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Modern Media Succeeds, and Fails, on the Newspaper Model

To suggest that the basis for some of the biggest winners on the Internet -- media companies that are about as modern as you can get -- have benefited from using the newspaper business model must seem insane on the surface. But a post by Nicholas Carr set me off in this direction, and I think, with a few relatively minor caveats, it's true. What powers media today is what powered media 50 years ago. Charging for access.

As Carr wrote, " Never before in history have people paid as much for information as they do today." After starting with the provocative statement, he goes on to tally a list of what people frequently pay for in any given month:

  • Internet service
  • cable [or satellite] TV service
  • cellular telephone service (voice, data, messaging)
  • landline telephone service
  • satellite radio
  • Netflix
  • Wi-Fi hotspots
  • TiVO
  • other information services
You might quibble with a few of these. Landline phone use is dropping, though still a major force. There's lots of free Wi-Fi available for the asking. If anything, "other information services" is the sneaky category that could include music streaming services, e-books and readers, and sites selling music for the download. All of these charge real money, either by the month or by the use, and the total can easily run into the hundreds a month. As Carr notes:
It's a strange world we live in. We begrudge the folks who actually create the stuff we enjoy reading, listening to, and watching a few pennies for their labor, and yet at the very same time we casually throw hundreds of hard-earned bucks at the saps who run the stupid networks through which the stuff is delivered. We screw the struggling artist, and pay the suit.
But it's always been that way. Ironically, these Internet successes all follow variations on the fundamental principle of the newspaper model: people are willing to pay for convenient access. It's because, for the user, distribution and content actually become one in the same. Consumers figure that once they've paid for the access, what comes through that access should be freely available. What sets newspapers apart was their practice of creating the content so they could sell to advertisers access to readers who, in turn, paid for access to that content. But, other than some notable exceptions (like Damon Runyon getting paid by a New York City newspaper a quarter of a million annually in the 1920s), reporters have been largely paid poorly. I realize that many newspapers were owned by people who felt some social obligation, but as business enterprises, the "sell the distribution access" model was the same one that makes money on the Internet today.

And it's not as though some companies producing books, television and radio programming, and other content aren't making money -- just as some newspaper people made money. But too many Internet companies are still focused on finding "free" content, whether lifting it somehow from other sites or getting "community" content provided by consumers. The problem is that many companies only get the content for a while when they are hot. MySpace? Readership is declining. Wikipedia? The number of people contributing is declining. Twitter? The growth rate has slowed substantially.

Personally, over the last 20 years, I remember many online services and sites that depended on consumer interaction blossoming and then disappearing. It's something I call contributor fatigue. People get excited and start adding content to a site, whether a CompuServe forum back in the old days or an Open Salon today. However, as they soon learn, creating content takes significant time and energy. It ceases being fun and becomes a job -- and an unpaid one at that.

If you start looking at the Internet that way, you get to a different business view. Forget distribution being free -- it still costs money and consumers are still willing to pay for it. The problem for companies comes in where in the distribution chain they position themselves.

  1. Companies that provide the physical access -- telecom service providers -- are on the safest grounds, because it's incredibly inconvenient to always lug a computer to a public hot spot, and competition in a given physical area is limited. Consumers might effectively have a choice between only a cable company and a telephone carrier. It's a game for big companies that can invest in infrastructure.
  2. Big aggregators with financial relationships to large media producers are next on the list. An Apple (AAPL) or Amazon (AMZN) offers easy access to professionally-produced content from many places. It's another convenience play because pulling up the same selection by going here and there is time consuming. But there's more competition open because of the nature of the Internet, and start-ups have a better chance, particularly if they can create a unique user experience and become synonymous with it. For example, Pandora has established itself as a way to get music relatively quickly.
  3. Professional content producers who can create top quality material are in a relatively good position. There's a lot of poor content out there, and eventually, those who provide access want and need something that will draw public attention. Use the Internet to create a name and draw an audience, and you get to strike a better deal.
  4. Companies depending on user-generated content are actually in the most difficult position. They are completely dependent on being a "hot" property and on expanding their user bases to replace the inevitable drop-off. Unfortunately for them, the law of averages suggests that they must continue to grow incessantly and at high rates so that the small percentage of people who actually participate actively and generate the material turns into a reasonable amount of content to drive search engine results and continue to get customers.
The last category of company is the one that will rise and fall most quickly. I mentioned CompuServe earlier. Remember when Napster was the be-all and end-all of music distribution? Friendster was a place for people to meet? Alta Vista was the search engine? They depend on their 15 minutes of fame to establish a flow of audience that, in turn, they try to monetize. But as people are fickle, so is success for this type of business model.

Image via stock.xchng user lusi, site standard license.

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