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Why It Doesn’t Matter If Consumers Are Willing To Pay For Content

2014 November 26

It doesn’t seem so long ago that the best way to get instant access to content was to stop by a newsstand and handover a few dollars for the publication of your choice.  You could also 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 publication 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 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.

– Greg

12 Responses leave one →
  1. November 27, 2014

    Mark May, an analyst with CitiGroup Research, forecast The Huffington Post will post a loss of about $6 million this year on $100 million in revenue. Another reason why people don’t want to pay for content, most of what is written today just isn’t true. The Huffington Post DOES NOT make ANY money, let alone billions as you imply.

  2. November 27, 2014

    I highly doubt that, since Huffington Post is now owned by AOL and doesn’t post its own financial statements. AOL, however, earned about $200 million last year on a little over $2 billion in revenues.

    The vast majority of those revenues and, all of the revenue growth, comes from advertising. Subscription revenues have fallen by roughly a third over the past few years. AOL paid $315 for Huffington post after only 6 years of operations.

    So you might want to check your facts on this one.

    – Greg

  3. November 28, 2014

    In my opinion, people never paid for content. They paid for newspapers, magazines, compact disks, etc. We think we were paying for whatever it is we wanted to read, but in fact what we’ve always been paying for is the distribution mechanism. We’ve been paying for the magazine itself, not what’s inside it. The Internet hasn’t changed this equation at all; it has merely exposed it.

    Because there used to be no way to get information to you, you had to pay for distribution and packaging. Now, you need not pay for either of those. The content has always been the free part.

  4. November 30, 2014

    Actually, as I noted above, it’s even worse than that. Many publishers heavily subsidized those print and distribution costs, so “free” is actually a big step up. It eliminates a major cost center, especially for magazines.

    – Greg

  5. Luis Hernandez permalink
    December 2, 2014

    Your comment about paid content being a niche and not an industry is spot on. Although many publishers in B2B and B2C make good money, it is almost always in a specific niche that is not served from larger players. Paid content works with exclusivity, or by having a much higher quality than the free alternatives. Smart publishers are trying everything to see what works. (e.g., live conferences, webinars, elearning, training, videos, etc.) But the sad truth is that the process of constantly experimenting now never ends. A tough change from the print days many of these people came from.

  6. December 6, 2014

    Hi Greg,

    Another nice post.

    Just wondering if the lead isn’t buried a little here. Isn’t the crux that (as almost every successful publisher shows) niches are the entry point for industries?

    I.e.: the commercial content value for businesses is to establish industry positioning, value exchange for any consumer, ambition etc. that they can then build and capitalise on.

    Not sure if this is really innovation, just a signal that most businesses today are blindsided by the perceived quick wins of digital/paywalling as a major revenue source in itself.

    Sounds rather like a combination of laziness and lack of decent media strategy to me.

    – Steve

  7. December 6, 2014

    His Steve,

    Yeah, I think there’s some truth to that. It’s mainly incumbents who are putting up paywall. It’s almost as if they say, “we know two ways to make money: ad sales and distribution sales. So if they aren’t getting enough money from the former, they see the latter as the only way to go.

    – Greg

  8. December 6, 2014

    Gotcha. Very odd how the actual ‘contents’ (in terms of topics and quality) of content seems to be so overlooked when it is the very thing that can wedge open new strategic opportunities.

    – S

  9. December 21, 2014

    I used to be a newspaper publisher. We didn’t subsidize circulation and distribution. They were revenue centres and a cost of doing business. Traditionally, circulation generated about 25 percent of gross. Some rose to 35 percent. That covered those costs. (Going back to the days of Pulitzer circulation was their sole source of revenue, only later did advertising enter the equation.) Our biggest cost centres were people. It costs money to report the news and cover a community, whether that community is geographic, niche or community of special interests. This is where on-line publishing is weak. So many bloggers take one item and comment on it. But issues which are important to people, like council decisions, water issues, school boards, hospitals and such unglamorous topics, don’t get covered. Instead, there are endless posts about what some celebrity wore or didn’t wear to an event.

    Back to the economics – whatever the audience for a blog or website, advertisers are not prepared to pay the same cost-per-thousand to advertise on-line as they are in print. They’re paying a 10x premium, still, for legacy media because the audience is quantifiable. Interestingly, a study earlier this week said there were twice as many magazine startups in 2014 as closures.

    The most hurtful loss to newspapers was the loss of classified ads. No part of the business was as profitable as the classifieds, but they migrated on-line. Given the immediacy of on-line and that it was free, that was to be expected. The next biggest problem for print was the proliferation of non-print people who took over. Land speculators suddenly became publishers, not because they had a passion for the business, they wanted to plunder what they saw as under-valued city-centre real estate. Then the economy tanked, property fell in value and suddenly a lot of media were in trouble because their traditional operations couldn’t fund the junk debt these robber barons had placed on the books.

    When I look at the aggregators I see they are still looting the news resources of the legacy media – both print and broadcast – to produce their ‘free’ content. Well, what happens to them should more legacy media close? They would actually have to invest in real reporters, camera people, presentations.

  10. December 21, 2014

    If your distribution revenues exceeded print and distribution costs, then you were very much outside the norm. For the most part, newspapers struggled to break even on distribution, which is why the free newspaper model did so well. There were some exceptions, like WSJ and others, but that was generally the rule. Magazines, at least in the US, subsidized print and distribution heavily. That was less true in some markets, like Germany, but again, the rule mostly held.

    – Greg

  11. December 21, 2014

    Hi – I won’t hijack your blog, but I sat on the board of a regional newspaper association. We had around 57 members. This was a long time ago, but the bulk of titles, at their worst ,broke even on circulation costs. That was when we talked among ourselves. Publicly we always talked poor – it didn’t pay to let advertisers and readers know how well you were doing. And this was the situation nationally.

    I was always amused at how any rise in the cost of newsprint anywhere in the world was a business story on the pages of newspapers who didn’t buy from that group. Printing that news was part of the marketing plan. It laid the basis for justifying any price increase in cover/subscription price or linage rate raises.

  12. December 21, 2014

    I don’t feel that you’re hijacking my blog. People can have different experiences. As I said in my earlier comment, there were some exceptions and, in many cases, regional newspapers had better pricing power and lower distribution costs. But generally, print and distribution were not a winning proposition.

    – Greg

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