The rationalization of publishing

Now that the ad-only experiment has decidedly failed, quality information providers will be able to build strong businesses, and consumers will be better served than ever

It was not a dumb idea. It may have even been the right idea at the time.

That is: With no printing costs and the ability to reach a much larger audience, publishing — the kind that had been traditionally supported by a combination of direct consumer dollars and advertising — could be supported by advertising alone. If so, it would be a huge win/win: Free information for the world and strong businesses with global reach.

It wasn’t obvious 20 years ago that by going down that road, publishers — who traditionally differentiated on brand, quality, and audience — were entering a commodity business that would be dominated by software and scale. And, even if it was, was there a better option? Getting money from consumers over the internet wasn’t easy back then. Entering a credit card was a lot of friction, and no one trusted it. Besides, publishers were getting paid. Advertisers still cared about brand and context. And, really, how bad was a little banner ad? It’s not like they were taking over your screen and tracking you across the web. And certainly they weren’t influencing what was getting published. It was an okay trade-off for access to great content (most of which was paid for by print ad money anyway).

The only thing that went wrong was the inevitable. Business always optimizes for where the money comes from, and advertisers weren’t in it for the public good. Which means they eventually got the better end of the deal, with the rest of us suffering through an experience that was necessarily compromised.

That story has played out. It will continue to play out for years — free, cheaply produced content isn’t disappearing. It will just get worse. But there will also be an abundance of non-free, non-cheaply produced content that an increasingly large and discerning audience is hungry for.

Look at the renaissance in television — it was driven by a better (non-advertising) business model. Even though there’s still plenty of free, ad-supported TV. A hundred million households pay Netflix alone for delicious, differentiated, ad-free fare. Look at music. At one point, the sky was falling in that industry because everyone was downloading music for free. Yesterday, Spotify went public and is worth $30B, helping the labels bounce back with them.

With both TV and music, the consumer offering is far superior to anything we had before, and there are more options for creators. (True, musicians at the top aren’t making as much as the glory days — but far more musicians are making some money, and it’s way easier than ever to get your music out to a fanbase.) This is the power of a differentiated, competitive market — increasing quality and convenience for consumers, and riches for the winners.

There are three arguments you typically hear against the TV and music/publishing analogy:

1) People will pay for entertainment but not information

This is silly. It might not be as big as entertainment, but the global demand for information — I’m talking news, journalism, analysis, opinion, essays, instruction, etc. — is not small. There are certainly some people who only will pay for entertainment, but the people who have the most money care about understanding the world and their place in it.

2) People will pay for audio and video but not text

This also doesn’t make a lot of sense. People value time, convenience, and quality. People read more than ever. And books are still a multi-billion dollar market.

3) People won’t pay for what they’ve historically gotten for free

This is true and would be a problem if you also assume: They will continue to be able to get it for free and/or the thing they’re asked to pay for is the same as they’d get for free.

People are not dumb. But their information diet has been subsidized by print ad revenues and no-longer-sustainable digital CPMs for a lot of years. It will be painful, especially for publishers, to ween off that drug. But supply and demand will kick in. As paywalls go up (and, inevitably, many publishers go out of business), there’s just going to be less great stuff to get for free.

Will people just lower their standards? Perhaps. In fact, our standards have been gradually lowering for years. We’ll read crap on the web we wouldn’t have put up with in print. But as advertising gets replaced with better business models (subscription, inevitably), people will see they can expect more. No one was clamoring to pay more for TV before The Sopranos came around. (People subscribed to HBO for the second-run movies.) No one even imagined such TV. Now we can’t stand to sit through ads or crappy content. The same thing will happen.

There is — and probably always will be — a surplus of free content. But that’s like saying there’s a surplus of free food in the dumpster behind the alley. Some of it may be perfectly good, but most of us would rather pay for something more reliable and convenient if we’re able. And many people will pay a lot for something superior.

This is the case in media — TV and music, as mentioned, but also video games and radio make billions per year from consumers who can access free alternatives. But it’s also the case in every other market, from coffee to clothes. People choose the level and style they want and are willing to pay for — and providers compete to get their business.

The reason quality — of content and experience — has gone down in publishing, not up, despite the power of competition and technology, is because publishers are competing for advertiser dollars, not audience dollars. Business model is gravity. Once publishers are competing for audience dollars, the product they produce will get dramatically better.