Signaling price fixing among the web's newspapers

My friend Brandon points his Twitter acolytes toward a Guardian piece in which a Financial Times executive says he “confidently predict[s] that within the next 12 months, almost all news organisations will be charging for content.” This follows Rupert Murdoch’s announcement in May that he “expects to start charging for access to News Corporation’s newspaper websites within a year”.

I could be wrong, but I don’t view these primarily as statements about the way the world will be. I suspect that both Murdoch and the FT fellow are trying to engage in a bit of collusion without the need for a smoky back room. It seems to me that there’s a big collective-action problem in charging for content: if only one high-quality newspaper does it, everyone will just move to another high-quality newspaper that doesn’t charge. It’s not as though the news delivered by the New York Times is that much different from the news delivered by the Wall Street Journal or the Washington Post. Yes, they have their specialties (foreign, financial, and political journalism, respectively), but they’re close-enough substitutes that people would just move from one to another.

If news moguls want to charge for content, then, they’re obliged to get every other news mogul on board. Since it’s not legal for them to set prices together, they have to engage in this kind of collusion-in-plain-sight.

I read a similar idea recently, probably in Whither Socialism?: when local merchants advertise that they will match any competitor’s price, they are not actually doing this for the consumer’s benefit. What they’re actually doing is signaling their competitors that it is pointless to compete on price. The consequence? Higher prices for you, the consumer.

My suspicion, in the case of newspapers, is that even they know it’s a losing proposition to charge for content. If they thought it was a good idea, why wouldn’t they be doing it right now? They’re talking about time scales on the order of a year so that they can (they hope) marshal the troops to move as one.

All of this isn’t to say that I understand how the advertising-supported web model is supposed to work. I am frankly mystified how Google makes any money at all. Have you ever clicked on a web ad? Neither have I. I can’t even remember a web ad that I’ve looked at in the past year. Granted, you and I aren’t necessarily the typical web user. I’ve heard repeatedly that the typical web user clicks on ads, but I suspect that this “typical web user” is similar to the “typical web user” who justified AOL’s ridiculous market value: that is, someone who exists, but turns out to be far less important than everyone says.

When I google for “flowers,” say, I don’t click on the top ad in the right column; I click on the top search result. Those countless simultaneous Googlenomic auctions are wasted on me. I do understand the value of repetition, of course: maybe I don’t click on an ad, but one in every million Google page hits leads to a click. Multiply by enough clicks, and soon enough you get real money.

It’s possible. I’d need to be convinced, and thus far I haven’t been. So at the moment I’m stuck in the same place that Clay Shirky is:

I don’t know. Nobody knows. We’re collectively living through 1500, when it’s easier to see what’s broken than what will replace it.

If I had to make a prediction, it would be that after 10 years there will be very few newspapers left: the New York Times, the Wall Street Journal, the Washington Post, and maybe a few other big national outlets. There’s only room for one set of box scores, which you can get for free on espn.com; likewise for stock quotes. Few newspapers have the resources to handle international coverage, and few newspapers do national coverage well. There are massive economies of scale in web news distribution, which didn’t exist to the same degree when people were reading on paper. There are massive economies of scale in classified-ad distribution, which is why Craigslist can singlehandedly destroy an entire nation’s worth of local papers.

The newspaper of my adopted hometown, the Boston Globe, will exist in radically shrunken form, focusing on the local coverage that it does best, and maybe on a bit of investigative journalism. Gannett may know how to keep alive papers like the Burlington Free Press that I grew up with, or it may decide that there’s just not enough money in covering Vermont. It certainly seems that the physical medium for newspapers is just done, given that “The average age of the American newspaper reader is fifty-five and rising.” The only life for newspapers is on the web. That much seems obvious.

Beyond that, I’ve got no idea.

3 thoughts on “Signaling price fixing among the web's newspapers

  1. mrz

    When I google for “flowers,” say, I don’t click on the top ad in the right column; I click on the top search result.

    Particularly when the top ad in the right column reads something like “Get the best deals on ‘Pareto Optimality’!” or “The lowest prices on ‘Supreme Court Justices’”.

    Reply
  2. Dylan Thurston

    I have actually clicked on a web ad; I was looking for a particular service (an expedited passport), and the advertised service provided it. (Of course I also googled the companies’ name before giving them any money.)

    Reply
  3. Alex

    The amount of free stuff on the web is pretty close to a communist experiment when you think about it. And interestingly for a communist experiment, it’ll be the free market that decides whether each newspaper lives or dies.

    Reply

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