Greg Gannicott’s Blog


Backwards Thinking on Saving Newspapers

Posted in Technology by Greg Gannicott on May 18, 2009
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Usually when I read an article that interests me I’ll simply share it via my Google Reader shared items, but some are worth highlighting on this blog too.

Over in America – during the past two or three months it seems – things seem to be heating up with regards to the discussion of saving the newspaper.

I’ve been fascinated by this for some time now. Although its not completely cut and dry, more often than not it seems bloggers have a better understanding of the situation than the newspapers.

This has been no more apparent than this blogger’s (Techdirt) reply to this newspaper’s (The Washington Post) article by two lawyers who propose changes to the law to help save the newspaper.

The choice quote on the part of the lawyers is:

Bring copyright laws into the age of the search engine. Taking a portion of a copyrighted work can be protected under the “fair use” doctrine. But the kind of fair use in news reports, academics and the arts — republishing a quote to comment on it, for example — is not what search engines practice when they crawl the Web and ingest everything in their path.

Publishers should not have to choose between protecting their copyrights and shunning the search-engine databases that map the Internet. Journalism therefore needs a bright line imposed by statute: that the taking of entire Web pages by search engines, which is what powers their search functions, is not fair use but infringement.

What the lawyers suggest would result in search engines becoming useless and if enforced would pratically bring the web to a halt.

The choice quote from the Techdirt article is when they highlight this user’s (Dale Harrison) comment which was submitted on the Washington Post’s article. It makes an excellent point:

A lesson worth remembering is at the turn of the 20th century people had a transportation problem… and the solution turned out not to be a “faster horse”… but a Ford.

And one should note that the Ford didn’t arise out of the “Horse Industry Revitalization Act”.

I think the future of the media business will look as different as Ford and Toyota’s operations look from horse traders and blacksmiths.

Imagine what the passage of such ill-conceived legislation would have done to the car industry a century ago.

It would have strangled the nascent auto industry at birth, postponing its inevitable rise while sheltering a dying industry, only postponing its inevitable demise… doing great damage to both. Newspapers need to be encouraged to adapt to the future, not retreat behind legislative walls hoping the future will go away.

The newspaper industry’s troubles go to the very core of their historical business model.

What’s historically given value to editorial content is the relative scarcity of distribution versus readers. Newspapers have enjoyed natural localized economic monopolies that allowed each of them to exercise monopoly control over the amount of content (and advertising) they allowed into their local marketplaces.

Monopoly constraint of distribution and supply will always lead to prices (and profits) significantly above open market rates. Newspapers then built costly organizational structures commensurate with that stream of monopoly profits (think AT&T in the 1970’s).

The dynamics of content replication and distribution on the Internet destroys this artificial constraint of distribution and re-aligns advertising (and subscription) prices back down to competitive open market rates. The often heard complaint of Internet ad rates being “too low” is inverted… the real issue is that traditional ad rates have been artificially boosted for enough decades for participants to assume this represents the long-term norm.

An individual reader now has access to essentially an infinite amount of content on any given topic or story. All those silos of isolated editorial content have been dumped into the giant Internet bucket. Once there, any given piece of content can be infinitely replicated and re-distributed to thousands of sites at zero marginal costs. This breaks the back of old media’s monopoly control of distribution and supply.

The core problem for the newspapers is that in a world of infinite supply, the ability to monetize the value in any piece of editorial content will be driven to zero… infinite supply pushes price levels to zero!

What this implies is that no one can marshal enough market power to monetize the value of content in the face of such an infinite supply and such massively fragmented distribution. Pay-walls, lawsuits and ill conceived legislation won’t allow the monopoly conditions to be re-constructed.

There are certainly ways to make online news profitable… and many of us are working to develop such approaches… but I can assure you they don’t involve inventing a “faster horse”…

The artcles can be found here – the Techdirt one in particular is worth a read. It does a great job of debunking the suggestions made by the writers of The Washington Post article: