StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Why We Should Pay For Online News

29 Dec 2009
Posted by Stan Collender

You had to know this was coming.

This story in yesterday’s New York Times says that a number of major media outlets that up to now have been giving content away for free online are now considering following in the footsteps of the Wall Street Journal and the Financial Times by charging some type of fee.

Like everyone else, I’d prefer to have unlimited free online access.  Who wouldn’t?  I'd also like free health care, free food, no mortgage, and throw in a Ferrari at no cost while you're at it.

But unless we’re ready to have news sources be publicly funded (and we’re clearly, absolutely, unambiguously, and positively not), we have to admit that free online access can’t and won’t go on forever.  With advertisers unwilling to commit the same amount of cash as they have in the past, someone has to provide the resources for this service to continue to be provided.  I’d prefer that this be me.

Here’s why:

1.  I have always paid for subscriptions to newspapers and magazines because I valued the content.  Even when I was earning much less than I do today, I was willing to pay for news and information.  Why should I get it for free now just because the delivery system has changed?  You don’t want it; you don’t have to pay for it.

2.  Here’s why I’m not a big fan of a strict advertising model for news.

A local “newspaper” in my area is delivered free to my home every week or so.  I put the word newspaper in quotes because, although it purports to be independent, because it relies on advertising for its revenue, it’s really nothing more than a brochure for the local real estate industry.  I’m guessing, but it seems like about 90 percent of the ads in this rag are from real estate agents.  As a result, the headlines and leads for “news” stories about the local economy, especially those dealing with home sales and interest rates, are almost always very upbeat and extremely positive even when the data being reported doesn’t justify it.  And there’s at least one “story” in each issue about a home for sale that is made to look as if it’s news even though it’s really a full-page advertisement.

We have all complained about the same thing in other situations.  For example, major newspapers are frequently accused of kowtowing to a big advertiser in their coverage. Programming on television is often determined by whether there are sponsors for particular shows.  Credit rating agencies are heavily criticized for giving too high of a rating to mortgage backed securities because the fee was being paid by the issuer.  Audits of public companies were criticized because the company being audited was he one that hired and paid the accounting firm.  And until Sarbanes-Oxley changed the practice, Wall Street firms were often paid in some way by the companies they were analyzing.

3.  I like the idea that that a market could exist for news with outlets trying to appeal to consumers rather than advertisers for revenues.4.  I also like the idea that, with modern technology, there may be a way for me only to to pay for the content I want to read or see similar to what I do now with the cable TV package I buy.

This isn't an argument for

This isn't an argument for why online news shouldn't be free--it's an argument for why news shouldn't be free.

But news has been basically free for most of its existence. Advertising has contributed the bulk of revenues for newspapers.

Moving online could be revenue neutral for newspapers. They don't get subscription fees, but they stop producing paper. What really kills them is the fact that responses to ads can be measured online, so the extreme inefficiency of the advertising world can no longer support journalism.

What they need to figure out is how to make ads work online. You could create an identity, fill out some lists to show your interests, and go to any news page to get ads tailored for you. When newspapers don't even know what ads will show up, there is much less conflict of interest. The moment you charge for anything on the internet, visits drop dramatically--so better advertising is the better option.

The amount of the fee will be the issue

I have no problem paying a fee for newspaper content if the fee will not exceed the price of a daily dead tree newspaper. So, that means, what 50 or 75 cents a day with Sunday papers being $1.50 or $2.00. That would be fine.

I don't expect the papers to go that route. Not sure how WSJ handles it, but I envision 50 cent charges PER ARTICLE. If that happens, the concept will flop.

There 's a little problem in

There 's a little problem in the nature of news that makes it hard to sell. The owner of the news knows what the news is, while the prospective buyer does not, until he or she coughs up. So, news can't be sold. A reputation for gathering newsworthy information must be sold, instead.
This argument applies to a wider set of cases. Arguably all creative work cannot be paid for ! Revealing a new idea kills its scarcity value. But how else can the audience know that it is a really new idea ?

Going to the paid mode will

Going to the paid mode will result in the sites that are truly valuable winning. WSJ and FT can make money on this, but can the NYT online?... I doubt it.

One odd thought: Information is an odd commodity in that its not diluted in its distribution, but its value to each individual may be.

Doc Merlin seems to have the right idea here

Putting up a "pay-me" barrier will not work if you can get the same goods for free by aiming at a different website. Now, if Google and Yahoo want to buy AP news feeds and give them away, there's very little the NYT can do to compete with this. They could try to hold their columnists hostage, I suppose...

One of impacts of the web is a big loss of brand equity for information gatherers. It may be only an evolutionary phase, but most people aren't going to pay anyone to gather news when they can just as easily do it themselves. In fact, there will be less cognitive dissonance because people will only go to sites that reinforce their beliefs.

With colossal externalites, the media should be subsididized

The biggest problem with paying for the media is the colossal externalites. Serious investigative and analytical journalism is expensive, but it's enormously beneficial for good governance, but the beneficiaries of this don't pay for it if they don't pay to read the journal, and even if they do, they pay a fraction of the value of this benefit to society. In addition, as you've noted, there are big free rider problems with something that's about zero marginal cost like information.

I have a series of posts on the case for government subsidizing of the monumental positive externalities of serious journalism that was in the links of Mark Thoma's Economist's View. The first one is at:

Externalities and the cost of phys newspaper > price

Again, I think the crucial thing is the monumental economic externalities. And free rider problems are just a type of economic externality – people and parties external to the transaction benefit even though they are not part of the transaction decision. And because they are not part of the transaction decision, their benefits will not be considered in deciding the transaction, to the extent that the transactors are self-interested.

With information that flows this freely and easily, the free rider problem is gigantic, meaning giant inefficiencies if things are left 100% to the pure free market. The Washington post pays for the expensive investigation to uncover Watergate, and then within minutes today, or hours, or a day, in the 70s, every news outlet in the country can be carrying the story, or would once it's verified.

The benefit to the Washington Post and those who buy it of uncovering such a story is a tiny fraction of the benefits to those external to the Washington post and its purchasers. So the Washington Post and every other news outlet will greatly underspend on such investigation relative to the amount that optimizes social utility (and the same goes for analysis and research).

The advent of the internet has not changed this basic phenomena. News reporting was not paid for by reader purchases before the internet either. It was still 100% paid for by advertising, because the cost of newsprint, ink, and distribution exceeded the price of the newspaper.

As Washington Post Columnist Michael Kinsley wrote in February:

Newspaper readers have never paid for the content (words and photos). What they have paid for is the paper that content is printed on. A week of The Washington Post weighs about eight pounds and costs $1.81 for new subscribers, home-delivered. With newsprint (that’s the paper, not the ink) costing around $750 a metric ton, or 34 cents a pound, Post subscribers are getting almost a dollar’s worth of paper free every week — not to mention the ink, the delivery, etc.


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