is what it would take for the WSJ to be free?

Current online  subscribers:     1 million

Subscription revenue/subscriber (average) :   $80/year

Lost subscription revenue:  $80 million/year

Current page views:     20 million/month

Expected incremental growth in page views:    180 million/month (10 fold increase)

Required CPM (cost per mille) for WSJ to be indifferent between the two options:  $37

This is more than twice that of sites with 200 million page views per month bring in. So unless the page views increase 20 fold to 400 million a  month or WSJ’s differentiated unique readership can command a CPM of $37 or more, there is no reason to give it away for free.