April 24, 2014

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The Future of News: We're Lucky They Haven't Tried Macropayments

Regular readers will know that the newspaper industry is in dire shape: revenues off by 20% in just the last year, with more than 15,000 jobs lost in that period. This map tells the story better than any writing could. The market capitalizations of newspaper firms, which reflect investor expectations about future performance, have fallen even more precipitously. In short, it’s hard to exaggerate how dire the situation facing the industry is. If you were in charge of a newspaper, survival in any form possible would rationally be your all-consuming focus.

Walter Isaacson, the former editor of TIME magazine and current President of the Aspen Institute, wrote a column last week arguing that newspapers should squeeze revenue out of their web sites through “micropayments.” It’s an idea with a long, but not very successful, history: Isaacson himself points out that Ted Nelson, the inventor of hypertext, imagined micropayments for written content back in the early 1960s.

Small payments, on the order of a dollar, work well for some kinds of highly valued, contextualized content, like a book to your Kindle or a song to your iPod. But “micro” payments on the order of a nickel—the figure Isaacson mentions for a hypothetical news story—have never taken off. Transaction costs, caused by things like credit card processing, are usually cited as the reason, but I’ve never found that view persuasive: It’s not hard to set up a system in which micro transactions are aggregated into parcels of at least a few dollars before being channeled through our existing credit card infrastructure.

The Occam’s razor explanation for the persistent failure of micropayments is much simpler: People hate them. The niggling feeling of being charged a marginal amount for each little thing you do exacts a psychological cost that often suffices to undermine the pleasure of the good or service you receive on an a la carte basis. That’s why monthly gym memberships, pay-one-price amusement parks, and subscription services like Netflix or, come to think of it, regular cable are popular, even when a la carte options would be (financially) cheaper for consumers.

Michael Kinsley, the former editor of Slate, responded to Isaacson in a piece headlined You Can’t Sell News by the Slice. His basic message: We tried getting users to pay for content online—in Slate’s case, as an inexpensive annual subscription—and it didn’t work. One problem noted by both Isaacson and Kinsley is that readers have come to expect content to be free, and when individual papers have tried to start charging, they’ve failed.

What can the papers do? Isaacson is on to something when he says:

Another group that benefits from free journalism is Internet service providers. They get to charge customers $20 to $30 a month for access to the Web’s trove of free content and services. As a result, it is not in their interest to facilitate easy ways for media creators to charge for their content. Thus we have a world in which phone companies have accustomed kids to paying up to 20 cents when they send a text message but it seems technologically and psychologically impossible to get people to pay 10 cents for a magazine, newspaper or newscast.

If struggling news outlets were really bold—and grimly realistic about how little they have to lose, from a business point of view—they might decide to seek revenue at the ISP level. The plan: Begin segmenting site visitors by ISP, and charge ISPs for content. Under this plan, if your ISP has paid the news syndicate, you get to see the news. If you try to visit one of the participating sites and your ISP has not paid the syndicate, then you see a different page, possibly a page that urges you to call your ISP and demand access to the syndicated content. It’s the same model controversially adopted by ESPN360.com (go ahead, check and see if you have access or not). I imagine a hypothetical where a handful of top papers, such as the New York Times, Washington Post, and LA Times, jointly with TIME and Newsweek, form a syndicate that charges ISPs a fixed rate per user-month of access. ISPs, in other words, would make a small number of large (“macro”) payments to content providers, and these would be a primary source of revenue for these outlets, along with advertising.

I am, as Paul Ohm might urge me to say, NAL (Not a Lawyer), but I suspect that such a syndicate might well pass antitrust scrutiny. The syndicate would certainly not make it hard to find news on the web: it would simply make it hard to find certain high quality sources. Participating publications might elect to offer free access to certain population segments, who cannot pay or would experience a concentrated public interest harm, such as users from developing countries. ESPN360, for example, reportedly gives free access to anyone who surfs in from a .edu domain. (No doubt this is also a marketing tactic.)

For some definitions of the term “net neutrality,” such a move by news providers would be a violation of net neutrality. Other definitions of the term would place this behavior outside of its scope. But no matter how you look at it, the substance of such a move would be troubling: it would amount to removing these great sources of journalism from the Internet proper, and placing them instead in a kind of walled garden. If that trend took off and became very widespread, it could amount to a return to the bad old days of walled garden services like AOL and Prodigy.

A second good argument that this situation would be undesirable is that it would force all users of a particular ISP to pay for content that only some users want to access. There’s a sense in which such cross-subsidies are already the norm: those who use their ISP subscriptions for email and web browsing subsidize the heavier network usage of video aficionados and other leading-edge consumers who are way out on the tail and use the lion’s share of the bandwidth. But this, in its deliberateness, would be a new and different level.

A third good argument against this idea is that it would introduce awkward relationships between news outlets and ISPs, in a manner that would impair news coverage of the Internet and telecommunications industries.

Fourthly, there’s the possibility that people will pirate the blocked content systematically by using systems like TOR to access the news content via approved endpoints. (My own thought is that this probably isn’t the strongest argument, since many users are uninterested in this sort of maneuver or even the easy Firefox plugin that would likely arise to enable it. Plus, the content syndicate would pool its resources toward aggressive litigation to stem this trend. Plus, the payments would be extracted from law abiding ISPs, not individual users.)

I can imagine a potentially compelling case being made that such behavior by content providers should be regulated or outlawed. But today I think it is neither. And given the news industry’s desperation, the fact that such a move would be unpopular could turn out to be moot if they can persuade ISPs to pay. If someone capable and hardworking set out to sell the idea to a group of newspaper and newsmagazine publishers, I fear they might prove quite persuasive.

Comments

  1. dwallach says:

    Try visiting portal.acm.org. If you’re at a major university that pays its dues, you can download any ACM paper ever. It’s brilliant. If you’re elsewhere, you have to either pay up per article, or hope the original authors have a copy on their home page somewhere.

    Of course, newspapers have tried all sorts of variations on this theme before. The New York Times used to have TimesSelect if you wanted to read any of the good op-ed content. The Wall Street Journal used to require a subscription to get very far into their web site. Now, all of that content is just out there with piles of advertisements but otherwise free.

    Micropayments happen all the time, already, but the pricing is for advertisements. Newspapers are clearly doing everything they can to present innovative and annoying ads to their users, to the point that their content can be unreadable due to the distracting ads.

    I agree that micropayments from users to newspapers are unlikely to take off. You could certainly try to drop the paper part of the business and go purely online. I’d be curious whether the online ad revenue would be enough to support a proper newsroom. My guess is that it isn’t, otherwise they’d be doing exactly that in droves.

    • Tel says:

      The academic publications don’t actually create content, nor do they buy content. Their content is handed to them for free by academics who merely want people to read their work. The last thing the academic wants is obstructions restricting the audience.

      Gradually academics are learning that it is so incredibly cheap to host their own work they don’t need a publisher. The publishers have been in the habit of trying to force academics to sign over their copyright but this too is losing popularity as the content creators (rightly) feel they should be able to do what they want with their own content.

  2. Lisa Westveld says:

    I have to disagree with people hating micro-payments. They don’t, if the payments are transformed to a different currency. Look at the virtual world Second Life, for example. This world has lots and lots of micro-payments but people don’t seem to realize that they’re making small payments. That’s because the in-world currency, the Linden Dollar, is worth much less than the real dollar. ($1 = L$265) Thus, inside the virtual world, a person might pay L$100 for a new (virtual) dress, give L$10 tips to dancers and buy virtual land for about L$2500 per 512 sq.m. In real dollars, these are very small payments but in-world, they can be big.

    I think a micro-payment system could work if people could e.g. buy 500 credits for a dollar and then pay with credits. It makes the micro-payments seem much more valuable. Furthermore, the credit should give the reader more possibilities than just read the article. When you pay to read some article, you should also have the right to add comments to the article. If you don’t pay, you might read the article somewhere else but you won’t be able to read any comments from other readers. But readers are curious thus this might lure them to pay up, since they’re not just getting content, they’re getting a chance to interact in the topic. Makes them feel important or whatever.
    And if it only costs 10 credits to read and comment on a single article, you might be collecting a lot if you have plenty of new articles. :-)

  3. Crosbie Fitch says:

    The term ‘micropayment’ is misapplied to what everyone is actually thinking of, i.e. microcharging.

    It is a demonstrable folly for online publishers to attempt to charge people for what they already have (published works). Far better to enable people to pay for what they would like (more good works to be published).

    That’s why I’m working on 1p2u.com – a way for readers of blogs to pay the blogger a penny for each post they publish.

    Micropayments can work when the payer and payee are HAPPY to make what should be a voluntary exchange.

    The only way micropayments wouldn’t work is if they were compulsory, i.e. microcharges – “You’ll pay a penny whether you want to or not!”.

    • Crosbie Fitch says:

      I think there’s been an incredibly large misunderstanding when it comes to micropayments.

      ‘Payment’ is a voluntary exchange of money for something of value.

      ‘Charging’ is a compulsory levy for something already received.

      Thus microcharging is going to find few takers for digital publications.

      However micropayment has a bright future.

      Let those who wish to pay a producer of digital art do so. I’m sure there are many who wish to.

      The important thing is to restore everyone’s cultural liberty, to honourably share and build upon public culture without fear of prosecution (for infringing copyright or patent).

      People will not pay for copies that they can make themselves, but they will pay for the art that they can’t.

  4. Crosbie Fitch says:

    Good news will always be valued.

    Unfortunately, copies are extremely cheap to make, and ever greater numbers of people are paying a black market price for them rather than the monopoly price, i.e. paying nothing instead of something.

    Instead of a revenue model that depends on monopoly protected sale of copies of news, you’ll have to move to sale of news. Sell what people want (news), not that which they can make themselves for nothing (copies).

    Fortunately, the very device that makes copying so cheap is the same device that makes communicating with one’s customers so cheap, i.e. The Internet.

    So, form a bi-directional relationship with your online customers (see VRM) and sell the news to them, and moreover, encourage a free market in copies (rather than the black one that exists anyway).

    That’s what the new revenue model is.

  5. Anonymous says:

    there is a / missing between article and 109884 in the link

  6. Crosbie Fitch says:

    This is evidently a hot topic. Here’s a pertinent link to related discussion:
    http://blogs.law.harvard.edu/vrm/2009/02/11/paychoice-for-newspapers-and-everything-else-thats-free/

  7. tz says:

    I don’t think Micropayments is even an issue with the newspapers.

    Generally the choice is paying for dreck praising the Democrats and pounding the GOP, or paying for the reverse dreck without any real analysis or even something that would summarize the few microscopic bits of actual rational thought into what would fit into an SMS.

    I don’t care what Pelosi thinks of Boehner’s statements or what Boehner think’s of Pelosi’s statements. I do care about what they are passing and the substance and effects. Google can aggregate the good and bad into an amalgam faster than any newspaper, and having a dozen economists (many who completely blew it or are otherwise clueless about the real world) post shorter comments (usually of far lower quality than the average blog troll) is not something I would pay for.

    The news coverage has turned into doing play by plays of Soccer during a playoff season for a sport someone in the US cares about.

    If they would even bother actually doing investigative reporting and uncovering the scandals BEFORE a cabinet position is offered, or before we went into war (and there were and are voices saying “look here!”), maybe I would actually purchase something which contained it.

    BECAUSE the only coverage worth bothering about is from small media outlets and often on the internet, I’m there.

    The title comes from the 1970s when GM, Ford, AMC and Chrysler wondered why people weren’t buying their cars.

    BECAUSE THEY WERE FAULTY, UNRELIABLE, STINKY, GAS-GUZZLERS!

    Why are Newspapers in trouble? Because their product is as obsolete as a 1960′s muscle car in the era of $4/gal gasoline.

    Micropayments might have as much effect as rebates had. But the root cause is the product, not the marketing or distribution channel.

    Would you pay for real, significant information? By people with proven track records? Which mattered both in your back yard and the world? Probably. I would. But where can I find it? A lot is free on the internet already.

  8. kamper says:

    it would force all users of a particular ISP to pay for content that only some users want to access.

    Is there any good reason why ISPs couldn’t segment within their own customer base, the same way a cable or satellite provider offers bundles of channels to their subscribers?

    Also,
    Fourthly, there’s the possibility that people will pirate the blocked content systematically by using systems like TOR to access the news content via approved endpoints. (My own thought is that this probably isn’t the strongest argument, since many users are uninterested in this sort of maneuver or even the easy Firefox plugin that would likely arise to enable it.

    Don’t you think that users would get more interested if there was more at stake? I think someone would do the work to make it easy if all it took to circumvent the access control was to proxy through a “paying” ip address. I think the net is currently too open to implement a payment system purely by source address. The content networks would have to come up with a stronger (read: messier) restriction system.

  9. rp says:

    Dan Wallach already pointed out that in ad brokering we have a perfectly functional micropayment scheme; the payment is by businesses per “impression” rather than by readers per article. (Which suggests another business for ad brokers to be in, if only it weren’t for those pesky ad blockers: users who signed up would be charged some fraction of the going rate to receive null ads on sites they visited.)

    It’s also not really fair to say “users hate micropayments” without giving at least a little context into the strenuous efforts by existing payment clearinghouses to make micropayments impossible. Many of the early trials foundered not so much on problems with users as on regulatory and interoperability hurdles introduced by their competition.

  10. Ben says:

    It really bothers me when content isn’t available to everybody. Plenty of, for example, Doctor Who content that is available on bbc.com to people in the UK is not available outside of the UK. As someone not in the UK, this really bugs me.

  11. JK says:

    Your post raises this question. How is it that phone companies can convince customers to pay 0.20 per text, but newspapers can’t convince users to pay 0.20 per article? Is it an age issue (teens sending texts; older adults reading newspapers)? Is it because customers stick with one company for texts, but read news from multiple sites?

    • Anonymous says:

      Let’s put it this way, if one mobile operator undercut the competition by even 10% then quite a few folk would migrate to it.

      At the moment, there’s a cosy oligopoly pretending to be competitive.

      Texts could easily be free, but given the oligopoly, the market has been determined to bear 0.20 per text. There is no advantage to any member of the oligopoly in lowering the rate – people won’t necessarily send twice as many texts as a result of a 40% price cut – though the people would certainly appreciate cheaper bills.

    • rp says:

      Bundling. You already have a cell phone, and it already sends messages. So there’s nothing at the point of “sale” to deter you. You just get the bill later, and the cost of paying it is usually less than the cost of paying the termination fee on your phone contract, possibly changing your phone number and getting a new phone etc. The cell companies also sell package of N discounted messages for the risk averse, but mostly it’s about already having the phone and getting charged automatically.

      Going back to the ISP-collusion thing, imagine that your monthly phone or cable bill simply had an added amount for premium web content from sites your ISP had agreements with. If you got something in return, such as no ads or (ahem) faster loading would you complain all that much?

    • John Millington says:

      The phone user and the carrier already have a business relationship anyway, and whether the user sends that text message or not, they’re getting a bill next month. The only thing at stake is the amount of that bill.

      When you come to my website, you’re not expecting any bills at all. If I were already charging you something every month (especially if it were a fairly large amount, like most cellphone bills are), you probably would be less averse to a few-pennies additional charge to read a particular article.

      • JK says:

        When you come to my website, you’re not expecting any bills at all. If I were already charging you something every month (especially if it were a fairly large amount, like most cellphone bills are), you probably would be less averse to a few-pennies additional charge to read a particular article.

        Right, but this could be solved by having the user pay a monthly bill to a micropayment company, and having the micropayment company makes the smaller payments to individual websites on an immediate basis.

        • rp says:

          This already works fine when the user is a company that wants to advertise something, so there’s reason to expect it will scale. But I’d consider going a step further and having the micropayments company do a deal with your ISP, so that you don’t even have to set up a new business relationship. Your ISP bill will then vary from month to month the same way your cable bill changes when you order pay-per-view or “on-demand” viewing, or the way your phone bill does when you make long-distance calls (which are generally not carried end-to-end on your phone company’s network).

          Obviously there would be issues to work out with this model, the same way that there are for phone and cable billing for third-party services, but it doesn’t seem immediately implausible. The big hurdle will be that the ISPs (at least the last-mile providers) currently seem way more interesting in extracting money from the web sites their users visit than in delivering revenue to them (even if both could potentially be done together).

          • Anonymous says:

            All of this nonsense isn’t even a solution in search of a problem — it’s a *problem* in search of a problem. You’d get all kinds of problems akin to “slamming” and “cramming” with this scheme, and for what? So some monopolistic businesses can continue to charge higher than marginal cost for pieces of information?

            What utter nonsense.

            The market will sort it all out, given the chance. Information will be free, and companies that can’t find business models that account for that to-them-inconvenient fact will simply not survive. No big loss. Do we today miss the buggy-whip industry?

            We shouldn’t be thinking about how to “save newspapers”; we should be thinking of how to maximize liberty and protect the freedom of the people to exchange information unfettered, unmonitored, and when they so choose, anonymously. Business models will emerge for some things. Have emerged for others. Newspapers will each save themselves or die trying. Darwin’s law will operate, as it should*.

            * We don’t tend to like it operating on us, individually. But I see no reason not to leave it alone when it culls corporations. Corporations are not people and do not have awareness. They are amoral agencies, sometimes useful and sometimes harmful, that exist to serve humans (customers, employees, shareholders) and not the other way around. They need and deserve no compassion; they have limited rights.

            They are tools, to be used and then discarded when obsolete.

            It is time to put them in their proper place in a truly free and capitalist society: they make excellent servants and terrible masters.

          • Anonymous says:

            Seconded regarding liberty. You can’t save newspapers by any act that would destroy freedom of the press!

  12. dmc says:

    I really believe that micropayments are the only online content business model that is going to work in the long run.

    I think one of the barriers to acceptance of micropayments is that no simple, universal UI mechanism for managing them has arisen yet. Obviously nobody wants to have to go through a fill-in-your-credit-card-information for a bunch of 5 cent transactions. Nobody wants to be pestered with lots of annoying “Accessing this article is going to cost you 5 cents. Do you want to proceed?” messages. Nobody wants to have to deal with one payment mechanism at mylocalnewspaper.com and a confusingly similar-but-different mechanism at mynationalnewspaper.com. But these are just growing pains. I firmly believe that at some point somebody’s going to figure out how to do the equivalent of hooking up a NYTimes account with the next generation of Paypal and charge you 5 cents every time you access certain articles, without pestering you too much. And NYTimes will demand that you enable that hookup before providing you with certain content. And just as people have gotten used to paying 20 cents for a text message, they will get used to the 5 cents for the article.

    I really believe that if such a system were in place, today, there’d be much less discussion about “digital piracy”. If people paid 5 cents every time they listened to a song, there’d be very little interest making “illegal copies”.

    I don’t believe that the charging-an-ISP-for-access-to-the-content model will work. First of all, small ISPs would be unlikely to want to purchase access. Even large ISPs (say a university) might be unwilling to purchase access to a non-local source (can you imagine the College of St. Elizabeth in northern NJ purchasing access to the San Jose Mercury? maybe, maybe not). Also, do you really want the ISP choosing what news it wants to sponsor?

  13. Anonymous says:

    Mostly, the newspapers seem to print the latest “press release” from the RIAA or the like, which feels like something the RIAA should be paying for, not me.

    Ultimately, any newspaper that finds a way not to charge readers is going to be where the readers go. The free market guarantees that the rest will fail.

  14. Ian Elwood says:

    Some really good considerations here. I think two key components are diversity of sources of news interoperability.

    Spot.Us is one way of funding local investigative journalism, people can pledge a few dollars toward the story being published–a form of micropayment. But the site (disclosure: I sit on the Community Advisory Board) also allows interoperability in the form of a creative commons license. If someone wanted to assemble a news service that used Spot.Us for investigative length stories and then did follow up, they could do that and it would be fine.

    This is a good way of having institutionalized general reciprocity (otherwise known as cooperation) that can benefit the news writers and the news readers.

  15. PapayaSF says:

    I think micropayments could work and possibly save newspapers, but a few things have to happen. 1) Make them really micro, as in one cent or a fraction of a cent, so small that nobody really cares. Yes, even a nickel is too much. 2) The easiest way to make it universal is to partner with ISPs. Give them a cut in exchange for tracking, then add the total to each user’s monthly bill. No separate credit card hassles.

    So let’s say the average surfer reads 5 articles a day. At a tenth of a cent each, that’s 15 cents a month. Split it 50/50 with ISPs but multiply it by about 250 million Internet users in North America, and wouldn’t $18,750,000/month swamp the income from banner ads on newspaper websites?

  16. Chris Durand says:

    The lack of a “try before you buy” for news is also important. If I know it is a great article (say a friend recommended it), then I’d be more likely to make a micropayment. Without being able to ascertain the value of the product beforehand, then the psychological costs become much greater since most people don’t want to waste money, even if it is only a fraction of a cent.

  17. Steve says:

    This service already exists on most mobile phones which have internet surfing capabilities (just about all these days). I know I have to pay 50 cents a news article to view it on my phone. If they made the pricing a little more realistic I may be interested.

    Steve