January 7th, 2009

The Problem of Media Economics: Value Equations Have Radically Changed

by

Entering 2009, the future of media is undoubtedly a quandary, with no end of head-scratching across the industry. As with everything these days, it seems that it all comes down to radically changing economics. There are way too many conversations about the future of media, news, journalism, etc. going on out there that don’t reference economics, so I’m going to kick off the year with two personal anecdotes that illustrate the problem of media economics.

Last weekend, my wife and I wanted to watch Becoming Jane, because we’ve been on a Jane Austin kick. We watched Pride & Prejudice the night before (highly recommended). We subscribe to Netflix DVDs, but we hadn’t ordered the movie, and we didn’t feel like waiting. I went to iTunes, and it was available for purchase for $15, but not for renting (for $3 or $4). Amazon, same deal, not on their video on demand service, just the DVD for $15. I checked out Neflix’s Video on Demand offering and found that we don’t have the right hardware (nor do we have the required “unlimited” subscription). Hulu, well, they’re making progress on movies, but it’s mostly old stuff. Video store — the Hollywood video near us is an empty shell — and I can’t remember the last time we got into a car to rent a movie.

So here we were, ready to spend $4 even $5 dollars on content, and nobody would take our money. Seriously.

So that $5 stayed in my walled. No sale. No revenue. Nothing. We didn’t end up watching a movie.

Here’s another story.

Over the holiday, we helped some relatives post a listing for basement apartment on Craisglist. They had already listed the apartment in the newspaper, but they responses had been entirely from older people — 70s and even 80s. They had been looking for a young professional (it’s a steep staircase down to the apartment). And the responses had been coming in slowly. The apartment remained unrented.

We posted the apartment listing on Craigslist, and over the next few days they were flooded by phone calls, mostly people in their 20s. In less than a week they had rented the apartment to a public school teacher who had been living at home and was looking for her first place.

So they were able to achieve for free on Craigslist what they couldn’t achieve by spending money in the newspaper.

To me, these two incidents represent media value equations that have radically changed. It seems that most media companies still haven’t figured out how to adapt to or even understand the changes to the fundamental exchange of value in media.

Some of that stems from a failure to understand legacy media economics.

People ask why no one wants to pay for news anymore, referencing the decline in newspaper circulation, when in fact that misrepresents the value equation. People were paying for newsPAPERS, which contained a lot more than news, and they were also paying for newspaper delivery, which is a service.

For all those people searching for apartments on Craigslist, the value equation for their local newspaper has fundamentally changed. They may still value local news, but some of the highly valuable information that used to ride along with the news has been removed, which changes the equation.

It’s not that no one wants to pay for music or movies, it’s that increasingly we want to pay for content when, where, and however we want. We’re willing to pay for the convenience of video on demand, but the service isn’t always being offered. Digital technology has put content producers in the services business, but they don’t yet fully understand that value exchange.

New business models for media require entirely new exchanges of value — it’s not about finding new ways to balance the old equation.

Comments (13 Responses so far)

  1. [...] Karp does and look at the media economics from a case driven perspective. He has done a post on how value equations have dramatically changed, which I think is absolutely [...]

  2. Absolutely stellar points, Scott. It made me think that when I cancelled my print subscription months ago, I did so because of big issues in delivering the paper to my doorstep. I didn’t feel I got what I paid for, so I cancelled after 7 years as a loyal customer. Not once did it cross my mind to do the same drastic thing because of the actual news content and journalism of the paper. Maybe the perceived monetary value really is in everything BUT the news?

  3. [...] var det, jeg læste Scott Karps glimrende indlæg om, hvordan den reelle værdi af avisen har ændret sig fundamentalt. Og specielt følgende citat slog hovedet på sømmet for [...]

  4. [...] about the same time tonight, Scott Karp was toiling away on an almost identical point over on his Publishing 2.0 blog: People ask why no one wants to pay for news anymore, referencing [...]

  5. and for the folks in their 70s and 80s there should be a large print fax-on-demand service

  6. I completely agree. There is a lot of opportunity out there right now especially considering I would love to be able to do as much as possible online. When I recently bought car insurance for the first time, I was amazed how much cheaper an online brand was from a bricks-and-mortar brand. Of course, there’s a fine line there. You don’t want to entirely risk a local economy and community culture. Whoever can figure out to merge the convenience of the internet with the uniqueness of all that is local will make a lot of money.

  7. [...] New business models for media require entirely new exchanges of value — it’s not about finding new ways to balance the old equation. – Scott Karp, Publishing 2.0 [...]

  8. [...] recommend you read his post in full as he makes some excellent points – one of his is his summation; “New business models for [...]

  9. [...] recommend you read his post in full as he makes some excellent points – one is in the summation; “New business models for media [...]

  10. My wife and I currently spend over $1000 per year for newspapers (which includes the NYT Sunday edition). Heap on that the $2300 or we spend on cable, phone and electonic media and it’s a hefty amount. Now, here’s the rub: Most of what is printed and avialable on all these channels is stuff we simply don’t attend to. Give us a world in which we’d be able to get the content we want, and we’d happily spend the same amount.

  11. [...] Publishing 2.0 – The Problem of Media Economics: Value Equations Have Radically Changed [...]

  12. [...] Center Networks has a good comparison of Web 1.0/ 2.0 revenue models and profitability. As this good post sums up in a different context New business models for media require entirely new exchanges of [...]

  13. Insightful points. I never go to video stores anymore. If we don’t have something in the house we want to view, we go to netflix and select a movie with the “watch it now” feature. As someone outside the newspaper industry, it appears these institutions are set in their ways to rapidly change with the new media environment. If I have learned one thing from running a web business for the past 10 years, either innovate or get run over.

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