The Future Of Journalism Discussions Need Reality Economics

After reading the opening of this Future of Journalism essay, I wrote the following as a comment. It’s long, so I’m repurposing it for WiredPen, even though I feel like I’m beating my head against a brick wall:

Like many discussions (hand-wringing) focused on “the future of news” … this essay begins with a flawed analogy:

You don’t get free gas from a gas station.

You don’t get free meals from a restaurant.

You wouldn’t walk into the Googleplex … that’s Google’s corporate headquarters in Mountain View, Calif. … and expect a staffer to rush to the lobby with 1,000 free shares of Google stock for you.

At least we don’t think so.

So why is the newspaper industry the only one in America that is expected to give its product … in its electronic version … away for free?

I’m using an out-dated pedagogical tool, but here goes. Write on the (chalk)board 100 times: bits are not atoms.

What do I mean? Comparing food or gasoline (or even stock) with digitized information is flawed on many levels.

First, with goods made of atoms, it is (usually) possible for the owner to prevent an unauthorized person from “possessing” the good (theft excepted). Thus, the owner of a restaurant can require that a customer pay (usually in currency) for a meal. Economists characterize these types of goods as “excludable.”

Second, goods made of atoms are “rivalrous” — which means that if I check out a book (or order the last piece of apple pie), then you cannot “consume” the book (or pie) … unless I “give it up” to you (or you you wrest it from me by force).

These two characteristics underpin our economic system (and traditional economic theory): these goods are “private” (excludable) and “scarce” (rival).

Digital goods are neither. I can read this web page at the same time as someone half-way around the world; the constraint on our experience relates to connectivity. There is the individual’s connection speed/hardware and the web server’s ability to supply the web page to multiple readers. Anyone who has content that has been “Slashdotted” understands that access to an individual webpage is limited by the physical (atoms) webserver and internet connection. Anyone who is forced to use 28K dialup on a 5-year-old computer knows the frustration resulting from hardware/network constraints (atoms). But the information — the zeros-and-ones that form the webpage — exist independent of these physical constraints.

In their native form, digital goods — news, music, photographs, Wikipedia — have the characteristics of public goods: non-excludable, non-rival. This is why DRM systems eventually fail. For more on this topic, see Economics of Digital Information (Slideshare).

Finally, this argument also rests on the flawed assumption that the great unwashed consumer base has always paid for news and is somehow getting something for free. That argument is false.

We have paid for convenience (the paper on the doorstep) and quality (terrestrial TV via “cable”). In both channels — and with most magazines as well, Consumer Reports being a notable exception — the media organization had a monopoly on “eyeballs” and used “content” to “marry” advertisers with those eyeballs. The cost of distribution (printing presses, broadcast licenses and studios that provided access to consumers) was such that dailies and TV networks/stations enjoyed a geographic-based monopoly. The bulk of the cost was born by advertisers who needed these monopolies to get their messages to potential consumers. This cost model also contributed to media consolidation; many scholars argue this consolidation has led to a corresponding decline in quality. I’m not talking about “entertainment” here — I’m talking about news that is needed for a functioning democracy.

For more see: “No More Free Content” and Follow Up: “No More Free Content”

There are serious issues around “news” and “democracy” — but arguments resting upon such a false economic premise are unlikely to yield useful (for democracy) results.