Media's Golden Rule: Marketers Are Willing to Pay More for Consumers Than Consumers Are Willing to Pay for Content

Saving media. We havent seemed to figure that one out yet. Greg Satell explains why in Digital Tonto:

"Rupert Murdoch and the iPad were supposed to save media: Murdoch, by taking the brave step forward and the iPad by providing an amazing new technological platform. Together, they would create a paid-media nirvana. The party would be over for freeloading consumers and happy days would return for media moguls.

How’s that working out? Well, News Corp’s sites that have instituted paywalls have seen their audience plummet, his launch of “The Daily” has impressed no one and iPad magazine apps, after an initial burst of sampling, have seen sluggish sales. Steve Jobs, of course, wants a 30% cut of subscriptions on his closed platform.

Paid models, obviously, are no panacea. Much of the confusion and nonsense could be avoided by observing one simple principle that explains a lot.

The Rule Explained
As I’ve made clear in the past, I’m not a big fan of rules. Most often, they are used to absolve people of the responsibility that comes with making judgments. Moreover, as Wittgenstein pointed out in his famous paradox, any rule is open to interpretation and can therefore prescribe a number of different actions, often contradictory.

So call it a principle, or a guiding truth, if you will. Nevertheless, it holds in the vast majority of cases and can help dispel much of the foolishness that gets bandied about. It can be stated as follows:

Marketers are willing to pay more for consumers than consumers are willing to pay for content.

The simple fact is that as economies grow, companies have a growing need to publicize themselves. It’s life or death for them. Any company that fails to promote itself will lose out to competition. Consumers, however, can live without content. It’s not like clothes or food or housing.

The Myth of the Poor Mogul
Most of the hubbub concerning paywalls and other forms of “paid content” revolves around the fairy tale that successful businesses run by very smart people were somehow all conned into giving their products away on the Web. This soft headed notion was supposedly confirmed when media companies lost a ton of money in 2008 and 2009,

The idea of poor, exploited media moguls should have been ridiculous on its face. However, headlines about red ink and layoffs seemed to give it credence for a while. It shouldn’t have.

First of all, the media industry certainly didn’t have a monopoly on privation during the crises and secondly, as I explained in an earlier post, the bulk of media company losses were due to investment write-downs rather than operating losses.

If there were any doubts about this, media’s 2010 comeback and Henry Blodget’s recent disclosure of Business Insider’s financials should dispel them.

More Free Than Free
Another red herring is that, before the Web, media companies earned lots of money by getting people to pay.

In fact, in most countries print companies lose money on cover price. Although it is true that people pay a small amount for magazines and newspapers, those revenues rarely make up for printing and distribution costs.

(Incidentally, how much publishers are willing to subsidize distribution seems to be negatively correlated with the strength of the TV ad market).

“Free,” then, would seem to be a step up and many companies are finding that it is. Free newspapers, for example, have been extremely successful over the past decade. Moreover, while traditional media companies were laying off journalists, companies like Yahoo and AOL gladly hired them without any talk about paywalls.

TV, ironically is the exception. Cable companies kick back billions each year to content providers. However, I consider this to be an anomaly brought on by the monopoly conditions that have historically prevailed in cable TV. TV thrived as a free medium for decades (in many markets it still does) and, most likely, it will again.

Meme Failure
Another constant refrain is the “quality” argument which rests on two questionable premises. The first is that consumers will pay for quality content and the second is that for publishers to produce quality content they need the revenue stream that paid distribution provides.

The argument that people pay for quality content is circular. Since people pay for HBO and The Wall Street Journal, as the reasoning goes, they must be “quality”; while network TV and Yahoo News, since they are free, must be inferior. Obviously, quality is in the eyes of the beholder (and in the case of WSJ, the issue probably has more to do with the fact that it is only a quasi-consumer product).

The notion that quality content requires a paid model assumes that talented people are solely financially motivated. Journalists, producers and directors want large audiences which make them famous, advance their careers and open doors to other sources of income. (Megan Garber of the Nieman Journalism Lab made exactly this point in a recent post).

Media, after all, is an industry that produces and distributes memes. Successful memes spread far and wide, while unsuccessful ones do not. Obviously, free content memes, ceteris paribus, will spread farther than paid ones. This is far from theoretical, as The New York Times found out when star columnists revolted against their earlier foray into paywalls.

Why Apps Aren’t The Answer
When the iPad first came out, there was a lot of misplaced excitement about distributing content through media apps. Initially, sales were encouraging, but declined quickly. As Fred Wilson writes in this excellent article, there’s no reason to expect that adding a presentation layer to web content will make people buy it.

There are also, important memetic drawbacks to apps. They are cordoned off from the Web. Search engines can’t find them, other sites can’t refer traffic to them. Furthermore, any technical advantages are bound to be short lived, as HTML 5, CSS 3 and future innovations improve user experience.

Most of all, it’s hard to see how apps magically transform media economics. There are plenty of free apps available for all kinds of things, so there is nothing that says that media apps need to be paid. Advertisers, on the other hand, want the maximum number of viable consumers and that means free distribution.

Applying the Golden Rule
Despite the histrionics over the past few years, there’s no reason to believe the basic media business model is invalid. While publishers have fretted over advertising revenues, marketers have worried about where they can place their ads. Clearly, the problem of one represents the solution for the other.

That’s not to say that innovation isn’t happening, but the real action is in how the form of advertising is changing. In-house departments at publishers that provide non-standard promotions have blossomed. ZenithOptimedia, a media buyer, created a new division, called Newcast that focuses on this area and has been growing like mad.

The future of banners, ad pages and 30 second ads is not necessarily the future of media. As long as businesses need to promote their products, marketers will be more willing to pay for consumers than consumers are willing to pay for content