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media economy multimedia

Newspapers, advertising and the Internet: How journalism has always been subsidised

iStock_000000503743Medium

The disruptive power of the Internet changed everything in media. But it did not cause everything.

The decline of newspapers, so long the editorial paymaster for photojournalism, is a trend dating back six decades.

Globally there are mixed signals concerning newspaper circulation, with some reporting growth in Asia offsetting falls in Europe and the US, while other sources reveal “printed newspaper readership is now declining in almost all major economies,” including China and India.

In the US, UK and Canada, the data is clear and dramatic. The Communications Management Inc. study on Sixty Years of Daily Newspaper Circulation Trends shows newspaper circulation has been falling since 1950:

CM2011 newspaper circulation comparison

Because the defining characteristic of the new media economy is “the separation of information from its means of distribution” we cannot conclude that the decline in newspapers means the demise of journalism, visual or otherwise. The reverse is in fact true – journalism has many homes and benefits from the freedom of circulation and distribution that the Internet makes possible – the Pulitzer Prize winning InsideClimate News is a great example.

The problem is that the traditional homes of journalism have seen their already parlous financial health further undercut. However, we have to remember that most media organisations are in business, but not primarily the business of journalism. Legacy organisations (including great ones like The New York Times) spend no more than 20% of their budget on news content (in fact, in the US the industry average is 12.7%). The rest goes on the management and operation of the distribution model.

Media organisations are in the business of advertising, advertising has accounted for 80% of their revenue, and that revenue has subsidised the journalism that provides the content that draws the readers/views in to see the advertisements. Above all else it is the collapse in advertising revenue for print media that has been the single largest cause of journalism’s financial crisis, as this graph from Mark Perry shows dramatically:

Newspaper ad revenue 1950-2012

The disruption of the Internet has put added pressure on print advertising and online advertising has not replaced print losses.

There are some vital lessons flowing from this for the future of visual storytelling. We have to understand that:

  • journalism (reporting, stories, pictorial coverage) has never been a viable, stand-alone product. It has never paid for itself directly and its users have never directly paid for all of it. Journalism has always been subsidised by indirect sources, principally advertising;
  • the culture of “free” is originally a product, not of the Internet, but of the mass media model – it comes from “free to air” radio, “free to view” television (both financed indirectly by advertising) and newspapers with small subscription fees making up no more than one-fifth of their revenue, all of which enabled many generations of users to get their information for no charge at the point of consumption;
  • there will not be a one-size-fits-all, single business model for good journalism in the future, but it will continue to depend on sources of indirect subsidy;
  • successful journalism operations (of which there many good examples) are becoming sustainable not by discovering some untapped, secret pot of gold, but by diversifying income, making new connections between advertising, paying for content, selling data and technology, events, freelancing, consulting etc.;
  • photojournalists and visual storytellers should not pin their hopes on “paywalls” for established news sites as the single best solution, because even if they work on some measures these are not going to bring back a lost golden age of editorial assignments, as user subscriptions can never replace lost advertising revenue for legacy organisations.

This historical perspective challenges some important myths about what happened to media. None of this makes the present struggle for critical visual journalism easy. But it should re-set the terms of the debate about what is happening now, and re-frame some of the strategic options for the future.

This is the fourth in a series of posts highlighting the content of “Visual Storytelling in the Age of Post-Industrial Journalism“, the World Press Photo/Fotografen Federatie study of the global emergence and development of multimedia in visual storytelling, especially photojournalism. The posts are searchable with the ‘Multimedia Research Project’ tag.

Categories
media economy

Getting paid in the digital economy

Spring

Few topics are as potentially toxic as the question of how one gets paid for creative work in the digital economy.

This week has seen the latest round of recriminations on this topic following Nate Thayer’s posting of correspondence with The Atlantic, in which he was invited to edit a previously published 4,300 word article down to 1,200 words for no pay. Thayer’s post went viral, attracted more than 100,000 views on his blog, sparked widespread social media debate, and led to an apology from The Atlantic.

As someone who writes, lectures and produces freelance, I have a personal interest in these questions. I’m regularly asked to work for free. Only this week I was invited to present a new keynote lecture to the annual meeting of a European organisation, something that would have taken at least three days to prepare and required two days of travel, yet there was to be no recompense beyond the necessary economy flight and overnight hotel stay. Needless to say, in the absence of any other perceived benefits, this invitation was respectfully declined.

As much as examples like this invitation and Thayer’s experience invite a moralising response, we learn little about how the new media economy works through venting our disgust. Instead we need to probe deeper into what such moments reveal about the cultural economics of our current moment.

To that end, in repsonse to Thayer’s post, Reuters’ Felix Salmon detailed the new dynamics of online journalism, showing that while there are good digital journalism jobs available, overall the structure of publishing online means “the web is not a freelancer-friendly place.” Alexis Madrigal’s impassioned defense of The Atlantic editor’s perspective also revealed how an online operation differs from (often misplaced) assumptions about the good old days of print magazines. And paidContent’s Matthew Ingram spelt out how the almost infinite supply of quality writing available at no direct cost means few people are going to make a living directly by submitting work to traditional outlets.

This doesn’t mean that people don’t value good writing, or that there aren’t successful new publishing outlets, like Marco Arment’s The Magazine, which is digital only (and a testament to simple design), runs no ads, pays its contributors, and is already turning a handy profit.

What this latest debate shows is that in the context of infinite supply, creative practitioners will rarely be remunerated directly for their work, regardless of whether that work is in the form of words or images. Instead, as I’ve long argued, the dynamics of the new media economy means those of us working independently will have to be compensated indirectly from diverse sources. We all have bills to pay, but we may not get the money to do so from the words we write or the pictures we produce, but from value created around those words and/or pictures. Above all else, we have to forgo the easy moral outrage and develop a more sophisticated understanding of the role ‘free’ plays in relation to paid in a structurally open system like the internet. Creative experimentation is the order of the day. I know personally how hard this is, but it is now unavoidable.

Photo credit: Rebecca L. Daily/Flickr

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media economy

The struggle for the open web: putting ‘piracy’ in perspective

The struggle for the open web is going to be a big issue in 2012. Given the importance of the internet to creative producers, its something we should be paying a lot of attention to. And that means, first up, thinking about the implications of the Stop Online Piracy Act (SOPA) currently before the US Congress.

Commenting on issues surrounding creative content, copyright and piracy on the web is fraught with danger. All too often the battle lines are starkly drawn, issues are cast in black and white terms, and people fight their corner with passion. I’m always trying to question such simplistic frames, but my sympathies clearly lie with those favouring openness. If you’ve followed earlier posts (see them via the ‘media economy’ tag) you will appreciate that. At the same time, a fair reader of those writings over the last couple of years will know that I want creative producers to be paid for their work, and for that work to be protected by a system of copyright that works in the digital age. Which is hardly surprising, because as a writer and producer working largely freelance, I too need to pay the bills through my labour.

So what is SOPA? There is good background on the provisions on Wikipedia, in a Guardian explainer or CNET’s excellent FAQ. In many ways it recalls aspects of the UK’s 2010 Digital Economy Act, which I questioned at its inception. The essence of SOPA is that piracy is killing America’s creative industries, and foreign “rogue” web sites that allow or encourage illegal downloading would be targeted with a court order, which US internet service providers would have to enforce by preventing their US subscribers from accessing such sites. According to CNET, this “could require Internet providers to monitor customers’ traffic and block Web sites suspected of copyright infringement,” something that could involve deep packet inspection or DNS blocking. Given that these are the means authoritarian regimes use to censor the web, this has led to the provocative claim that SOPA will install the “Great American Firewall.” Whether or not that is fair, some consequences are deeply worrying. Harvard law professor Lawrence Tribe has argued the act is unconstitutional because of its vague and sweeping provisions: “Conceivably, an entire website containing tens of thousands of pages could be targeted if only a single page were accused of infringement.” If enacted, that provision would mean the blocking of Wikileaks and other currently legal sharing sites.

One of the things that troubles me about the drive for legislation like SOPA is the focus on piracy. I don’t doubt that unauthorised file sharing is a real issue and that we should find ways to limit it. What I doubt is that such downloading is “killing” the creative economy and that criminalising behaviour and restricting web access are the best means to combat it.

The language of the debate is part of the problem. In a fascinating doctoral study of legal metaphors and legacy mindsets, Stefan Lund has argued that even notions of “copy” and “theft” are ill-suited to the realities of the digital age. But if we don’t want to go that far, then consider the frame of a book such as Robert Levine’s Free Ride, which I’ve read over the holidays.[nbnote ]Robert Levine, Free Ride: How the Internet is Destroying the Culture Business and How the Culture Business can Fight Back (London: The Bodley Head, 2011).[/nbnote] Levine writes of “the internet” as an agent that has “ransacked” traditional media. He believes the fight between creators and copyright infringers is one of the main reasons for the culture business’s problems. Indeed he claims that “the illegal availability of all kinds of content has undermined the legal market for it.”[nbnote ]These quotes are from the “About” and “Introduction” sections, but as I read the Kindle version of his book, there are no page numbers to reference. [/nbnote]

Really? The legal market for all creative content has been totally undermined? While illegal download charts show millions of copies of movies are being ‘pirated’, the most downloaded movies are often those doing best at the box office. And with box office revenues totalling $10 billion per year in America, there isn’t much evidence for the idea the legal market for films is gone for good. Add to that – to repeat a link provided in my previous post on leveraging the web – the TorrentFreak experiment that demonstrated the switch of all US BitTorrent users to Netflix would generate $60 million/year, far short of the billions said to be lost to piracy, and I think we need to put the apocalyptic claims about morally reprehensible individuals destroying the creative economy in perspective.

For a final thought, listen to the award-winning, best-selling author Neil Gaiman speak of how the open web benefited his sales, and turned him from a “grumpy” hater of ‘pirates’ to an advocate of sharing:

Gaiman asks his audiences how they found out about their favourite authors – the authors they now buy regularly – and 90% or more reveal it was through books being lent to them. In its logic, the sharing of books amongst friends and through book clubs is similar to the unauthorised downloading of digital files. But we never think of this long established form of off-line sharing as an activity that should be criminalised (imagine Congress proposing book club members face up to five years in prison for passing on a novel!). Far from being a reason for lost sales, Gaiman sees sharing as the precondition of increasing sales. “Nobody who would have bought your book is not buying it because they can find it for free,” he states.

I think Gaiman’s experience is worth more than Levine’s argument. Of course, someone will now pop up and try to limit the implications of Gaiman’s story by saying something like ‘it’s fine for an established author to say this, but what about emerging writers without his reputation?’ They might be right in so far as they are talking about scale – that Gaiman’s return from openness will be higher because of his prior reputation.

But they will be wrong in so far as they are talking about the logic. As Gaiman says, his experience revealed to him “what the web was doing.” That function applies to all of us regardless of previously established reputations, and can be used to help create that reputation. So, for me, the best approach is one that works with the inherent logic of the open web to achieve the desired outcome, rather than fighting against its feared consequences. Too often an over-reaching focus on ‘piracy’ makes the latter the priority, which means we don’t get on with the developing the former.

Featured photo: NASA Goddard Photo and Video/Flickr

Categories
media economy photography

Leveraging the web: how people are willing to pay for content

Will people pay for online content?

Here is a recent example, and a recent thought experiment, that gives us food for thought in the often fraught discussion of how people can leverage the benefits of the web (global access and ease of distribution at reduced cost) to generate income from creative content.

The example comes from the comedian Louis CK who asked:

If I put out a brand new standup special at a drastically low price ($5) and make it as easy as possible to buy, download and enjoy, free of any restrictions, will everyone just go and steal it? Will they pay for it? And how much money can be made by an individual in this manner?

Louis CK has provided an admirably transparent account of his thinking and production process, revealing the costs, revenue and profit. His experiment has been analysed in detail by Mike Masnick of Techdirect in two interesting posts (here and here). In short, he broke even after just 12 hours, and is now in profit to the tune of $200,000 or more.

On the purchase, page Louis CK put a message directed at prospective purchasers:

I made this video extremely easy to use against well-informed advice. I was told that it would be easier to torrent the way I made it, but I chose to do it this way anyway, because I want it to be easy for people to watch and enjoy this video in any way they want without “corporate” restrictions.

So Louis CK’s experiment made it easy for ‘pirates’ to take his content for free, avoiding all payment. Perhaps some did, but more than 100,000 people paid. That’s a pretty decent demonstration of willingness.

Which brings me to the thought experiment. Piracy is regularly cited as a reason for declining revenue to creators, and some of the figures bandied around – in the tens of billions of dollars – are breathtaking. At TorrentFreak they speculated “what might happen if all US BitTorrent users made the switch to Netflix.”? In other words, if all US file sharers, who were paying producers nothing, suddenly stopped passing around films for free and became paid customers of the online video service Netflix, how much money would be raised?

The answer: $60 million. Not to be sneezed at for sure. But that’s small change when Hollywood takes in $10 billion in ticket revenue annually and a major star can personally command $20 million to appear in a major film. It’s some three hundred times less than the loss from piracy claimed by the industry’s lobby, the Motion Picture Association of America. And its equivalent to the MPPA’s annual budget.

Let’s be clear about one thing – making these points is NOT a defence of piracy. But we need to critically assess claims about the impact of piracy, not to mention factor in those findings that suggest ‘pirates’ actually spend far more on legally acquired content than the average consumer.

Is there a lesson from this for domains like photography and journalism? I think so. While people continue to tell pollsters they won’t pay for daily, general news online, clearly there are increasing examples of people being willing to pay online for quality content with lasting value, even if they can get a copy for free.

Leveraging the web to make such content available for purchase requires creative producers to shift their starting position. Too often I’ve heard people blame the plight of creative industries on the alleged moral failings of potential consumers or fans. It’s time to move beyond the claim that most people using the web are feckless thieves just waiting to steal content. If you make quality content available in affordable, easily accessed formats, and you make it easy for people to find you and pay for that content, then you can leverage the web to find those who will part with their hard-earned cash for your work. That responsibility lies with the producers not the consumers.

Photo: Community Friend/Flickr

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media economy photography

Learning from Larry, part two: what crowd funding looks like from the donor’s perspective

My postman brought an envelope from Larry Towell this week. Sent from Canada, it contained the 6×4 inch photograph (above) offered to those who pledged US$25 towards Larry’s “Crisis in Afghanistan” project. Personally captioned “International Committee of the Red Cross, Kabul, Afghanistan 2010” it was also personally signed.

In my original post reviewing Larry’s Kickstarter-funded project on Afghanistan I said I would periodically report, from the contributor’s perspective, on how the project seemed to be progressing. This is my first follow-up to the original post.

At the outset I want to be clear on two points. First, this is not about harassing Larry! Given that its early days for crowd funding I think it’s worthwhile for photographers contemplating the approach to appreciate what the process looks like from the other side of the fence. Although I’m drawing my points from Larry’s project, I don’t want to personalize this. Perhaps I should refer to “Larry,” putting him in quotation marks to emphasize that this project is an example from which we might draw some lessons.

The second point is that this is a review about a particular form of crowd funding, namely how it looks via Kickstarter. In the original post I discussed crowd funding in theory and then in practice, and Kickstarter as a crowd funding platform is just one example of the practice. Nonetheless, I think there are general pointers that emerge from what I have seen so far.

When you contribute to a Kickstarter project, what happens? Well, nearly all communication is via automatically generated emails.  The first arrives after you make your pledge:

You are now a backer of Crisis in Afghanistan by Larry Towell.

If funded, Larry Towell will send you a message to request any info needed to deliver your reward (mailing address, etc.)

Please help Larry Towell spread the word!

http://www.kickstarter.com/e/ahKZP/projects/561413962/crisis-in-afghanistan

——————————————————————————————————————

Amount pledged: $25.00 to “Crisis in Afghanistan” by Larry Towell

Reward: A personal thank you sent on a 4″x6″ print postcard.

While a project is seeking funding, the person behind it can offer updates on Kickstarter, and distinguish between updates available to all and those that can be accessed by backers only. The latter also come to your email inbox if you have made a contribution, and I received “Project Update #6 on the final day of the pitch:

Dear Everyone

The time is almost up and I have made more than my goal, thanks to your generosity. I have been in communication with my contacts in Afghanistan recently and am beginning to plan, looking at a departure date in March. I’ll be sending things off asap. For those receiving prints, I’ll be in touch personally about your selection. Thank you again for making this happen.

Larry

There haven’t been any further project updates for contributors. Once the deadline for pledges passes, and assuming the project is funded, another email arrives:

Congrats! Amazon will now charge your credit card and transfer the money directly to Larry Towell.

http://www.kickstarter.com/e/DRFaj/projects/561413962/crisis-in-afghanistan

——————————————————————————————————————

Amount pledged: $25.00 to “Crisis in Afghanistan” by Larry Towell

Reward: A personal thank you sent on a 4″x6″ print postcard.

Shortly on its heels, the Amazon Payments system issues an email confirming it has taken your money and completed payment, in this case to the Magnum Foundation who handled Larry’s finances.

With the money paid, it was then a matter of waiting for the promised personal communication about the print selection. Only the communication wasn’t personal, and there wasn’t any selection involved. The Kickstarter platform sends an email asking you to complete an online “survey,” which means entering your name and address on their site so the print can be sent.

Larry Towell has created a survey to request info needed to deliver your reward:

“A personal thank you sent on a 4″x6” print postcard.”

Respond to this survey on Kickstarter:

http://www.kickstarter.com/e/uPMqE/projects/561413962/crisis-in-afghanistan/surveys/174274?at=b6f04baa8f8ebd36

——————————————————————————————————————

Amount pledged: $25.00 to “Crisis in Afghanistan” by Larry Towell

Reward: A personal thank you sent on a 4″x6″ print postcard.

Once that is done, the contributor then waits for the reward. Was it a “personal thank you”? Not really – it’s a photo I’m happy to have and the pencilled caption and autograph is fine. But is there anything that marks it out as a “thank you” for a project that is ongoing? No. Was there anything about where the project is currently at or what the next stage is? No.

What one gets as a contributor – at least at my minor level – is automated, impersonal and far from engaging. I don’t mean to sound petty or whiny about this; I’m just trying to judge the process in terms of what the Kickstarter system said was forthcoming. The discussion here is also no criticism of Kickstarter – it’s a very efficient fundraising process. It’s just not a platform for community engagement around a project (nor does it claim to be).

As a contributor interested in the substance of the project I was hoping for more. I’d love to know more about where the project planning is at, what is going well and what problems are being faced, not to mention some idea of where and when we might see the end product. To that end I did post a comment on Larry’s Facebook page but that didn’t elicit any response.

At the moment it seems my role as a minor contributor came to an end once my credit card was charged. To my mind crowd funding, if it is to fulfill its potential, has to do much more than that. It has to really engage the contributors. But let’s wait and see if Larry’s backers get more updates in the weeks ahead. I will let you know.

Categories
media economy photography

Making documentary possible: How the Internet leads to new funding opportunities

Finding the money to enable new photographic work is one of the most pressing issues practitioners currently face. Editorial paymasters have been in decline for a very long time, forcing those who want to pursue challenging and time-consuming projects to seek other means of support. Now the Internet’s disruption of the media economy has quelled any forlorn hope that there will be a single, universal business model to replace the advertising revenue that enabled – some time ago, in a limited and indirect way – photojournalism and documentary work.

This challenge requires a radical rethinking of how creative practice can be supported. One step is to recognize that because the Internet has solved the problem of distribution by bring the cost effectively to near zero, it’s highly unlikely any business model can hitch itself to a single mode of distribution and succeed. Another step is to understand that leveraging the benefit of the Internet’s capacity for distribution in all these channels requires some content to circulate for free.

In our digital present, as soon as something (like a song or photo) becomes an easily replicable file of bytes, nobody can exercise perfect control over its distribution. And if one cannot exercise this control, then being rewarded for the creative process that arranged those bytes cannot be limited to the sale of those bytes.

Of course, few concepts raise more hackles in the creative world than the idea of ‘free’. At the base of this concern is the misplaced belief that free is itself the business model. Instead, free needs to be understood as an acceptance of the dynamics of digital distribution and the first stage in finding ways to gain rewards from that largely unfettered circulation.

What does this mean in practice? As examples from the music industry (as opposed to the recording business) demonstrate, many artists, both new and established, are already pursuing these strategies. They may or may not replicable in the photographic world, so we cannot say a ‘new business model’ has been discovered and will work for all concerned. Nonetheless, I’ve come across a few examples in recent times of new ways of working that are producing the financial means to foster new creative practice.

  • Stephen Gill publishes his work through his own imprint Nobody Books, and issues both regular versions and limited editions of 100 that sell for £200 or more. This is “versioning” and is driven by the fact that in a world of infinitely reproducible digital copies a sufficient number of people want the non-reproducible in material form and are prepared to pay handsomely for it.
  • Nick Turpin of Nick Turpin Publishing told the British Journal of Photography earlier this year:

“My business model is very specific, I have to make my publications quickly and efficiently, sell them directly to the public through the internet, thereby avoiding the loss of 45 percent of my cover price to distributors and bookshops, and market them using social media such as Twitter, Facebook and my own website. I build a community around the publications allowing, for example, street photographers to submit their work for inclusion in the next Publication magazine. More than 1000 have done so. I hesitated to show too much of my first magazine online, but I actually found that the more I displayed images from it, the more people wanted to buy and own it – the opposite of what I had expected” (emphasis added)

  • Ctien, a Los Angeles-based fine art photographer, has used his web presence to solicit regular sponsorship from his community of admirers. He offers people four contributor levels, asks for monthly subscriptions, and offers various cards and prints in return depending on the amount they pledge. From just 94 fans he has obtained $15,000 per year, which amounts to one third of his living expenses.
  • This approach also works for social documentary. Rob Hornstra and Arnold van Bruggen have garnered a lot of attention for their Sochi Project, which is covering the issues in the run-up to the 2014 Winter Olympics, and makes some examples of the project public on the web while retaining others for subscribers. Like the previous case, through different supporter levels and their engagement with those who sign up, they have attracted €22,000 in the first year which enabled them to undertake the first stage of the work.

There are also collective funding platforms where the web’s reach enables people to pitch for public support to support their work:

  • Kickstarter is the most notable of these. It has seen 3,000 projects funded (a little less than half those that bid for support) and you currently needs a US bank account to start a project, but anyone with a credit card can give. Projects are only funded when they reach their goal, and most projects are asking for under $10,000 but some raise many times that. The most successful projects are over-subscribed, and the total amount of money raised is available for the proposer. As in the above cases, higher rate pledges are encouraged through versioning. While used for all sorts of proposals other than photography, documentary projects have done well too. A recent example is Amira Al Sharif’s proposal for “Unveiling Misconceptions: A Muslim Woman Documents Lives of American Women Project.” Currently with 208 backers it has raised $8017, and will likely double its goal by the November deadline. Amira was aided in her efforts by the support of Ed Kashi who effectively used Twitter to distribute her plans through various networks (mine amongst them).
  • Starting early next year, emphas.is will take the crowd-sourcing model of Kickstarter and partly apply it to photojournalism. An introduction to the project is online now, and is preceded by screens that declare “what if you were on Robert Capa’s email list in 1944?…what if Don McCullin was blogging live from Vietnam?…Now imagine if you had sent them there yourself.” Its invitation for supporters to engage with photographers directly is enticing, and given that 3,500 people have already registered their interest, substantial support seems likely. While the funding is open and crowd sourced, the projects on offer are limited and “carefully selected by a board of reviewers composed of industry professionals.” Although emphas.is depends on the new thinking demanded by social media, and the supporting blog titled its first post “never mind the gatekeepers,” the project does unfortunately turn to some old ideas to introduce its purpose, not least when they claim to have “partly” found “the silver bullet that will cure all that ails the media industry.” Likewise, casting contributors as people “willing to pay a small fee for the privilege of being included” is to potentially rely on an outmoded idea of subscription and diminish the necessary community building aspect of crowd sourced funding. I hope they recast their thinking to more accurately reflect current realities as they go forward with this important initiative, and I hope the gatekeepers on their board of reviewers would be open to a project like Amira Al Sharifs.

These examples pursue a variety of different approaches, but all use the power of the web to connect with supporters and offer them both engagement and reward for their support, often for projects that are yet to be undertaken. Even when material products like books are being produced, all these examples depend on having a web presence and being active in social networks to build a community of supporters. In all of these cases free does not mean giving everything away for nothing; it means creatively using the new media economy for new works.

None of these examples lead to a single, replicable, one-size fits-all business model. Each has its own business model. It’s never been easy funding the good work in photojournalism and documentary. It will continue to be as difficult as it’s ever been. But if we think beyond the confines of the past its possible to see a wider range of tools that can both create and access a larger community to make it possible.

This post is drawn from a lecture I gave at the International Orange Festival, Changsha, China on 23 October 2010.

Photo credit: iskanderbenamor/Flickr, used under a Creative Commons license.

 

Categories
media economy

The ongoing revolution in the media economy

The revolutions transforming the media economy continue apace. In the year since I published my five part series on these changes (beginning here and ending here) we have seen more evidence of the overall direction of change. Reviewing my notes from 2010 here are some of the standout developments to date:

1. Things remain grim for traditional newspapers

Global newspaper circulation continued its downward trend, declining by 0.8% in 2009. A survey covering 223 countries by the World Association of Newspapers and Newspaper Publishers showed that newspaper circulation significantly declined in Europe and North America, although it increased marginally in Asia.

2. Advertising revenue continues to plummet

Advertising revenue is the core of the traditional newspapers business model, and it is falling globally too. Ad spend declined in most of the regions – North America (25 per cent), Western Europe (13.7 per cent), Central and East Europe (18.7 per cent), Asia (9.6 per cent) and South America (2.9 per cent), but remained fairly stable in the Middle East and Africa. In the United States, newspaper advertising revenues are likely to dive to a 25-year low of approximately $26.5 billion, or 47% of the record $49.4 billon in sales achieved by the industry as recently as 2005.

Online advertising is becoming much more important, with the web poised to overtake newspapers as the second largest US advertising medium by revenue behind television. While there is some absolute growth – and the Guardian has reportedly seen a 100% annual increase in digital revenue – this change in relative status is also a function of the collapse of print advertising.

3. Paid content strategies show few signs of success

At the beginning of this year a US survey showed that amongst the handful of domestic newspapers that had erected paywalls, only a tiny proportion (2.4%) of print subscribers were willing to hand over money for access. In the UK, the decision of The Times to go behind a paywall has led to the loss of 90% of the site’s users and scared off advertisers – meaning that any additional revenue from the small number who sign up will easily be offset by lost advertising. The experience of the Belfast-based Irish Times, which attracted only 1,215 paid subscriptions from its 45,000 circulation, suggests the limits of paywalls are apparent in a variety of markets.

4. The disruptive power of the Internet continues to grow

The decline of legacy media has been underway for a very long time and predates the Internet and the web. However, the expansion of a technology that collapses the cost of distribution means industries predicated on the control of distribution are losing their base.

In June this year Cisco forecast that global Internet traffic would increase more than fourfold by 2014. This amount is the equivalent of 10 times all the traffic traversing Internet Protocol networks in 2008. Driving the growth is the expansion of online video, which will make up 91 percent of global consumer IP traffic by 2014.

For an example of what this means in practice, consider the recent observations from the online video rental firm Netflix. Founder Reed Hastings revealed the economics of digital distribution: “It costs us about a dollar, round-trip, to send DVDs by mail. It costs us less than a nickel to deliver by streaming.” That means a switch to video streaming – which is coming – would reduce distribution costs by 95%. Given that Netflix spends $600 million a year on the postal service and pays for hourly labor checking DVD quality, that is a considerable saving (except for those working in the postal service or checking the DVDs). This means, as Ken Doctor explained, that “in the new world the costs evaporate — and quality and timeliness improve. For news publishers, the switch to digital media offers huge savings, at least 60% and probably more.”

However, it’s vital to remember that the Internet is not a universal facility. The number of global users has expanded dramatically in the last decade to 2 billion, but global penetration covers only 29% of the world’s population.

5. The end of print is now conceivable

Publishers and editors of major newspapers are now speaking about a time when their publications will no longer be printed. Last month Arthur Sulzberger told a seminar that “we will stop printing the New York Times sometime in the future, date TBD.” Both the Guardian and Times editors think their current printing facilities will be their last, and that the life-span of these is “telescoping quite dramatically,” while the Financial Times is already reducing some print output.

6. There are no game changers leading to a shiny new business model

Many responses to the revolutions in the media economy have been framed by the desire to find the ‘game changer’ that will ‘save journalism,’ with the iPad being the device that in 2010 has most often borne these hopes. As a proud new owner of said device, I can see the appeal of some the better apps. I think it opens up new possibilities for the creative presentation and distribution of information, and I’m looking forward to more and better efforts to produce compelling multimedia for this format. But a number of available studies suggest that even if the revenue from magazine apps on the iPad exceeds a billion dollars, that will not resuscitate an entire industry given that is what Time Inc. (of which Time magazine is just a small part) made in a little over one quarter.

More importantly, though, we have to see devices like the iPad as another mode of distribution among the many channels for information now available. And we need to understand how the ecology of the iPad is one of a closed economy, cut off from the open web where things are easily linked and always searchable. There is little doubt the app economy is significant, and Chris Anderson and Michael Wolff (not to mention Jeff Jarvis) are right to call attention to the way it differs from the browser-accessible web, though it is just a bit early to proclaim the death of the open web.

Those who want to place the future of their entire industry in the iPad’s basket are surely heading for a fall. To get a better return from publisher’s apps, a group of twenty US-based photo agencies recently formed an alliance to press for higher fees based on additional usage. That’s not an unreasonable notion in principle, but the logic behind their position was stunning for its ignorance of the dynamics of the contemporary media economy. One of the agency bosses behind this alliance told Press Gazette:

We all strongly believe that this platform as a walled garden could be the saviour of declining legacy print publications. A lot of the publishers think so too…we see this as a way to work with the publishers to work on a business model that works for both parties.

In a nutshell you have an example of the thinking that has perpetuated a large part of the contemporary crisis – defend declining outlets, have faith in a walled garden that limits accessibility, and think about business models is in terms of a single business model tied to an established mode of distribution. But – the disruptive power of the Internet continues to grow because of the way it has solved the problem of distribution, so no business model predicated on control over a mode of distribution can succeed.

7. The future is bright

Despite the downturn and the persistence of legacy thinking, the future for the production and distribution of compelling stories and important information is bright. The creative possibilities enabled by digital technologies, the open web and the app economy – in association with those legacy publications now looking to a future beyond print – are being continually enlarged. If we pursue multiple modes of distribution and make them serve the modes of information, then, in conjunction with new ways of thinking about business models, we are in for an exciting if bumpy ride.

Featured photo: Bsivad/Flickr, used under a Creative Commons license

Categories
media economy photography

Thinking freely: New business models for the digital economy

Everything costs something and no body wants to work for nothing. This statement of the obvious drives those disturbed by the impact of the Internet on business models for information industries. Individuals declare that they won’t give their work away, critics claim someone has to pay for content, and insiders (like the editor of Photo District News) repeat hoary old adages such as “no one will buy the cow if your giving the milk away for free.”

Free. If there’s one word that divides people and raises hackles it’s ‘free’. Things do cost and we do want to get paid so how can free make financial sense? Like all contentious concepts, free has lost much of its meaning in its transition from economic idea to bête noir of traditional business. It is time to go back to the beginning and appreciate what ‘free’ involves and for whom it makes sense. I will be using Christopher Anderson’s book Free: The Future of a Radical Price as a guide, which will take us to some unexpected places for those who think its argument is no more than its title.

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The ability to charge directly for something depends on the relationship between scarcity and abundance. If you are producing something that is scarce you can price your product in a way that those operating in an abundant market cannot. If your company manufactures exclusive, unique sports cars you can demand a high price. But if, like most information businesses, you operate in competition with numerous content providers, you cannot charge scarcity prices (Free, p. 127). We might think that The Times offers something unique and can therefore price itself accordingly, but its news coverage is not sufficiently different from its numerous global competitors to justify its readers paying a markedly higher price.

For an information business in the digital economy, where information is formed through bits, and the cost of distributing bits is near zero, the ability to charge scarcity prices is further diminished. It is here the virtue of the web leads to an economic conundrum. The web has collapsed the costs of production and distribution for anything made up of digital files, thereby expanding the bounds of creativity, communication and collaboration. If maximizing the reach of information is the goal then the web is an indispensable and unavoidable tool. However, the digital capacity that so enhances circulation also undercuts the capacity of content providers to charge directly for their commodities. By largely removing the barriers to entry, the web has enabled the number of content creators to expand dramatically, thereby increasing competition and ending scarcity. At the same time, the end of those entry barriers makes paid content a difficult proposition. As Anderson argues, “if ‘price falls to the marginal cost’ is the law, then free is not just an option, it’s the inevitable endpoint” (Free, p. 173).

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When we read that free is “the inevitable endpoint” it seems impossible to square the circle and reconcile this with of our starting point – that everything costs something and no body wants to work for nothing. But this is where we need to pay closer attention to the details of Anderson’s argument. Far from arguing that all things are given away and no one earns a penny, Anderson proposes that we stop fighting the disruptive powers of the Internet and find ways to harness its virtues so that creativity can be rewarded.

This means that free is not the business model. Aside from the fact that we are not searching for a single, universally applicable business model, Anderson makes clear that “the most interesting business models are in finding ways to make money around Free” (Free, p. 14). Throughout Anderson’s book he repeats the point that Free is not enough and cannot be pursued alone. Free always works in conjunction with Paid, has to be matched with Paid and should make Paid more profitable (Free, pp. 70, 153, 176, 240).

The close and necessary relationship between Free and Paid might surprise those who relied on reviews of Anderson’s book for their understanding of his argument. Perhaps the most prominent of Anderson’s critics – Malcolm Gladwell, writing in The New Yorker – argued that “Free is essentially an extended elaboration of Stewart Brand’s famous declaration that ‘information wants to be free.’” Here we have a misreading based on a misunderstanding.

Like many, Gladwell only quotes half of this now infamous mantra. What this selective understanding always leaves out is that Brand – who founded the Whole Earth Catalogue and The WELL and was a significant figure in the early days of the web – identified the tension between the ease of distribution and its impact on value. Speaking at a 1984 hacker conference, Brand declared:

On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other.

Few recall the beginning of this quote, so there is a chapter in Free exploring Brand’s statement, which Anderson says has become “probably the most important – and misunderstood – sentence of the Internet economy” (Free, p. 96). In a later conversation Brand demonstrated for Anderson what he meant:

The physical world analogy, [Brand] said is a pub. It provides a place for community and conversation, but it doesn’t charge for that. It just charges for the beer that lubricates it. ‘You find that something else to charge for…you always wind up charging for something different from the information’ (Free, p. 100)

The business models that evolve around the relationship between Free and Paid will therefore use indirect means for reward. This means that although Free looks like something novel and untested it effectively draws upon the established approach we know as cross subsidy.

What Free does do differently, however, is use the web’s ease of circulation and collaboration to create the probability that people might pay for something that is unique and considered relatively scarce. Although Free is not the business model, Anderson outlines some basic principles for any business model using Free as its starting point. These include:

  • Build a community around free advice, content or information
  • Collaborate with that community, getting feedback from them that enhances the free content or information being offered
  • Offer different or special versions of the free content or information provided and let those with money buy them
  • Build in a substantial profit margin to the limited products in order to pay for the production of both the abundant and scarce versions

This, then, is the much talked about “freemium” approach, where Free leads to payment for premium. It builds on the established idea of “versioning” whereby similar products in different versions are sold to different customers at different prices (Free, pp. 69, 165, 176). And it covers the full range of consumer psychology so that everyone from the person who wants something that is abundant for nothing, to the client prepared to pay for something similar but which is scarce, can be part of an information business’s constituency.

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Does this approach work? The experience of the music industry says yes, and Anderson cites the oft-quoted Radiohead model in his book. For their album In Rainbows, Radiohead put it on-line prior to the standard CD release and gave fans the freedom to download then pay what they wanted. Zero was an option and some got it for free while others were prepared to hand over $20. In addition the band offered a deluxe box set at $80 each, and all of the 100,000 available sold quickly. The result was that Radiohead sold three million copies of the album across all formats (online, physical, deluxe), with the money made just from digital downloads prior to physical release exceeding the total from their previous album in all formats. Even more importantly, their subsequent concert tour was the biggest ever, and with the top bands now earning four times as much from events as from selling and licensing music, Radiohead reaped the rewards of extending their reach through free, on-line access to their music.

Mike Masnick at Techdirt has distilled the experience of Radiohead and other bands such as Nine Inch Nails into a “formula” for a business model that echoes Anderson’s principles:

Connect with Fans (CwF) + Reason to Buy (RtB) = The Business Model ($$$)

Masnick’s report offers a dozen detailed examples of musicians and companies that have embraced this approach and generated handsome revenues that reward them for their creativity even though they are not being paid directly for their content.

This embrace even extends to benefiting from the file sharers who are pilloried for the revenue they supposedly steal from content producers (something that motivated the controversial Digital Economy Bill in the UK). Masnick argues that the music industry needs to give up on the pursuit of new copyright laws, licensing schemes and DRM because of the way they inhibit connections with fans. A number of studies demonstrate that the “pirates” spend much more on legal music than regular consumers, and in his book Remix, copyright specialist Lawrence Lessig argues the downturn in physical album or single sales is not attributable to illegal copying. As such, prohibitions on sharing music are designed to defend the traditional recording industry with its business models based on the control of distribution, but get in the way of expanding the overall music industry, which is thriving like never before.

Can this approach work for industries other than music? Again, the answer is yes. Evidence from the book world shows that releasing free e-book versions of titles generally leads to increased sales of physical copies. Photography is also well placed to benefit. Cory Doctorow has argued that the more copies there are in the digital era the more valuable the non-reproducible becomes. This means that as digital copies of images proliferate – making both the image and the photographer better known and creating a community of interest in the process – the more a small but significant number of people will pay for “talismanic items” like signed, limited edition prints. This was borne out by a recent remark from Ben Burdett, director of the Atlas Gallery in London: “we sell to people who fall for individual images, especially well known images people recognise. They sell most easily because when people see them, they know and love them already.”

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Getting to grips with how Free works requires strategic thinking freed from its established ways. Some of the hype around the arrival of the iPad has come from those who see it as a chance to correct “the mistakes” publishers made in the early days of the web (see the Photo District News editorial from February 2010). But imagining that there could have been world where every reader or viewer paid publishers directly for all their on-line content betrays a fundamental misunderstanding of what the Internet means for information industries. The web is an intrinsically open system, and new ventures would have emerged to provide quality information even if all the legacy companies had retreated behind pay walls from the outset.

Content creation has to be paid for, but in the digital world of information abundance that revenue is no longer going to come principally from direct payment. Free is part of a larger business strategy that leverages the web’s virtues for circulation and collaboration in pursuit of greater rewards, while recognising that we cannot (and should not) fight the impact of the Internet on distribution systems. Free does not mean giving everything away for nothing; it means creatively pursuing indirect mechanisms and cross subsidy to reap the benefits of the new media economy


Photo credit: TheAlieness GiselaGiardino²³/ Flickr

This was written as a guest post for Fast Media Magazine, and appeared there on 12 May 2010.