The dysfunctional internet … or why Barry Colman isn’t stupid

I was disappointed by the commentary that greeted this announcement by New Zealand’s National Business Review publisher Barry Colman to start (again) charging for some content. Comment ranged from the reasoned to the vitriolic (see article comments) but fell almost entirely into the “stupid publisher” category.

The “stupid publisher” notion has gained wide currency. It stems from the view that the internet is very different and “old media” publishers are set on bringing old media thinking to it. But the main piece of old thinking that publishers like Colman are trying to bring to the internet is the idea that publishers should be able to pay people real wages to create content.

The fact is, it’s not stupidity at play here. The internet is actually broken. Here’s why.

Media, for the most part, rely on two sources of income: what people pay to read/view/listen, and what advertisers pay to reach those readers/viewers/listeners. Some media, such as books, have little or no advertising. Others such as newpapers and magazines have a combination. And some, such as free-to-air TV or radio, rely almost entirely on advertising.

Let’s look for a moment at the business that Colman is in: news. In the virtuous circle that characterises “old media”, publishers pay for writers to write stories that appeal to a market that advertisers want to reach, then sell advertisers access to it via paid ads. Readers usually, but not always, pay for their newspaper (free community newspapers and free trade publications are common exceptions as 100% ad-supported publications). There are many differet models. But markets have developed with economics that make this equation work in anything from a large, mass circulating national newspaper to a small community newspaper or niche trade journal. The point is that both large and small scale enterprises can thrive, and content creators are paid living wages.

Compare this to the “free” internet. Contrary to popular belief, people already pay for content. The trouble is, they mostly pay their ISP who presently remits almost nothing to the content creators. Advertisers are piling into the internet but as most site operators can tell you – even successful ones – the rates publishers get for online advertising are extremely low and seldom cover the real cost of doing business.

There are three reasons for this.

First, there is a vast amount of advertising inventory available (ie places you can run ads) and this drives down the cost. You’re not just competing with your home market. Because of geographic targeting, if you’re a New Zealand publisher, you’re competing with sites all around the world that attract New Zealand visitors. It means typically that you need very big traffic to make even a modest income. And it means that carefully targeted, niche content, or local interest content, doesn’t get the premium for ads that it needs to cover its higher unit costs.

The second, related problem is that most of today’s online advertising falls into what advertisers call “response” advertising rather than “brand” advertising. Brand advertisers care about the environment in which their ads run. But response advertisers care about clicks and cost-per-click and don’t much care about where the ad runs as long as the right people see it and respond. This means advertisers care little about the difference between their ad running in a quality online news site or on a Facebook page, an online shop, or an email inbox. They have to compete with a much wider range of “media” so, again, better content – the main way that media have competed in the past and a big benefit to consumers – doesn’t always lead to a better price for your advertising.

The third problem is that most of the online advertising today doesn’t even go to the media companies that create content. The world’s most successful “media” company, Google, takes almost half of online advertising and doesn’t create any content at all. This disconnect between advertising and content creation has broken another strand of the virtuous circle that has paid for media in the past.

Which leads back to the question: how do you actually do business if you’re an “old media” company like The National Business Review that’s trying to pay people properly to create content, as opposed to a “new media” company like Google syphoning off close to half of the online advertising dollars, running ads in anything from online newspapers to shopping sites and email accounts with little differentiation between them, and sharing very little of the advertising income generated.

The proffered solutions seem to fall into the following camps:

1. “We don’t know either but just go and find a way.” This argument is probably the most common. It is fuelled by optimism that the unfettered internet will solve these problems, and is usually supported by examples of ‘successful’ new media companies. There are a relatively small number of these successes, certainly not enough to make a big dent on a trillion dollar worldwide industry. And because there are so few, the same examples keep coming up. In New Zealand, Bernard Hickey’s site is frequently cited. But Hickey, of course, had the advantage of targeting a niche that he knew would work in this environment. You might find it a bit harder to cover court news, local councils, or other important but less advertiser-friendly beats.

Interestingly, this argument is used by author Chris Anderson in defending his new book Free from attack by the New Yorker’s Malcolm Gladwell. And the example he cites of why we shouldn’t worry — that the internet can sort it out somehow — demonstrates one of the very problems I’ve highlighted. A parenting site that Anderson started, which by most measures has become very successful with a million page views a month, can pay just one part-time wage for its editor and makes almost no payments to its volunteer contributors. Anderson seems to think this is OK but if this is the best that the economics of the internet can manage, it worries me.

2. “You’ll just have to lower your costs and downsize.” Related to this is the belief that, in this lean revenue environment, resources can be fleshed out with the free labour of volunteers — Wikipedia is a commonly cited example — or the cheap labour of underpaid part-timers who must keep their day jobs. Again, Anderson makes this case when he suggests that “the ability to participate in journalism extends beyond the credentialed halls of traditional media. But they may be paid far less, and for many it won’t be a full time job at all.” But even if this is true, isn’t there something wrong with accepting this model? No-one would question the value of bringing more voices to the public arena, but should we really be paying for essential information services this way? Should we encourage the use of free labour to drive down the cost of paid labour?

3. “We don’t care.” While there’s a lot of merit in the Darwinian approach that will see many old-style businesses collapse and be replaced by something completely new, a professional media and news capability is too important to most societies’ effective functioning to see it weakened.

The fact is that we need to care about the media and not think of it as just another industry to sweep aside. We need to think carefully about what replaces it and whether it’s what we want. Wishful thinking and blind faith just won’t cut it because it’s too important to leave it to a free — as in, unfettered — market to sort out. More than 15 years on from the emergence of the world wide web, this still hasn’t been sorted out. No-one has found a way to pay fully for an effective professional online media. It’s still subsidised by a dwindling “old media”, or staffed heavily by volunteers, underpaid and under-resourced part-timers. And when a million pages a month won’t pay an editor’s wage, let alone writers, how will smaller markets cope – small countries, small communities, small and advertiser-unpopular issues?

Publishers that struggle with these issues are not stupid. That these problems haven’t been solved after so many years isn’t just because of a lack brain power and creative risk-taking.

We need a bigger discussion here. When someone like Barry Colman takes a shot at trying to bring some sanity to this dysfuctional business model, whether we think his particular solution will succeed or not, we should cheer him on, give him some credit for trying and maybe some pointers to help.

The good news is that technology itself might overcome some of this dysfunction as the first generation of the world wide web, driven by the PC, is replaced by the mobile web and better broadband. Among other things, this transition might make it easier to charge users their share for content and encourage more brand advertisers who will pay a premium for the right environment.

But we might also need to consider some regulation — especially against the internet’s propensity to create enormous global powerhouses. It’s time to start debating not just the way the internet is, but the way we want it to be.

So to Barry Colman, I’d say this. I don’t know whether what you’re doing will work — I suspect it won’t without some changes — but good on you for giving it a go. And if you learn anything from your past failure, it should be that you gave up too soon. Keep trying, keep testing, and keep sharing your experience with the rest of us. We need you to get there in the end.

Comments (23)

  1. Keith Mockett

    Well-reasoned article, thanks Martin. I agree with your comments. Colman may find it works this time as I think people will pay for niche services that they perceive have value.

    I do think that “traditional” media has done many things to create this problem. They have overpowered us with advertising at times; they have pushed political agendas, be it left- or right-wing (News Corp anyone?), when we just want the facts; and focussed on profits so there has been less news worth buying a paper for, more advertising and cheap (irrelevant) “news”.

    There is also the issue of the demise of “Interruption Marketing”. The point is that when there was only 1 major daily newspaper, 1-2 TV channels, and limited radio stations then the consumer didn’t have sufficient choice so Interruption Marketing worked. Now we do have choice and we, often, choose not to be interrupted. To labour the point, Sky channels are now so Interrupted with advertising, including Australian-only ads on Animal Planet, Discovery etc that I am considering cancelling our subscription. It might only be the Ashes cricket, and maybe the rugby, that keeps us subscribing. Having said that, they are on the edge and it won’t take much to push us over. Too many Interruptions. I would prefer to subscribe to ad-lite or ad-free channels I want. If someone was to offer similar channels but on a pay per channel subscription model, ad-free, then I would happily pay similar money for 6 channels that I want and not the other 60 channels (E!, Fashion TV, kids TV etc) that I don’t want. But “traditional media” can’t cope with that. Perhaps I’ll find suitable content on a subscription basis on the Internet. I want quality so I’m prepared to pay something. And I want to use my time wisely, and that is worth money to me.

    Good luck Barry Colman.

  2. Ben

    Great comments, and I can see where you are coming from. One thing you have (conveniently?) avoided is the tone of Colman’s announcement.

    It’s one thing to say “we need to pay our writers, but we still love the internet, please come along with us on this journey”.

    It’s another to say “you great unwashed bloggers suck and are pimples on the arse of our old media world”, which, no matter which way they try to spin it, is basically what Barry Colman said.

    Perhaps if he’d taken the first approach, the reception would have been different?

  3. Don Christie

    Oh come off it.

    Last year “old media” saw absolute record highs in revenues from advertising. Since then those revenues have dropped faster than every to near record lows. Coincidentally the global economy nosedived in a shorter period of time than ever experienced since 1929.

    The Internet, which has been stealing your news for 20 years, is hardly the culprit here. The calls for regulation and and controls from the “old media” is cynical to the extreme. I don’t remember Rupert Murdoch showing much sympathy for printers and journalists marched out of work in the 1980s because new technology was allowing him to revolutionise his businesses. Now all of a sudden quality counts and journalistic integrity has a value. Who would have thought, Rupert?

    Whilst I wish NBR (especially Chris Keall) the best of luck and hope the model works for it.

    But the wider issue of the impact of the internet on media is vastly overstated. New channels to market and opportunities are available and have been explored for a long time now, all that “old” media want is firmer control of the channel, and it will be a cold day in hell before many of us who value the freedom of the Internet relinquish that to them again.

  4. Matthew

    Interesting post, Martin, and brings into sharp relief the problems of where news will come from if no one’s being paid to produce it. As you point out with the Google example, a lot of new media takes its cue from content created by old media, whether as a source to quote or critique. If the old dies what becomes of the new?

    The question of cheap/free labour’s also significant and ties into the question of what sort of internet we want to create. I could be wrong but I’d venture a guess that the people criticising the likes of Barry Colman are also the people who have the economic means to create content for free. They’re people like me – educated, middle class and employed elsewhere. That has very real implications for how the internet might develop and what sort of the world the internet will reflect back to people (and by implication the world it will then create).

    I suspect there’s a media studies PhD in there somewhere (and perhaps a book to follow…).

  5. che tibby

    hmmm… i firmly agree with don on this one.

    “old media” made money because it controlled the means of production (the industrial-scale printers), and the means of distribution.

    the means of distribution has changed to the internet, and the means of production was undermined in the 80s and 90s by personal computing.

    now, as the dinosaur wakes up and realised that it’s losing on both fronts it wants to dominate the distribution again. but… i pay my internet provider so that i don’t have to have my content dominated by the gate-keeping preferences of editors.

    what old media don’t get is that their distribution was meaningless without the reputation that accompanied it. these days your journalists can go direct to their market and distribute information and news on the basis of their reputation. in other words, the messager and the message is more important than a corporate brand surrounding it.

    people like your russell browns and your bernard hickey’s are taking their reputation and message directly to the people, and it is they who should be attracting revenue funding, not bloated, inefficient corporate machines.

  6. Martin Taylor (Post author)

    I think you’re making the mistake of framing the debate as a zero sum game – that an internet that supports a proper, functioning, paid media means an internet that stops independent voices. It shouldn’t and I certainly wouldn’t advocate that. For instance, stopping sweatshops, whether in Victorian Britain or in today’s third world countries, didn’t stop people starting businesses and building wealth. But if you took the view that wealth creation (or for that matter, in today’s world, financial efficiency) could only exist with completely unfettered markets, you wouldn’t even try to solve some very hard problems. I personally don’t have answers to some of this stuff, I just think it’s time we started to question it and see what we want, then how we can get it.

  7. Mike Riversdale

    Good points well made in both the article and subsequent comments.

    I believe that “media” as a whole is something we can’t really talk about as it is made up of two fundamental building blocks:
    1: Journalism (an activity)
    2: Publishing (a business model)

    1: The act (art?) of journalism will continue – it may change with the use of “bloggers” – but the act of getting out there and finding a story (even the truth sometimes) will not go way. In fact the Web (onto top of the Internet) will enable more to participate.

    2: The current business model of “publishing” however is likely to make massive changes of which there will be some major structural shifts. It’s this that we hear about the most – the reaction from the current (old?) publishing model to the changes. Someone, somewhere will publish the product created by journalists and pass on the revenue but it’s unlikely to be ONLY by the current centralised publishing business model.

    I liken it to the change in Hollywood when the studio system was forced to change – differing pressures but similar dissemination of production, distribution and revenue generation.

  8. che tibby

    @martin, not sure who you’re addressing, but i’m here so will speak.

    i don’t actually see it as zero-sum. more that the “stupid publisher” types just don’t know where the opportunities are. they continue to focus ( or in colmans’ case throw their toys out) on revenue streams that have shifted.

    it occurred to me that you overlooked something in your post. viewed advertising is one means to gather revenue. but something also missing from old-school newspapers is classifieds. all that revenue has long since gone to sites likes trademe and ebay. i saw the trade and exchange the other day and was both shocked (and not-shocked) by how small it is now.

  9. Simon Pound

    Great article Martin. Well put.
    And although I tend to technological utopianism I thought the exact thing about Anderson.
    But you put it in a magically understated way.
    you’re right, that doesn’t seem like success.

  10. Mark Harris

    “The fact is, it’s not stupidity at play here. The internet is actually broken. Here’s why.”

    See, here’s where you and Barry Colman fall into the same trap. The Internet is not broken – it performs exactly as intended and then some. It moves data around, according to the request of the user. I will accept that it has broken the business models that you and Colman seem so fond of, but hey, that’s life.

    Mike (7) makes the very good point that journalism is not at risk, but publishing is. The stupidity occurs in trying to pretend that you cna keep using the same old same old in a new environment.

  11. rob

    Very nicely thought through, Martin. Which is rare indeed.
    Some commetners are quite right in that ‘old media’ in this environment could and should become quite a different beast: management can be very flat, and what money can be gleaned should go to pay only the wages we need paid- journalists, photographers, subs- a few tech and layout jobs.
    Nobody knows if pay-walls can be successful, and there are planty of thoughtful naysayers- or
    But writers do need to be paid. It’s irksome to hear endlessly that the ‘gates are opened’ the ‘gatekeepers’ themselves marginalised, and the future opened up to a ‘true’ diversity of voices. A ‘diversity’ that has no place for professional journalism is, if anything, less diverse (and ahem, arguably less ‘true’ as well.)

  12. Russell Brown

    Mike (7) makes the very good point that journalism is not at risk, but publishing is.

    Actually Mark, various kinds of journalism are at risk. The internet isn’t delivering the kinds of revenues that support well-resourced reporting, or long-term investigate reporting. It doesn’t do on-the-job training and mentoring, and it won’t stand behind you when you want to run a risky but important story. It’s trivially easy to set the lawyers on a blogger.

    There are various potential ways forward, but I don’t think it’s true that there’s nothing to worry about.

    That said, I don’t think NBR’s subscription play is going to work.

  13. Mark Harris

    Russ, that’s the business model, not the activity.

    As you say, there are ways forward. But the old models won’t achieve them.

  14. Don Christie

    The internet isn’t delivering the kinds of revenues that support well-resourced reporting, or long-term investigate reporting.

    Russell – it’s is the world economy that is failing on that front, not the Internet. As I pointed out abive, just 12 months ago offline advertising was at record high levels. Web2.0 has been around for much longer than 12 months.

    And as for “investigative journalism” please don’t tell me “old media” is even close to providing that. As Gordon Brown points out at TED, it is the new through technologies, not old media, that previously closed doors are being thrust open.

  15. rob

    “The internet isn’t delivering the kinds of revenues that support well-resourced reporting, or long-term investigate reporting.”
    You’re right, Don- there’s a little: TPM is one obvious example. But they are have a big market and a dedicated following.
    And you and Mark both have a good point re: the publishing giants have done a lot of the damage to themselves. You won’t find a more passionate or eloquent statement about that than David Simon
    (eg: When you hear a newspaper executive claiming that his industry is an essential bulwark of society and that it stands threatened by a new technology that is, as of yet, unready to shoulder the same responsibility, you may be inclined to empathize. And indeed, that much is true enough as it goes.

    But when that same newspaper executive then goes on to claim that this predicament has occurred through no fault on the industry’s part, that they have merely been undone by new technologies, feel free to kick out his teeth. At that point, he’s as fraudulent as the most self-aggrandized blogger.
    But his point is equally valid: a world without good, deep, motivated, well-funded professional journalism is a considerably poorer world.

  16. Jessica Guerro

    I have to agree that its tough for newspapers and other media online having to contend with so much other content.

    But something you have to remember is you adapt to the market or you no longer stay in business. Its something that many people seem to forget, but many old professions have been replaced throughout history you simply have to adapt yourself to fit the changes of society.

  17. Juha

    But the Russell Browns and David Farrars and whoever of this world don’t make a living out of the Internet. Make of that what you will.

    I have hundreds of thousands of page views on some of my blog posts, but that doesn’t translate into big dollars for me. Yes, it could just be my inability to sell my blog, but when even the big sites say they can’t afford my modest freelance fees, I don’t think so.

    Somewhere along the line we as journalists are meant to feed our families if not ourselves, and have enough financial fortitude to stand up against strong commercial interests, but so far, the Internet isn’t working for us in that respect.

    Obviously, if you don’t care about strong, free media that scrutinise the powerful, then the Internet model of free, weak and easily manipulated content providers is fine. If not, well, it’s probably too late already.

    Of course, the past idiocy doesn’t help. Lax libertarian lack of regulation saw to it that media empires were built up that amassed debt in stupid attempts to conquer the world through buying out the competition so now when the fat’s gone out of the business, we’re talking instant death.

  18. Bill Bennett

    It’s a good analysis. I’m not against charging for online content. For me the problem is determining a reasonable price.

    From the publisher’s point of view this would involve working out costs adding a margin, then dividing this number up between the size of the paying audience.

    Much simpler said than done. Just to complicate matters, the size of the paying audience will depend on the price. And the price has to look comparable with other forms of media. In particular, it needs to look like good value when compared with buying a printed publication — I would argue the NBR’s online price for 20 percent of content is significantly more than 20 percent of the price of the print edition mailed to your house. It’s also higher than the free alternatives.

    A six month print subscription to the NBR is around $230, 20 percent of that would be $46. I’d happily pay that amount, but the $150 asking price looks like gouging, even if it isn’t.

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  23. Andrew Colman

    Wild card – I am Barry Colman’s second cousin. We share the same Great Grandfather.
    I would like to contact him re family history.
    The information I have (and he might also have ) could enlighten us both.
    I can supply authentice documentation as to identity etc.

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