VIN CROSBIE:
“The Three Phases of Information Revolution”
Below is an
essay from Vin Crosbie, an invitee who is in
Spain. Vin and his family own a small Connecticut daily, but Vin has
been involved for at least 15 years,
since working with two wire services, in
advising on the future of journalism and media. He's done so recently as
a consultant, and earlier as a key part
of a couple of dot-com startups. More
on Vin at the end. I guess I'd quickly
title this: "The three phases of information revolution." You'll note that Vin refers to a few of the
readings to which we earlier pointed.
-- bill densmore
---------- Forwarded
message ----------
Date: Mon, 18 Jun 2007 00:30:57 -0400
From: Vin Crosbie <crosbie@well.com>
To: 'Bill Densmore' <densmore@densmoreassociates.com>
Subject: RE: RSVP/INVITATION: June 19 at MIT: Internet information
payments
Bill:
I'm sorry that a prior commitment prevents me from joining you at
MIT on Tuesday. Please pardon any odd characters or artifacts in this e-mail.
I'm using a Spanish-language copy of Word and keyboard. Ben Compaine tells me
he'll join you, which I think is great.
Cheers,
Vin
Las Palmas de Gran
Canaria, Spain.
As a former journalist and newspaper publisher, I realize that
authors and artists want to be paid for work published online. They will, but
not in this year or the next or this decade. There are fundamental reasons why,
and why attempts to solve this problem in the next few years won't work.
Hegel was never a newspaperman, but I think he'd understand the
nature of the change underway. The world is now some 16 years into what will
likely to be a 30-year transition between Industrial Era and Informational Era
media. The transition can rather conveniently be divided into three phases. In
the first, the nature and force of the change underway surprises and overwhelms
all the traditional constituencies (authors, artists, publishers, broadcasters,
retailers, wholesalers consumers, etc.) During the second phase, each
constituency fights to preserve whatever role and economic advantages it
traditionally had. In the final phase, the surviving constituencies realize
that the change has ineluctably forced rearrangements, reshufflings, or even
destruction (the so-called 'creative destruction') of the traditional roles and
economic advantages, and the survivors begin working together to build a
functioning market infrastructure.
The second phase clearly began around 2003, when broadband access
reached more than half of American homes and offices. Once consumers began to
expect 'always-on' instant access to content (text, music, or video) no matter
the file size, all the traditional constituencies have finally had to
acknowledge that change is underway. Even those who still denied it earlier
this decade acknowledge it now.
So now that creators of intellectual property know that the
Internet will be how they sell their work, it's no surprise that they're rather
desperately revisiting how to get paid for it online. It's no longer an
incidental or ancillary means for their businesses. I read Doug Clifton's
lament. I was amused by Walter Hussman's (anecdotal and statistically
erroneous) attempt to preserve his newspaper's traditional economic value. But
as much as you and I or they would like to jump directly to the third phase of
the transition and build a functioning market infrastructure for online paid
content, we've still got to endure the second phase because there's still too
much competing vested interests among the constituencies, and also still too misunderstanding
of the change, to plant a foundation for a functioning market.
ELIMINATING THE MISUNDERSTANDINGS
Eliminate the misunderstandings first. I'm still hearing
publishers lament that consumers have gotten 'used to' or 'habituated to' free
content and need to be 'educated' back into paying for it. Or some other
Industrial Era, mass marketing lament about how will we get 'the dogs to buy
the dog food.' All those laments are oblivious to how the awesome change in the
supply & demand balance of information has irrevocably shifted the
economics, values, and power equation between producer and consumer, so that
many, if not most, of the traditional strategies and marketing tactics of mass
media have become moot.
Hussman's lament was a variant of those. He claimed that
newspapers should never have begun offering their content online for free-as if
the American newspaper industry could do anything in concert (remember New
Century Network?), as if broadcasters or others wouldn't have jumped in with
free news content, as the supply could have been held back while the global
spigot was opened, etc.
Another common lament among publishers is that news cost money to
produce and that consumers must understand this and sympathetically agree to
pay. That's a wonderful notion that might work for PBS or NPR, but isn't going
to get for-profit companies very far. It belies that fact that almost all the
for-profit companies that produce news have woefully misunderstand how the
supply & demand balance has changed and how they've failed to re-price or
change their products accordingly. Let's look at how it has changed.
NEWS: FROM SCARCITY TO SURPLUS
The balance in the supply & demand equation for information
has marked changed during the past 30 years and radically so during the past
ten. It's shifted from scarcity to surplus for consumers. Take the economics of
selling news, as an example. Thirty years ago, the American consumer who wanted
international, national, and local news, business news, and sports had access
to only a few sources. He could watch the evening newscast on up to three
networks. He could read his local daily newspaper, or perhaps one or two
neighboring towns' newspapers that were distributed from local newsstands. Or he could wait for a few weekly or monthly
magazines to appear to on local newsstands (which probably sold no more than
two dozen magazine titles). Although access to the three TV networks' newscasts
was free, that consumer's relatively scarce access to daily news gave his local
daily newspaper a certain economic value (perhaps 50 cents per day, corrected
for today's inflation).
Then the rises of cable television (and later satellite) systems
during the 1970s gave that consumer access to 24-hour channels of news, sports,
business info, lifestyle, entertainment news, etc. Breakthroughs in offset
lithography during the 1980s made the publication of niche magazines economical
and, as dozens or hundreds appeared on his local newsstand, gave the consumer
much more frequent coverage of his favorite hobby or topic than the occasional
newspaper story had. And then in 1992 the Internet was opened for public usage
and today that consumer has instant online access to every newspaper, magazine,
and broadcaster website in the world.
Moreover, this cornucopia of access means that this consumer no
longer turns to his local newspaper for all international, national, business,
and sports news. He's more likely to access NYTimes.com or CNN.com for
international and national, WSJ.com for business, and ESPN.com for sports, etc.
This radical change in the supply & demand of information has
radically reduced the traditional local newspaper's value and relevance to its
consumer. Even the consumers who still pay 50 cents daily for a printed edition
won't pay that same amount for access to that traditional package of news
content online. The actual market value of a traditional daily newspaper's
product when placed online is much less.
WHAT IS THE VALUE OF NEWS ONLINE?
It has value, and most consumers are probably willing to pay for
it, but just not the price that the publishers want to charge. Thus, there
isn't much of a market for it. A survey conducted earlier this decade by
researcher Mike Donatello (formerly with NAA, Washington Post, and Borrell, and
now with Gannett) found that the median amount most consumers were willing to
pay for online access to daily newspaper content was about $1 per month.
Unfortunately, publishers are demanding that they $4.95 to $9.95 per month.
(The Audit Bureau of Circulations requires that the publishers charge
one-fourth of the printed edition's price for the online subscriptions to be
listed in circulation reports). With such a large gap between the price that
the sellers demand and the buyers' are willing to pay, the market doesn't
function. (The Wall Street Journal is often bandied as an exception, but it is
a business journal, not a general interest newspaper. If you think otherwise,
check out its sports or local coverage).
And now that most consumers have broadband and can access video
news from television and cable news networks as easily as they can access
newspaper texts, I'd estimate that the medium amount most consumers are willing
to pay for access to local daily newspapers' content online is even lower than
the $1 per month that Donatello's reported five years ago.
Unfortunately, most newspaper publishers continue to operate
oblivious to this change, as if their product is still a scarce commodity and
as valuable as it was a dozen or decades of years ago. They see that more and
more people are using online to get news, so they assume that if they just
offer their printed news online then they can get nearly the same price for it
as their printed edition. In reality, they're unlikely to get more than about
two or three cents per day from the average consumer.
CONSIDERING A SYSTEM FOR SMALL-FEE AGGREGATION
So, why can't we now building a system capable of processing and
aggregating such small fees? Let's look at what such a system would involve.
Ideally, every website would have to work with the same
micro-payment processing software (i.e., a universal system). Yes, it's
possible that micro-payment markets might become viable if consumers were
required to use more than one system to utilize all websites, but that is unlikely.
For example, the Mastercard and Visa consortia did not become viable until
retailers could process both as if those two consortia were a single system.
American Express, and particularly Discover, are somewhat handicapped in the
credit card markets by requiring different systems that the Mastercard/Visa
consortia.
Clickshare and other startups or recently started companies in
the transaction-processing business
might hope that websites will turn to them
for micro-transaction processing rather than to the Mastercard/Visa consortium, but that too is unlikely. A
specific reason why is that most
non-North Americans do not possess other types of credit cards and also that most bank debit cards are from the two
consortia.
It's true that the Mastercard and Visa consortia systems do not
currently process micro-transactions and do not want to deploy any such systems
now, but I do specifically know that the consortia are rather frantically
developing such systems for when they have no other choice. Mastercard, Visa,
American Express, Discover, Japan Bank Card, and other charge transaction
processing constituencies are spending and lobbying hard to become the
'winners' to preserve whatever role and economic advantages in
micro-transaction charges that they've traditionally had in macro-transaction
charges. At least during the second phase of the transition, the deck is
stacked against Clickshare and other startup or recently started companies.
WHAT'S NEEDED: COMMERCIALLY NEUTRAL SYSTEM
Moreover during the second phase and possible the third phase of
the transition, any winning system for
micro-transactions will likely also
have to deal with digital-rights-management (DRM) restrictions (if
only the 'do not sell this content to
my competitor' type). That means any
winning system will not only have to handle the transaction but lookup
and administer rights. Frankly, the
best proposal I've seen for handling that
isn't Clickshare but the commercially neutral Document Object
Identifier (DOI) proposal of a few
years ago [http://www.doi.org/]. DOI essentially is a parallel to the DNS (Document Name Server) by which URLs are
resolved on the Internet. When a
consumer accesses a URL, DNS tells his computer where that URL is located and DOI tells it that document's price
and associated rights.
I believe that a commercially neutral micro-transaction system
such as DOI, if managed the way that the early (1979-2000) DNS system was
managed by the then independent and not-for-profit (i.e., pre-Verisign) Network
Solutions was, will have a much greater likelihood of acceptance, particularly
by the credit card companies, than any immediately commercial company, such as
Clickshare, will ever have.
Otherwise and even so, we're very likely to see Mastercard, Visa,
American Express, Discover, JBC, and other of the existing credit card charge
transaction processing constituencies fight amongst themselves and against any
startups during this second phase of the transition, which I think will last
through 2010 to 2015.
NEED WILL BECOME OBVIOUS
By then, it should become apparent to everyone (i.e, the third
phase) that a universal system should become deployed it any of the traditional
constituencies in media, nonetheless charge transaction processing, are to
survive in this century.
INDIVIDUALLY-TAILORED PACKAGES
By the way, deployment of a universal micro-transaction system
won't save all traditional media constituencies, such as traditional
newspapers. Those constituencies must instead discern why their usage (as
measured by household readership) has been declining for more than 30 years and
formulate what other type or package of content that will reverse those
declines. Specifically, the key concept that newspaper publishers must
understand about online is that they must stop trying to find ways to charge
online for all or portions of their traditional package of one-to-many content
and realize that each consumer would instead be much more willing to pay for an
individually tailored package of content. For example, any major newspaper
company should stop trying to sell to consumers only their own newspaper's and
syndicate's package of content and provide to each consumer an individually
tailor package from all providers' content. It's time that traditional mass
media publishers realize that all consumers don't want the same package but
that 'owning the consumer' means deliver to each the exact package that each
wants.
Vin has been called "the Practical
Futurist" by Folio, the trade journal of the American magazine industry.
Editor & Publisher magazine, the trade journal of the American newspaper
industry, devoted the Overview chapter of executive research report Digital
Delivery of News: A How-to Guide for Publishers to his work. His speech to the
National Association of Broadcasters annual conference two years ago was one of
24 orations (including speeches by President Bush, Secretary of State Rice, and
Senators Clinton and Obama) selected by a team of speech professors for
publication in the reference book Representative American Speeches 2004-2005.
Crosbie keynoted the Seybold Publishing Strategies conference in 2000,
co-chaired and co-moderated last year's annual Beyond the Printed Word the
digital publishing conference in Vienna, and regularly speaks at most major
online news media conferences. He is managing partner of the media consulting
firm of Digital Deliverance LLC.
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Vin Crosbie
Managing Partner
DIGITAL DELIVERANCE LLC
15 East Putnam Avenue, Suite 402
Greenwich, CT 06830
USA
telephone: 1.203.863.9405
GSM mobile: 1.203.570.8905 skype: vincrosbie
e-mail: crosbie at well dot com http://www.digitaldeliverance.com
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