Magazine article Information Today

The Economics of Quality

Magazine article Information Today

The Economics of Quality

Article excerpt

The information industry is wrestling with the dilemma of whether content should be paid for or free. As customers, we are not interested in "content" per se but in its consequences. It is information as a catalyst that is valuable.

It is assumed that "free to view" content is the only successful online publishing model because free content is so visible.

But we actually pay for all content. Someone created the content, which took time. Someone pays for that time.

If an author gives information away for free, it's because giving the content away leads to something of more value for the author. An advertiser pays for readers to access content because our attention as an audience is worth it to the advertiser. We pay for information as consumers only because the benefit derived is greater than it costs. Publishers pay authors in the expectation that the sales earned will be higher than the cost of the content. The means of paying for content are real and coexist because they address different requirements.

The Cost of Free Content

Now that digital distribution costs are effectively zero, publishing is probably one of the cheapest industries in which to start a business. The increasing supply of free content is due to the low cost required to become a publisher. This is good for the market as a greater diversity of needs is met. The digitization of print media began before the internet boom. Technological innovation in printing and desktop publishing lowered the barriers to entry. Increased competition drove differentiation as publishers sought out more specific audience niches. In the 1990s,2,000 new magazines were launched each year in the U.K.

A successful business has to create more value than it consumes. This is a judgment made by customers. But 90% of those 2,000 magazines failed in the first year of creation. Many first-generation online publishers enthusiastically hired staff to create their online businesses and failed to make a profit.

There is an economic reality to the "free to view" online model that tends to be downplayed. In monetary terms, the amount of advertising generated for an online user is around 10% of what that same reader's attention is worth to an advertiser in print. For similar reasons, the attention of an online subscriber is significantly more valuable to advertisers than the attention of an anonymous free user. Advertisers want to target the core audience not casual passersby.

At current prices, a publisher would need to believe the potential online audience was 10 times larger than it was in print. This means expanding the definition of your market, which risks alienating users and advertisers who came to you for your niche proposition.

The competitive choice is either to supply the same content at a lower cost or to create better content--to bank the money saved from lower distribution costs or to invest it in creating even better content. As a consumer of information, your requirements will determine whether it matters who has paid for the content and their agenda. Specific information requirements will determine whether it matters to you what the choices have been about the investment in the origin of that information.

Our traditional business model is that of a newspaper publisher. We are fortunate in that our paid circulation is increasing at a time when many newspapers are declining. And yet, the Financial Times (FT) is much more than a salmon-colored newspaper. Millions of people access our journalism via our website (FT. …

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