Pricing for individual articles and for premium subscriptions had yet to be decided, he said, but would be “rightfully high”.

While that sounds more macro than micro, it certainly seems like the right attitude from a content producer- we’ve got it, you want it, come on in and pay.

The new kids on the block are the “hyperlocal” sites delivering “news without newspapers” by aggregating content about local communities, professional and otherwise. The argument that this is a sustainable business is that these communities are under-served by major news outlets.

News outlets- national, local, or “hyperlocal,” all have the same problem, in my opinion:  extracting a price for the value they provide.  Until the method for presenting the price of content to the consumer of it brings a profit to content producers, most of these outlets won’t survive.  I don’t dispute the value of hyperlocal news, I question whether the business of these sites has the power or technology to profitably extract money from a growing base of micro-communities.

Thus it seemed fitting that just below the sexy story on hyperlocal startups, a story about Vanity Fair, People, and other print titles raising both subscription and newsstand prices seemed like a response to my question.

In Magazines think about raising prices this gem stood out:

Real Simple, for example, has raised its subscription prices 17 percent in the last four years and had an 18 percent rise in subscriptions. In the same period, Cosmopolitan has raised its subscription rate 8 percent and orders have risen 19 percent.

Given the economy, it may not be “a propitious moment to launch this,” said Victor S. Navasky, chairman of The Columbia Journalism Review, but “to the extent that the publication is aimed at a segment of the population that can afford it, why not?”

Conclusion: hyperlocal payment for hyperlocal content can follow the same model-segment the users who need your product, and extract a price for the value provided.

How about a daily email that told them what traffic spots to avoid, or an authoritative reader-generated guide to the best and worst public schoolteachers?

Or a regularly updated site that told readers how much and why local real estate listings had dropped or risen in the last few weeks, along with examples of how certain homeowners got appraisals lowered?

Or innovative coverage of local government, providing sample bills every time property taxes go up and video clips of commission meetings intertwined with analysis and context?

Whether it’s visualizaton or editorial, extracting value from customers will likely be based around services, not just information feeds.

The price premiums that news organizations will be able to extract will come from creating quality web services that are better than their free alternatives.  A  service for traffic alerts, for example, will have to compete with the free traffic data available via the google maps interface- instead of competing on data, the service will have to compete on knowledge.  That sounds like a confident way out for a local paper.

The suggestion is that news organizations should adopt a business model similar to  high-tech firms, which in the author’s formulation appears to have two parts:

1. Expensive at first, cheaper later. High prices for early adopters, lower prices for those who jump in later
2. Continuous product improvement. Preserving the ability to command high prices through constantly improving the product

The problem with the first premise is that the pricing is an effect and not a strategy.  The first iPhones certainly came to market as a super-premium product, but not exclusively as a matter of pricing strategy.  The first units off a new assembly line are run in lower quantity, and as a consequence, inputs to the manufacturing process also cost more; as the scale of the production increases, the price decreases.  While Apple’s brand and the cachet of the device, combined with the AT&T subsidy, make iPhone pricing a bit more complicated, the demand side of this equation is much more interesting.

The idea that there are customers whose willingness to pay is higher- folks who will buy the new iPhone at ANY price – is not unique to Apple products- what’s amazing is how many people will pay such high prices, keeping Apple more profitable than it has been in years.  Such users are not immune to feeling a little burned (see this Fake Steve Jobs post for a laser-sharp sense of how people seemed to be feeling at the time) by the price drops on their products- the rebates Apple subsequently offered were an unfortunate consequence of this strategy.

Paying for consuming information content first has been tried numerous times, with the drawback that there is a fundamental lack of scarcity protecting this early consumption.   Customers lined up outside an apple store have a legitimate chance of NOT getting a new iPhone…the same can’t really be said for users who pay to avoid ads and see Slashdot stories a bit earlier. I suppose you could take the cost of producing an idividual story, let’s say it’s $200, and individuals would have to pay amounts Y1, Y2, Y3…. until all the Yn amounts added up to the cost of the story.   That idea merits further examination.

With respect to constinuous product improvement, I would argue that the innovation in news and information distribution, at times led by devices and increasingly by software and services, has tended to drive down prices for information content, rather than enhancing the pricing power of the manufacturer.  NYTimes.com redesigns its whole site, and everyone automatically has access to it.

The high tech model rests on reconceiving what the product is-  is the product the information or the delivery/interface?  While their cost structures differ, when publications SAY they are chaging for “access” it implies that the information is the product.  In practice, the republiction of content on the web has made this untenable without erecting revenue-depleting firewalls (such as the Salon Premium, TimesSelect or the WSJ.)

So is the product now the experience?   Are content producers willing to shift their stance, and who gets paid back first, the tech investment in the web product or the labor investment in content production?

Nothing anyone does is going to make it harder to get movies when you want them, where you want them, and at whatever price you feel you should pay for them (including free). And the harder you crack down on Internet movie-downloading, the more attractive you make buying pirate DVDs from criminals on the street — a virtually zero-risk transaction that directly displaces DVD purchases.

Fighting piracy is not an effort the movie industry can win over the long term.  Instead of fighting piracy with encryption and prosecution of consumers, the industry should be offering new paid consumption opportunities, and recognize that these opportunties are experiences, not merely goods or “copyrighted works.”  The quality of the purchase experience, the price of the purchase, and the freedom to utilize the purchased work in derivative creations will drive the consumer perception of value.  Clay Shirky’s objection to micropayment systems, that they do not solve an extant user need is true of current concepts but not necessarily true of the theory.

In an age of in-demand production, custom jeans, personalization and preferences, it boggles my mind that we should resist paying for the product we like best, the product tailored to our needs.  We want a highly filtered source of information- the prevailing wisdom suggests that our social graph will do this for free, but I think we’ll find the value proposition unappealing at scale.

While terrestrial radio has been hit hard and the music labels even harder, the services that have fourished online, like last.fm and pandora have been those that offered a combination of curated content and input from the social graph.  But they have not replaced the fundamentals of music production; they’ve just killed its retail distributors.  Last.fm and Pandora wouldn’t have succeeded if they provided zero value; how much of that value is really captured in revenue?  Not very much, and this makes no one – except consumers – happy.

Crovitz frames the dilemma:

For years, publishers and editors have asked the wrong question: Will people pay to access my newspaper content on the Web? The right question is: What kind of journalism can my staff produce that is different and valuable enough that people will pay for it online?

While newspapers struggle with this proposition, this issue has been black and whitefor so long that newspaper firms have been blind to shades of gray.  It’s a binary system, with subscription, and “everything else”; what the industry needs is something offering far more granularity.  Digital subscription charges are generally unattractive because the price and value proposition are hard to align in the consumer market, and so papers throw up their hands.

When price and perceived value don’t match, what should be done?  I think an essential problem is that, in Crovitz’s parlance, even when “information wants to be expensive” the consumer audience doesn’t have a good mechanism for understanding its value. Crovitz observes that the

right information in today’s complex economy and society can make a huge difference in our professional and personal lives.

How does a publisher extract money from its audience for the information its audience finds most valuable?  Is donating to support a story the right move?  Supporting a section by buying a membership in it?  Should reading certain pages cost more?  The work at Spot.us seems to be working well on the local level, but it’s really for stories that are a cause unto themselves, like the Chauncey Bailey Project.

But what about national outlets, and business news?  Bloomberg, Dow Jones, and ThompsonReuters are clear businesses- Ms. Fine is right when she points out that the “business information” providers can charge because

purchasers of that content use the information to make sizable financial trades—it is a cost of doing business. There is a return on investment and typically someone else footing the bill for the content.

The “someone else” point is interesting to me because while corporations buy the premium information products provided by our three white knights, consumers regularly fail to make such calculated moves for information they value.

I think it would be a shame if we let our discovery of new information sources stay so far ahead of our flexibility with payment options.

Is it just “variable pricing” which (Carr argues) has allowed the music business to stick around, if not to thrive?  What the music business still hasn’t really learned, is how to combat piracy by adding value in the distribution part of the business.  Apple figured this out- the device and the store are, for many many people, a top notch experience (I know there are people who prefer eMusic or other services).  The emphasis Apple placed on delivering value rather than delivering “content” is what gave Apple’s iPod such dominance.

So can newspapers just turn around and create an iTunes-like store, charging for the convenience of reading the paper on an enormous iPod touch or the Kindle?  I think the issue is not exclusively supply-side.  That is, newspapers don’t have to deal with precisely the same intransigence as the music business with respect to digital- they already (largely) give the product away for free online. When the NYTimes pulled the plug on TimesSelect, it looked like they were screwed.

I posted these thoughts to the nextNY list in December:

The BHAG here is to make enough of your content consumers want to buy your content even if there is some proportion of people who believe it should be free, wants to be free, or that they are entitled to consume it for free.  We are at the point where creators pass up the opportunity to extract some optional $ from many of their consumers while restricting the content to non-optional payers of $$$.

Maybe we are at the point where optional $ from only some of your customers would make it profitable.  Suppose 20% of the people who visited the NYTimes online in October 2008 paid $1 for the privilege, that would be about $10 million in incremental revenue.  Would another $100 million every year be worth it? We can play with the numbers like this forever, but I think it’s one direction creators should move.

I say all of this as a (GASP) paid daily subscriber to the print NYTimes.

People need to get okay with not-free news.   The reporting of news organizations is indispensable, and high in value.  While the music business has the advantage of live performance and merchandise revenue- which do not suffer from the free copying problem- news has no such cash cow.

We’ll need news to recover from this serious free-rider problem.  A tip jar?  Maybe tying to distribution on a device, or just making the pricing more flexible, or making it just a whole lot cheaper and also easier to pay would be a step in the right direction.  I’m not convinced- just getting people back to paying for distribution seems weak.  They will somehow need to be non-free even if not subscription only, either.

One of Fred Wilson’s recent posts mentions Time Oreilly’s three rules:

I believe that in a similar way, newspapers  “create more value than [they] extract” but this has created an ancillary mis-pricing problem: users believed they were paying for distribution, but when distribution became “free” via the web, the value created only grew.  We have not figured out how to recapture that. I wish I knew the answer to that one, but there is something brewing.

[originally posted here on bsbnyc.net]

Some visual ideas in how the NYTimes might make micropayments work are interesting, but I think an idea worth considering is this insight from Matthew Gertner after ditching his Economist subscription in favor of InstaPaper, which makes any web clipping he creates easily available on his iPhone.

wouldn’t readers be willing to pay a fee for the great user experience I now enjoy, in the same way they’ve shelled out billions for songs on iTunes thanks to the full service convenience of Apple’s service?

Whether this would work for everyone is debatable, but it seems clear that Apple’s success lies in selling experiences, rather than individual products or even individual music tracks.  People want to be a Music customer, not a Download customer- they just want the experince, from choosing and discovering through to paying and enjoying their  purchase, to work.

Would that we could have the same approach for news.

This debate is clearly useful at the meta-level; where in having the conversation, we at least think about the extent to which our content is consumed for free, published altruistically, and how sustainable that is.  One of the keys to college fundraising is educating younger alumni and active students about valuing their connection and their experience and giving back when they can in order to empower the same experience for future students.

This debate over funding news and paying for content is ultimately about educating consumers of content that is isn’t free, that even conttent that is energetically given away for free has value, and we should be open to giving back a little for it.  Now, not everyone may be able or inclined to do so, but the ability to compensate the content creator -  an individual or  a firm – with a micropayment or similar system goes hand in hand with the attitude that such an act is part of participating in the marketplace.  Let the debate continue!

David Carr writes in the NYTimes about the Ticketmaster-Live Nation merger from the perspective of artists, whose problems of late have been severe, as in the case of Jill Sobule:

I have never received a single cent on a record that I have ever made,” she said, because sales never seemed to pay back the money she owed for an advance. “With all of this talk of new models and all of these big companies like Clear Channel and Live Nation trying to figure out a way to make a buck, this is one thing [that is, the web site through which Sobule collected $75,000 to begin work on a record] that makes sense for an artist like me. I have a small group of fans, but they are mighty.”

Which model represents the future of ticket sales and recording deals: a many-headed behemoth with control over the biggest acts and marketplaces, or a direct financial conduit between creator and consumer, in which the consumers of content finance its creation?

Sobule created several tiers of support to allow her existing fanbase to particpate in creating her next record, from acknowledgements in the liner notes to allowing a woman from the UK to pay $10,000 to sing a duet on the record.

The industrial-scale music business simply cannot create that many versions of its products, or bring fans so close to the process.  The online and offline megastore strategy props up the prices (for all the recordings, merchandise and live performances) and it may work for Madonna, Jay-Z, and a few others (and of course Radiohead can do whatever it wants).  Yet a viable alternative to the labels still depends on the effort of individuals.

Will every artist be able to set up her own web site and collect contributions from her many fans? Sobule’s journey might be a new trend, but it might also be a one-off exception that proves the rule- it’s very hard to collect $75,000 from the public.  See also the  1,000 True Fans hypothesis.  I hope this remains an option, but there has to be a better way, a more flexible way.

Carr has it dead on when he summarized the efforts of today’s artists who are “tunneling their way to a direct route with their public.” From a microeconomic perspective, Sobule had success because she was able to charge fans at a rate that matched their willingness to pay- she discovered that this “direct route” could work.

Some of the startups in this space, such as Slicethepie, AmieStreet,  Fundable, or ThePoint, work hard to create financial instruments and rights and investments and to pick winners…Sobule’s idea worked so well because you can’t easily manage what she did using the sites that exist now.

What I learned from researching and writing this out is that creating different products to sell is just as important as creating an opportunity to pay variable prices for such products.  I’ll be looking forward to finding out about creating those opportunities.