First, I have to mention how interesting it was to read this book and be confronted with terms and concepts once so familiar to me, as I took a Managerial Economics course in my MBA program some four years ago. (Quite frankly, it's astonishing how much you can forget in that span of time!)
Like Nan, I was interested in the discussion of supply, demand, and price elasticity from Chapter 2. I've been thinking about these things lately as we hear more and more about the "economy of free." Wired editor Chris Anderson, he of the Long Tail phenomenon, had a cover story about this recently; in it he wrote:
You know this freaky land of free as the Web. A decade and a half into the great online experiment, the last debates over free versus pay online are ending. In 2007 The New York Times went free; this year, so will much of The Wall Street Journal. (The remaining fee-based parts, new owner Rupert Murdoch announced, will be "really special ... and, sorry to tell you, probably more expensive." This calls to mind one version of Stewart Brand's original aphorism from 1984: "Information wants to be free. Information also wants to be expensive ... That tension will not go away.")
Indeed, that appears to be the trend in the newspaper industry: no charging for online content (of course), but increased prices for the print version. There's good reason for this. As blogger Jeff Jarvis noted upon news of the tear-down of TimesSelect's paywall:
So much for the idea of charging for content — news content especially — online. Too much of it is commodified. There’s no end of free competition. The value is fleeting in time. The cost of charging is too high.
Whether or not content wants to be free, it is free.
Don’t let anyone tell you that this is bad for the content business. It’s only good sense. Having worked in the magazine business, I saw this even at the dawn of the internet: As I said above, a magazine has to pay up to $30-40 in marketing costs to acquire subscribers; it can pay up to $5-7 to print and distribute a copy of a glossy magazine; it has high editorial costs. Add that up, and a magazine can find itself in the hole $60 or more per subscriber in the first year of a subscription. And they get as little as $1 per issue in subscription revenue. Yet clearly, a magazine can make money because that subscriber’s value to advertisers is much greater.
It’s the relationship that is valuable. It’s the relationship that is profitable, not the control of the content or the distribution. That is the essential media moral of the internet story. It has taken 13 years of internet history for media companies to learn that, to give up the idea that they control something scarce they can charge consumers for, but they’ve finally learned it. That is the lesson of the death of TimesSelect.
OK, so back to the main point here: As we go forward examining media economics in the digital age, it's important to consider the emerging economies of "free" — or, better yet, recognizing how free offerings of services or information create value and profits in more subtle, behind-the-scenes sort of ways. (Ask Google how this is done.)
Of course, "free" is nothing new to the media industry: It's how radio, TV, and newspapers have long made their money, providing content for free (or at very low cost) and selling the mass audiences to advertisers to pay for their efforts. But as the Web extends this media business model to a wide range of industries — see Anderson's piece on this — it's a good time to step back and reconsider what these trends mean for the future of media (and media economics). How do these notions fit into previous conceptions of supply, demand, price elasticity, and so on? In what ways do they reinforce traditional economics ... and in what other ways might today's currents cause us to rethink old assumptions? What happens when the Internet is simply a copy machine? (As Kevin Kelly writes: "The digital economy is thus run on a river of copies. Unlike the mass-produced reproductions of the machine age, these copies are not just cheap, they are free.") If scarcity is connected with value, then what is of worth in a sea of free-and-easy copies?
Food for thought. See you tomorrow.
... Oh, and as for useful sites to follow the new media biz, I like some of those mentioned already (especially Wired), but here are a few others of interest:
-- The New York Times' sections on media/advertising, tech, and its Bits blog.
-- IWantMedia.com covers the latest headlines on the business of new media.
-- Jeff Jarvis of BuzzMachine fame is well worth reading. He's a media biz veteran who really understands Webenomics today.
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