Monday 17 January 2011

Hope for newspapers for their long-term survival

Last week The Times pay wall failed once again - it's apparently becoming a reasonably regular happening - and, within minutes, people were being notified via Twitter, Facebook, LinkedIn and e-mail.

Even some Times columnists were stoking the demand to grab the free content by taking the opportunity to share links to their latest musings. News International's finest were glorying in the internet being free again.

At roughly the same time McKinsey, the strategy consultants, published a new estimate of how much value consumers of the internet get for free. McKinsey's methodology is simple: consumers derive significant value from all they do on the Web, and since advertising pays for much of this, it involves no immediate out-of-pocket cost. People do pay for some of what the web is worth - either directly or indirectly by having to put up with advertising pop-ups and other annoyances. However, there is still a gap between the true value of all content on the internet and the amount of money currently paid for this content.

The gap, according to McKinsey's research, is $100bn. Or three times the size of the economy of Ethiopia .

While some celebrate the democratic nature of the internet - powered along by the growth in social media - many of us are now freeloaders. As a result we value the work of journalists and writers far less. The mini case study of the Times writers seemingly almost desperate to get people reading their work, points to writers valuing their work less as well. In economics when the level of freeloading reaches a tipping point then there will be a reaction from the market.

The issue seems to be that the market - media companies in particular - don't know how to react. What the McKinsey report pointed to was the opportunity to make money out of the internet is not being taken (by a gap of $100bn). The Times has tried to do its bit to fill this value gap but, if even I am only willing to click on my favourite columnists when the content is free, it is unlikely to be successful.

The problem seems to be that media companies haven't adapted their strategies to the world they now operate in. It’s as startling and comprehensive an error as the Polish Cavalry taking on the German mechanised Blitzkrieg; out-dated and doomed to failure. There is hope though according to McKinsey who conclude by saying "we’re still in the early days of the Web economy, and only recently has the consumer surplus swelled with the rise of blockbusters such as Facebook and always-on connectivity. Clearly, this is a market that’s far from equilibrium, so players should be planning for major change and preparing their strategies accordingly."

It will be interesting what strategies - beyond the pay wall - emerge from companies such as The Times and whether ultimately they can survive.   

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