The valuation of worthless

People have never paid for content. Why start now?

Every day you read another article about how bad the situation is in the media business. Even though not everyone is equally outspoken on this point, there’s a common belief that the Internet’s to blame for everything from falling circulation to reduced ad spending in print and television.

Now that everyone’s seems to have forgotten the “Google steals our content” cries of yesteryear, this year’s most popular complaint is that the main strategic error behind the downward slope we’re in at the moment, was deciding to give away our content for free online.

This means, ladies and gentlemen, that next year most of us are going to be forced into the single most difficult business development anyone has ever done in our business: Trying to get paid for content.

Contrary to belief the hard part isn’t creating the payment systems in themselves. They’re a dime a dozen these days. Identifying the right content to sell is harder. But the hardest part, though, is convincing the audience that content has value.

“Hang on just a minute,” I hear you say. “Content has value, is just that the internet has made people, you know, unlearn it. We just have to teach them that lesson again.”

Grasshopper... if it had just been that easy! My claim is that it’s hard to get paid for content online, because content have hardly had any intrinsic value at any point in human history: Trying to learn people to pay for content online, is not just unlearning a bad habit; it’s actually trying to teach them to do something they’ve never done before in their life.

Just to prevent my being the recipient of a pink slip tomorrow, I have to point out that I of course know that people pay for content. My parent company sells hundreds of thousands newspapers each day, so I should know. But are people really aware that they have paid for that content?

I think not. Let me start by giving you three examples:

Example one: Television
I’m told that never before in history have this many Norwegians paid for television. But if you ask these paying TV customers whether they’ve paid for what they watch on TV, will they answer yes to that?

My guess is that they won’t. If you press them you may get them to admit that, yes, they pay for a cable and a decoder, but that amount cover physical media and transportation, doesn’t it? Today you can’t buy single channels or even single TV shows. You always buy packages or plans.

The intrinsic value of Mad Men is not a penny more than Private Practice (and by God, I wish it wasn’t so). The shows happen to be freebies thrown in together with cable, the decoder and the decoder card.*)

Example two: Books
A book by James Joyce costs exactly the same as a book by Dan Brown when the format is the same. But Ulysses is Nobel Prize material; The Lost Symbol is as far from that as you can get. Why isn’t quality rewarded in Joyce’s case? Shouldn’t Joyce cost $100 and Brown $10?

Maybe, but they don’t. Books by the two authors costs more or less the same. And even without comparing authors, look what happens to a single work of art in a time span of just three months: When Harry Potter and the Deathly Hallows was published, it first came as a hardcover and cost $35. Good, heavy, high quality paper, hard cardboard binding. Three months later you could buy the paperback for $15. That book was printed on light, low quality paper and had soft cardboard binding. The content was the same, but lowered physical quality reduced the price by $20.

What lesson does the customer learn from that? It’s that what you pay for is paper, cardboard, production cost and transportation. The content is apparently thrown in for free.**)

Example three: Newspapers
If I pay a couple of thousand NOK a year I can subscribe to a really lousy newspaper. For more or less the same amount of money I can subscribe to a really good newspaper. I’m not the first one to point out this strange fact -– I don’t claim that any of this is original thinking -– but if content had any intrinsic value, why doesn’t the latter newspaper cost more than the former? As a customer I get the idea that what I pay for is production cost, paper, printing and transportation.

Again the content is basically free. At least there’s no way to say that this is better than that, moneywise. I may value one newspaper over the other intellectually, but that evaluation is not reflected by its cover price.

The “content for cows” problem
The bad news, so to speak, is that this is not new at all. On Iceland, when the sagas were written, the cost of a saga was calves. No, you didn’t trade calves for books, but you needed the calfskin to write on (they didn’t have paper). The content in itself was well known and spread for free. To *really* own it, you had to make it physical. And the cost of that were calf skins and the time of someone writing it down for you.

What cost something are dead cows. The content was free (the meat for a great barbecue was mere bonus material).

Analogous to calfskin, paper and transportation is access. But the problem (and the democratized beauty) of the Internet is the perception that I’ve already paid for access and transportation (broadband) and the physical media (computer and screen) to begin with. It’s done and over with. Content is the thrown-in freebie, just as it has been throughout history.

That’s why I think that when people claim that they’re closing the doors and not letting anyone in without a ticket, then that just as well may be a case of hubris of an epic scale. Yes, I know hubris leads to catharsis and that catharsis is supposed to be good for you. But this particular catharsis may cost more than you’d like. The audience doesn’t know the value of the product (content) you’re trying to get paid for; they haven’t ever been aware of the fact that content has value, neither have their parents or grandparents.

So that’s it then?
No it’s not. Going forward introducing paid content is not rocket science, but it’s not easy either. It's just that we should reevaluate the notion of what it is we want to get paid for.

At media industry conferences every third speaker shows a slide with a picture of a bottle of water. If that industry, they say, is able to sell water with a premium price, why shouldn’t we be able to sell content?

Why shouldn’t we indeed!

The first thing we should learn is that the bottled water industry is not selling the content of the bottle. They sell the bottle. They sell an image. They sell packaging. They sell an experience.  So should we.

As long as most content is not unique in our business, the problem is that we can't just close the doors and demand entrance fees without changing the experience around our content. I don’t know what that experience should be, but I’m certain that giving users the same experience as today just won’t make us any money. That’d just produce a handful of very disappointed customers and drive the rest away.

So I'm going to conclude by quoting Lost in Space: Danger, Will Robinson! This particular business development is potentially harmful for you, unless you do it right.

(Now I'm ready for your beating.  I'm open for comments and most of all to be proven wrong)

NOTES

*) The value of TV shows is their ability to attract people like you and me – i.e. an audience. For me, the viewer, the size of the audience is irrelevant (except for the fact that a large audience secures a new season). But for advertisers the audience size is relevant, and that’s how TV content can be valued. But this is a value for advertisers and the networks, not a value that’s meaningful or understandable for the regular viewer.

**) The value of content here is perhaps not obvious: Dan Brown’s gift is that the paper selling companies that publishing houses in reality are, can sell more paper to people when Dan's name's on the cover. That’s what makes me prefer Doubleday’s paper over Penguin’s when given a choice.

Comments

[Anders Brenna]

It's hard ti prove you wrong, and it's not vert forward thinking to det it as a goal.

We should crowdsource a list or spreadsheet with three columns filled with answers to these three questions:
* What do you pay for?
* How much do you pay for it?
* Why do you pay for it?

It is neither necessary or useful to create a complete list, but the questions gets your mind started and shared answers tend to inspire more and better answers.

The bottled water case is one inspiring example, but we need more cases to identify the true pattern that can be replicated to the internet, or at least form the basis theory for working online editorial business models.

[twitter.com/frezno]

Very good blogpost, and it did make me think of an old marketing theory. The theory of The extended product model (read more here: http://www.buildingbrands.com/didyouknow/24_extended_product_model.php ) What the theory suggest is that most products is a composition of different properties. And what I started to think of when I read Anders Brennas questions in former comment, is that still we don't quite understand what we're producing and what the users are actually paying for... To be continued...

[helgebirk]

Back then, we paid from crib to coffin. And we will still do.

Great post Jo Christian, and nothing much to disagree about, but I think it’s worthwhile to draw a parallel between old school and new school interaction economy

But first a story to prove you’re right about the packaging, distribution and service theory:
Every year or so, I receive a call from Aftenposten (leading newspaper in Norway). They have more or less the same message, year after year, since back in 1990 when I got my first apartment.
“Hi Helge (for some reasons the sales guy believe that I’m more likely to buy his offering if he approach me with my first name), I have an offer you can’t refuse: I would like to give you, Helge, Aftenposten for free the next six months.”
“Fine, that’s tempting”, I’ve always admitted, while I’m waiting for his next line:
“The only thing we need from you, Helge, is that you help us deliver the paper to your door every morning, Helge.”
“Sure, I can help if I get the paper for free.”
“By paying less than half a Euro per day, we promise to bring you the news, the great stories and valuable information every morning at your door. Sounds nice, doesn’t it, Helge?”
“Hu..and the total cost for the free paper is”, I counter
“It’s still very reasonable, Helge. It’s still for free, you see, Helge. You only pay for us bringing the paper to your doormat. Wouldn’t it be nice having news every morning bla bla bla”.
Obviously, but it’s just another example of the fact that we’re not paying for the content itself, but packaging, distribution and service, as Jo Christian already have stated.
This is not a new way of selling Aftenposten per subscription. This is the way Aftenposten has sold subs the last 10 or 20 years. Way before commercial internet. Way before the newspaper crisis.
You pay for the packaging, distribution and the delivery service. Not the content, as you have written, Jo C.
(That’s not the whole truth, though. When you’re hooked for the first six months the price increase and suddenly the cost of packaging, distribution have doubled, but that’s another story)
Further on there are two other ways we’re paying today (internet) and yesterday (paper)
1. Immaterial cost of being annoyed by ads.
2. Interaction and involvement
#1 is given, so I’ll move to #2.
Like years before, there’s a wiliness to pay for contribution. Either it’s about selling your grandfolks rocking chair (today ebay.com and finn.no – yesterday Youngstorvet Bazar), a potential match of love (today Match.com and Sukker.no – yesterday Noen som passer for meg) or to celebrate or cry. We’re paying to inform about the new born, the wedding, the 50th years anivarsity and finally we pay to put up an add informing that someone we care about have passed away.
We’re paying from crib to coffin, so to say.
I still believe this tactic has an afterlife (ehrm) in a virtual/online world. Match, Møteplassen, Finn, Ebay etc proves that it’s not a dead end street.
So what’s my advice?
Give the packaging, distribution and the service away for free. Get paid for extra service such as user involvement and user engagement. (Dagbladet recently gave it a try (to pay for discussion via SMS), but they’re facing a temporarily set back. )
Either if it’s child birth, dating, auctions, classifieds or simply the user/readers longing of being heard and/or interact with a broader audience.

[Mark Scott]

You will find pretty much the same arguments in a recent essay by Paul Graham - see http://www.paulgraham.com/publishing.html

Are we any closer to an answer on this?

I think not.

[Jo Christian Oterhals]

Great comments!

Anders Brenna: I think your spreadsheet idea is a good one. Will you organize one? Could be a shared spreadsheet trough Google Docs, spread the word of it trough Twitter, Facebook, etc.

Fredrik Antonsen: Is the problem that we don't know what we're producing, or is the problem that we don't quite understand our value proposition?

helgebirk: Amusing anectode about your newspaper. What I think you're trying to say is that content providers should try to apply *other* business models than the traditional ones online. I agree completely. However I do think that we also have to try to sell packaging. We just have to get rid of the notion that we're going to sell content. If we keep that notion, a lot of well meaning business development will be done -- apart from the fact that it'll be the wrong business development.

Mark Scott: Yes, I think we share the same thoughts. What's great for Paul is that he writes this from outside the industry, so he can really free himself from the old ways of thinking. But even though Paul ends up in his article being as uncertain as me as to what will and have to come next, I think he's oversimplifying where he tries to deliver solutions.

I'm thinking of the old "music is free, sell tickets and t-shirts" example in particular. This really is a business model that will suit only bands and artists at and above a certain level. And his model doesn't explain how up and coming artists will be able to finance the marketing needed to achieve that level.

But I do agree with your point: We're not any closer to an answer on this. In any case, my point with this blog post is not to present a solution. It's rather to try to give decision makers in my business the right perspective on the issue of paid content.

[Gjermund]

At the right place or time you probably could buy a Much for the cost of paint and canvas...

[Anders Brenna]

I'll set up the spreadsheet egen I Get back home. I've been thinking about this since your comment at NONA09 about thinking about 1. business 2. journalism, instead of 1. journalism 2. business.

[Jo Christian Oterhals]

Gjermund: You're right. And today most of us will never afford a Munch.

But is that caused by the value of the content? Take all these Rembrandt paintings as an example: Fabolous works of art all of them. But from time to time it's discovered that some of them actually were painted by his students.

When this happens, the value of the paintings drops to a minimum even though they're just as beautiful and maybe even masterful as before. So even when it comes to art, the content itself has little to do with the valuation of the artworks (after a certain point at least).

[passing a drug test]

Nice Post I already digged this,i have posted your blog on my site

[Pål Bråtelund]

Jeff Jarvis joins you in your reflections here