It's Not What Consumers Are Willing to Pay, It's Whether You Are Willing to Adapt

The opposable thumb was an adaptation. So was coinage, and then paper money.

Despite all of the exhortations to which the average enterprise is subjected about the benefits of change and disruption, we remain wary. There is something hardwired in our DNA that causes us to value stability over opportunity, the known over the unknown.

Whether it's Uber displacing taxi drivers or Amazon displacing Hachette or Google displacing the encyclopedia we are locked in a bitter contest over the meaning of ownership and who should pay how much for what.

There is not necessarily a right or wrong, but there are consequences and we are not always entirely honest about them with everyone, especially ourselves.

Those who have created content or value or whatever assets may have emerged from their efforts believe they should be rewarded in some way for them. Those on the consuming end have been conditioned to believe they are entitled to this outcome, whether it be tangible or intangible. This belief has intensified as the understanding of how the creative process works and the degree to which the fungibility of these assets is based on contributions from those self-same consumers who are usually paid not a whit for their exertions.

This tension has survived since the first rock was exchanged for a stick and it will remain embedded in our culture as the means by which we conduct our business, literally or figuratively. So, as the following article explains, those who prevail will not be those who demand satisfaction, but those who adapt to the evolving circumstances and figure out ways to extract value despite the challenges they confront. JL

Greg Satell comments in Digital Tonto:

It doesn’t really matter if consumers are willing to pay for content or not. Business models no longer last. What’s important is that you adapt to meet new challenges and grasp new opportunities.
It doesn’t seem so long ago that the best way to get instant access to content was to stop by a newsstand and hand over a few dollars for the publication of your choice.  Once you did, you could fill out a little card and receive a subscription for a discounted price.  Either way, you paid for the privilege.
Yet now, everybody expects to get content for free from their phone, tablet or laptop and publishers don’t like it.  They think that if consumers paid then, they should pay now and have come up with a variety of schemes, such as paywalls, to get them to pony up.
The truth is that it doesn’t really matter if consumers are willing to pay for content or not.  As long as the economics favor free distribution, consumers will favor products that they don’t have to pay for.  And that, for the most part, is the market reality today.  Publishers, for their part, need to stop whining about it, and start innovating their business models.
The Big Lie
At the root of the current enthusiasm for paywalls is a fundamental non-sequitur—the idea that an entire industry of hard-nosed, profit seeking businesses somehow got conned into giving away their product for free.  Now, as the story often goes, they simply need to put the genie back in the bottle and go back to the status quo ante.
Yet that line of thought only takes into account one side of the equation.  Yes, consumers were perfectly happy to pay for content before and are willing to do so now (you only need to look at escalating cable bills to see that’s true).  But markets have two inputs—supply and demand—and it’s the supply side that’s really shifted.
Remember how people used to buy their content at the newsstand?  Well there were enormous costs involved with getting publications there. The truth is that consumers weren’t really paying for content, they were paying for print and distribution and most publishers lost serious money (up to 95%) in the transaction.
Publishers were happy to subsidize the costs for print and distribution because they were making so much money from advertising.  So free distribution on the Web is, in most cases, a step up for the publishing industry.  It eliminates a major cost center.
Media’s Golden Rule
Historically, publishing has been a fabulously profitable industry, especially in the US, where a fragmented TV market meant that newspapers and magazines offered unique advertising opportunities.  The Sunday newspaper was famous for its heft and magazines often needed to create extra copy in order to keep their ratio of content to advertising at respectable levels.
Digital technology has increased competition immensely.  It used to be that launching a publishing businesses was a serious investment.  Now, anyone with a cheap computer and an internet connection can download WordPress (the same platform most major publishers use) and start publishing in minutes.  It’s no wonder that margins in the industry have been cut in half.
Yet despite the enormous amount of change, one thing has remained constant:  Marketers are willing to pay more for consumers than consumers are willing to pay for content.  That’s the Golden Rule of Media.  And now that print and distribution costs have essentially fallen to zero, there’s no shortage of publishers who are willing to offer their content for free.
So the current enthusiasm for paywalls is curious.  Especially since, in the past, most publishers were happy to lose so much money on print and distribution. Now they are attempting to disguise a cop-out as a morality play, asserting that distribution revenues are somehow more worthy than advertising revenues.
Paid Content Is A Niche, Not An Industry
Whenever the topic of free vs. paid content comes up, you can always expect that someone will start listing some fabulously profitable outlets, like HBO and the Wall Street Journal, that successfully entice people to pay for content.  In fact, many point out, since the advent of cable, the entire TV industry is made up of paid channels.
Yet these are not useful analogues.  HBO and the Wall Street Journal were making money from distribution long before the consumer Internet came along.  It’s inherent to their business model.  Cable TV is essentially a monopoly (or a very restricted oligopoly) market with high barriers to entry.
So yes, people are willing to pay for content and always have been.  However, if there is a free alternative, they will naturally prefer not to pay.  That’s why the golden rule stands. All things being equal, marketers will pay more for consumers than consumers will pay for content.  Paid media is not an industry, it’s a niche.
Trading Digital Dollars For Analog Dimes
In 2008, Jeff Zucker complained that media companies were “trading analogue dollars for digital pennies” and that’s become a mantra for media executives.  They see themselves as noble warriors holding down the fort against barbarian hordes.  That’s just silly.
There’s nothing about distribution revenue that makes it inherently more noble or worthy than advertising or any other kind of revenue.  You go where the money is and, in most cases, that’s not production and distribution.  In publishing, just like any other business today, that means you need to innovate your business model.
To get an idea how that can be done, take a look at what Vice Media CEO Shane Smith says about his business
 

For Vice News, there’s no advertising on Vice News,” he said. “The most popular thing we have online is our news platform, so it’s the fastest growing part of our business, but we actually don’t put advertising next to it for that reason. However, on the travel, food, and all of the other things, we make a lot of money. We rob Peter to pay Paul.

So he essentially sees news as a loss leader, a way to drive traffic to sponsored content (in much the same way that newspapers used to use reporting to drive audience to classifieds).  However, Vice Media eventually found an additional revenue stream in the form of an HBO series.  Smith doesn’t really care where revenues come from, as long as they come.
And unlike the more traditional media business that are struggling, Vice Media is making billions.  What’s more, they are not alone.  Upstarts like BuzzFeed, Huffington Post and Bleacher Report have had similar success.  So Jeff Zucker had it backwards, Digital media businesses are minting money, while incumbents are living on scraps.
That’s why it doesn’t really matter if consumers are willing to pay for content or not. We live in an age of disruption and business models no longer last. What’s important is that you adapt to meet new challenges and grasp new opportunities.  No industry can continue to operate they way it did ten or twenty years ago.
There’s no point in trading digital dollars for analogue dimes.