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Micropayments for news: The holy grail or just a dangerous delusion?

No matter how many times people like Clay Shirky or Mike Masnick try to pop the bubble of faith around micropayments as a cure for what ails the newspaper industry (or even the media industry as a whole), another believer emerges to argue that a secure and extensible micropayment system is a big part of the answer. The latest to make an impassioned plea is Jeff Reifman, the co-founder of NewsCloud, a “community-driven news aggregator” funded by the Knight Foundation.

In a recent blog post, Reifman outlines why he believes that micropayments can solve the newspaper industry’s problems. His post is a response to one by Steve Outing at Editor & Publisher, which carried the somewhat argumentative title “Your News Content Is Worth Zero To Digital Consumers,” and argued that charging people for news isn’t going to work unless that news is highly targeted to a specific niche. (Google CEO Eric Schmidt made a similar point recently about why The Wall Street Journal has been able to charge, and Paul Graham echoes that point as well.)

If you want to go back through some of the reams of text that have been written about micropayments for news, Clay’s essay from 2003 is a good place to start — especially since it lists the half-dozen or so attempts to create such a system that failed miserably. (Are you listening, Steve Brill?) There’s also a good roundup at the Freakonomics blog from awhile back that is well worth reading.

Reifman defends his approach by pointing to several successful models of payment for services, including iTunes, text messaging, TiVo, and broadband Internet. The first thing that leaped out at me is that three of those four things — iTunes, text messaging and broadband Internet — are a result of something approaching a monopoly (or an oligopoly or cartel, in the case of text messaging and broadband Internet). Apple can charge for music because it controls access to the songs from all the major record labels. Phone companies and cable companies can charge usurious rates for text messaging and Internet because they have little or no real competition. How does any of that apply to newspapers?

In his comments at the Freakonomics blog, Clay Shirky says the “fantasy that small payments will save publishers…is really a fantasy that monopoly pricing power can be re-established over users.” I think there’s a lot of truth to that. Newspapers have spent the past 100 years or so with a stranglehold on both the tools of mass publishing and the means of distribution, and much of what has happened to them over the past decade is a result of them losing both of those things. The unfortunate reality is that even the best micropayment system is not going to recreate that system of artificial scarcity and control — and some have argued that micropayments could even be bad for journalism as a whole, putting pressure on individual stories to be revenue generators.

Does that mean newspapers can’t make any money? Not at all. I think Mike Masnick has done a great job of pointing out how a media business can make money even if it gives content away for free — his company Techdirt does it, plenty of musicians and artists do it. And they do it by using the free content to promote the aspects of their business that have *real* scarcity rather than artificial scarcity. For music, that includes things like personal access, convenience, higher quality and so on. What does it mean for journalism? It could mean charging for different platforms, for early alerts, for special “members-only” access to certain premium or value-added content. But I’m pretty sure of one thing: It doesn’t mean charging people fractions of a cent to read a news story, no matter how sophisticated the process.

Photo by Kevin Eddy used under a Creative Commons license.

                                   
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  • http://steveouting.com/ Steve Outing

    Just a point of clarification on your short reference to my most-recent E&P column. Yes, I did say that for news orgs it’s likely that they can only get paid online for quality, unique niche content — but I’ve been saying that for a long time, so it’s nothing new.

    The main point of the column you cite is the idea that it’s much harder on the desktop/laptop web to sell the ephemeral (pay for a news article), than to get people to pay for something they get to “keep.” Examples of the latter: songs purchased on iTunes, mobile phone apps, etc.

    If you actually read my column, I’m suggesting a different way of looking at how people can be persuaded to pay for news either on the web or on mobile devices. Look at consumer psychology, and you’ll see that putting up micropayment or subscription walls online for fleeting content is counter to the way human buying behavior works. I think many people involved in this argument are overlooking the psychological factor, and we need to pay much more attention to this.

  • http://www.mathewingram.com/work Mathew Ingram

    Thanks for the comment, Steve — and for elaborating on your point, which I think is a good one (one that Clay Shirky has made as well). Didn’t mean to misrepresent your post.

  • http://steveouting.com/ Steve Outing

    In my best Stephen Colbert imitation: SHIRKY!!!!!!!! Difficult to have an original thought these days; someone’s always beat you to it. 8^)

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  • http://www.PoweredByWebAds.com Stephen

    I would argue that original news will become a *real* scarcity if newspapers and reporters close up shop because they don’t get paid (enough) to produce it.

    And then, where will the downstream get the professional content they like to repackage, comment on, and share for free?

  • http://hallambaker.com/ Phillip Hallam-Baker

    The monopoly on content is already being re-established. Many mainstream newspapers are either closed or bankrupt already. The blogosphere is largely parasitic on the primary news sources, if the primary news sources disappear, there is nothing left to comment on.

    I was involved in trying to make micropayments work from 1992 through to about 1996 when the newspapers decided that advertising would meet their need for a business model. At that time the problem was largely technology – people thought it was a technology problem when it is really a business problem.

    At that time the issue was not saving the newspapers, it was how to make the Web a viable alternative to the newspapers. A subscription model works just fine for a newspaper. But the result of subscription-only models on the web is ‘paywall sites’ that nobody wants to link to. And links are the only way you get new readers on the Web.

    There are many reasons to be skeptical about micropayments. I have seen many attempts crash and burn. Is this the right time? Perhaps, but there are still some pretty big business issues to clear.

    One of the very biggest is the risk that the payment system itself becomes a monopoly. This has already happened with Digicipher in satellite TV and with iTunes in music. There may be theoretical alternatives, but they are not viable for most users.

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  • Scott L. Burson

    I don’t know about other people, but I can tell you that as one consumer, I would be more than happy to use a well-designed micropayment system, at reasonable prices, to read my favorite news sites without ads. An ad-free reading experience seems to be the one thing news sites have left to sell to me, and I wish they would do so.

  • http://www.mathewingram.com/work Mathew Ingram

    Thanks for the comment, Phillip — nice to hear from someone who actually has some real experience implementing micropayments.

  • ronald

    The question is what is new. News doesn’t want to be free, it’s like a Virus. It spreads by any communication it can, and mutates on the way. Good luck to the old media and try to contain it.
    And like a virus some people are immune to it, while other will carry it on.

    The old way of:
    Business Value = Subscribers * Demographics

    Made us valuable to the publishers, little money from the subscribers, which were targeted with for example writing style and layout, to build Demographics which was sold to Advertisers.
    We got a little “information” and entertainment since we most likely belonged to targeted Demographics. We feel good since this enforced our believe system. This model is still carried forward by the WSJ for example.
    It’s basically a statistical model, no hard facts.

    Then came:
    Business Value = Eyeballs * intent

    And intent was proof-able, aka Google click through. But most people just looked at one part of the equation, eyeballs. But 250M * 0 still equals 0.

    As long as newspapers chase the eyeballs without understanding intent, they will loose.
    If one writes a program to value the news value, like.

    Information = Data in context
    News = new information in that context

    Most so called articles provide very little news, spread that out over online distribution and the value goes to 0. Means it would only make sense to pay a fraction of a cent to one article in that context, there go the eyeballs for the rest.
    Since they still haven’t figured out intent, they end up with 0 * 0.

    I think they haven’t thought it through. Their delusion seems to be that they will be the first to brake any “news” therefor they will get the fraction of that cent. But since they can’t control the “spreading” any more. It’s just that,
    delusion.

  • Dave Barnes

    I already have an ad-free reading experience thanks to Firefox and AdBlock Plus (with an extensive, hand-crafted list of filters).

    I will pay micro-amounts (for example, 5 mils per article), but I won’t pay stupid amounts such as 25 cents per article. I will go elsewhere.

    If 100% of the content providers charge for access and the price is more than I “want to pay”, I will stop reading the news and will read other things on the web. I personally find it difficult to imagine that 100% of the providers will charge. The NY Times and the Times of London may charge, but I bet that http://timesofindia.indiatimes.com/ will not.

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  • http://www.comradity.com Katherine Warman Kern

    There is no one solution to generating more consumer revenues for newspapers.

    Micropayments are a way to eliminate one hurdle: resistance to an all or nothing choice (i.e., subscribe or you get nothing).

    Micropayments enable paid trial: if marketed effectively is much more effective than trying to convince people attracted to a free offer to upgrade because the people to whom free appeals are the least likely to be interested in paying anything at all.

    But micropayments should be part of a more comprehensive marketing strategy involving product, pricing, promotion, and placement.

    Mainly inpsired by a back and forth with Paul Graham about his post “Post-Media Publishing”- http://bit.ly/MenLY – I just posted that a turning point may come when publishers recognize they are in the B2C (business to consumer) not the B2B (business to business, namely advertisers). http://bit.ly/h7eEi

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  • http://roberthheath.blogspot.com/ Robert H. Heath

    Nice article, and thanks for the link to Clay Shirky’s 2003 article.

    I can add nothing to Shirky’s arguments why micro-payments are likely to fail. He’s done a masterly job of showing why the micro-payment approach is less efficient than the alternatives: aggregation, subscription and subsidy.

    Even if he’s wrong (and I seriously doubt it) a successful micro-payments based business model will only expose how much of traditional newspaper economics are based on bundling other people’s content. The web does a pretty good job of that at a pretty reasonable price, which will make it impossible for newspapers to reclaim that revenue on or off the web.

    For more on this topic, see my post at http://roberthheath.blogspot.com/2009/07/clueless-in-chicago-unraveling.html.

  • http://roberthheath.blogspot.com/ Robert H. Heath

    Bad link in previous comment. Here is a working one.

    http://roberthheath.blogspot.com/2009/07/clueless-in-chicago-unraveling.html

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  • http://www.subhub.com Evan Rudowski

    Since we at SubHub run one of the few commercially successful subscription and membership website publishing solutions, with more than 500 sites on our network, I am always interested in these discussions.

    In these conversations, certain points are frequently misunderstood or misrepresented, as evidenced in some of the comments above.

    The main one is that subscription websites do not benefit from the link economy, as their content is locked behind a “pay wall.”

    Any good subscription website will publish a blend of free and paid content, with the free content being more than enough to cause the site to be well indexed by the search engines and linked to by those interested in the subject.

    Additionally, even the paid content behind the so-called “wall” can be published in a way that leaves headlines and article summaries exposed to the search engines, causing the individual paid articles to be indexed just fine.

    If we are going to have a legitimate conversation about the relative benefits of different revenue models, it’s important that people truly understand the functionality of these models.

    There’s a lot of genuine and honest misunderstanding, and some of this is unfortunately exacerbated by pundits who know better but perpetuate the negative myths because it reinforces the strident positions they’ve taken for or against one method or another.

    Your blog, Matthew, has always been well balanced and thoughtful, so thanks for that!

    Kind regards,
    Evan Rudowski

  • http://www.subhub.com Evan Rudowski

    Oops. And apologies, Mathew, for misspelling your name in my previous comment!

  • http://www.mathewingram.com/work Mathew Ingram

    No worries, Evan — happens all the time :-) Thanks for the comment.

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  • ronald

    @Evan Rudowski
    Maybe one size doesn’t fit all. Maybe “you” provide something useful.
    Let’s see:
    Information = Data in context
    Context = Organized data
    Learning = Self Organization of data (builds context)

    Now if we have a small well defined context one can provide useful new information by organizing data for a reader. Specially if I need that information “now” to do something.

    If we have a large shared context build upon the environment/culture we live in. Providing something “new” is rather difficult. I can scan for example a headline and know what the article will be about without reading it, since I already have a context with many overlapping areas. And will make up what’s missing with a good enough ratio.

    The question becomes what it is worth to me, in the first place something. If somebody organizes data for me to make it easier to grasp the relations that’s worth something. IFF it fits my model of context.
    In the later case, well not so much since the information value is really,really small.
    But most articles fall in the second category for most people. Then again we work from our context, if “you” provide some real information in a small context, people might be willing to pay for it.

    If somebody would provide a better craigslist for example. Organize data from local providers, maps, prices, reviews (local, I don’t care for flatland car reviews, I live in the Colorado mountains and need a car which can handle snow, right now) to a given search. My guess is, that would be worth something at least to the local advertisers and most likely to customers too.
    Intent on those searches is really high, see above.

    Or in other words shallow articles without much information since they are based on a wide shared context just won’t cut it. Or one can twitter about shallow stuff, most people will get it, but hardly about scientific research, most people will go huh?
    Btw, to make things worse. We are working on a system to automate all of this.

  • http://www.subhub.com Evan Rudowski

    @Ronald

    I think another deficiency in the current debate is that all everyone is talking about is how to get people to pay for an old format — a news article — in a new medium, online.

    In reality the new medium offers new formats, and that is what people will pay for. I may not pay for a news article on herbs, for example, but I may pay to be part of a knowledgeable community of herbalists who share information, ideas and encouragement (one of our very successful SubHub sites, herbmentor.com).

    Most of the noisy current debate is by old media companies trying to figure out how to get people to pay for old content formats. Why should they? The old media companies are not spending nearly as much time thinking of how to create something new as they are thinking of how to charge people for the old stuff.

    The people who are using the capabilities of the new medium to create something new are the ones who will find they are successful, at charging for content and at attracting advertisers.

    Kind regards,
    Evan

  • ronald

    @Evan Rudowski
    Agreed.
    Your example brings up another point. Authority.
    It seems to me your example is a specialist “social” network with the focus on herbs.
    Common interest, common context. But also by association, authority.
    Newspapers claim authority for their reporting.
    Questions is, do they have that authority or do just claim to have it. My guess it People have found out that most stories are aggregated from other sources therefor have little authority as reporting from a given newspaper.
    Not a good thing to make me want pay for that article.

  • http://www.icents.net Marc Glasberg

    Mathew,

    This is Clay Shirky’s text about iTunes:

    “Fans of the iTunes model are right to point out that people use it because they find it more convenient, but they overlook the legal and regulatory hurdles put in place precisely to make other models less convenient (especially for law-abiding citizens.) (…) Newspapers, even if every single one of them acted in collusion, cannot establish a monopoly on news.”

    I think it is indeed important to analyze why iTunes is more convenient than downloading music through file-sharing software, but it’s not at all for the reason Shirky points out. Basically Shirky is saying that users are buying from iTunes because they are forced to, they have no other option. This is simply not true. Monopoly by one definition is the market condition that exists when there is only one seller. I can hardly see how a company can be called a monopolist if you can get the same or almost the same product for free from your home computer. In addition, I have talked to dozens of friends who regularly buy from iTunes and not a single one told me they use the service because they think they would not be law-abiding citizens if they downloaded it for free.

    If the overwhelming majority of Internet users don’t think it is wrong downloading music for free how is iTunes selling content hand over fist? The answer is that users already have iPods and iPhones. iPods connect directly with iTunes music player. iTunes music player is also itself the browser for iTunes Music Store, and for the App Store that sells iPhone applications. iPhone only lets users upload applications from App Store, and so on. The result is that once you are inside Apple’s virtual perimeter, it’s not at all the same to get music from some other music store.

    Shirky is right when he says that people find iTunes more convenient because there are hurdles put in place precisely to make other models less convenient, but the hurdle is not legal or regulatory. The hurdle is that Apple has created a significant mental transaction cost (a psychological factor) for you to acquire music *outside* of Apple’s music store, once you have an iPod.

    @Steve Outing:
    I have an original thought for you: how content providers (including news websites) can replicate what Apple has done with iTunes: http://www.icents.net/en/website/TheNewCaseForMicropayments2009.html

    @Phillip Hallam-Baker:
    About the risk that the payment system itself becomes a monopoly: users should be able to pay with the payment systems they already use. In other words, a micropayment platform should simply aggregate regular payment systems, like PayPal, Google Checkout, Zong, Amazon Payments etc, and “change them” so they work for micropayments. This is what iCents.net does.

    @Mathew: sorry for the long comment!

  • Bunyip

    Personally, when Leo Hindery and Steve Brill talk, I listen. Brill’s Content was such a huge success, and as for Leo’s time at the helm of Global Crossing, well, need I say more. Leo always seems to omit that chapter of his career from his CV. Just a very modest chap, I guess….

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  • David Cortesi

    Overlooked in all this is the social aspect: any web item that interests or amuses or intrigues me, I want to share. And if I can’t share it promptly and easily — in an email link or on my blog or Facebook “wall” or in a tweet — I will be frustrated and irked just in proportion to the degree of interest I felt in the item.

    The more interesting I found it, the more “valuable” in any sense the item was in my eyes, the more I want to pass it along — and the angrier I will be when the link doesn’t work, or when it doesn’t go to the item proper (Evan Rudowski’s notion that a link back to the originating site alone will do is hopeful malarky), or when sends my correspondents to a bare abstract with a “pay here” link to see more.

    This remains the case when the micropayment is zero — remember the NYT registration system? How many times did you see in slashdot or digg a link to a NYT story with an embarrassed “(registration required)” after it? The NYT registration barrier was in fact a micropayment system, one in which the payment was extracted in the form of the reader’s time and keystrokes to log in whenever they got a link to a useful story.

    I cannot imagine a micropayment system that would place a LOWER barrier to casual linking than the old NYT registration system did. But it was widely detested and widely flouted. People who wanted to share a NYT story on digg or facebook knew their correspondents hated having to sign in to read something, so they — almost without conscious thought — just dragged over the text, hit copy and then hit paste. Violating copyright, not to mention often expunging the byline, losing the formatting, omitting to mention the source, and not infrequently introducing undocumented errors, omissions or intentional changes.

    By dropping their registration system the NYT regained some measure of control over their content. Now most sharing would be via simple links back to the original, at least preserving the author’s byline, the format, the complete text, and the accompanying illustrations. And giving the NYT some slight chance of selling marginal ads.

    No content-control system that impedes people from easily sharing content in their tweets, blogs, emails and other networking media, will work. If the content is really compelling, people will share it by copy/paste. If it isn’t, they just won’t bother, and readership will wither.

  • http://www.mathewingram.com/work Mathew Ingram

    That is a really great point, David — sharing (in other words, redistributing) the content is a crucial part of social media, and disconnecting people from that by putting up pay walls means effectively shutting down a really fundamental aspect of online behaviour.

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