Who owns the news?

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I gave a talk as part of a seminar on ‘Who owns the news’ last night. For those interested, my speaking notes are below. Thanks to Megan Richardson, Beth Webster and others for organising the event – it led to a very stimulating discussion.

Who owns the news: competition and the internet.

Presentation at the Melbourne Business School

July 8, 2010.

1. Approach

I approach this talk from the perspective of an economist. Thus I will not talk about the legal intricacies of copyright law and fair use. Rather I will concentrate on the changes that have happened to technology for news delivery and media more generally and analyse how these changes are altering the market for news production and delivery.

2. Why are we asking the question?

2a. Does the question make any sense?

At one level the question is nonsensical. If ‘news’ simply refers to public events then the ‘news’ as such is not owned by anyone. So to make sense of the question we need to consider a particular embodiment of the news in a written/spoken or video form that is subject to copyright and has a property right associated with it. This may be simple reporting of the facts or include commentary and opinion. So the question is really “who owns a particular report of news events”?

2b. Starting point is taking copyright law and fair use as given.

Copyright laws with provisions for reasonable use can be debated by the lawyers. So my starting point will simply be a non-lawyers approach to these rules. First, as a general approach if you ‘write it’ then you own that particular written version (or equivalently for other delivery modes). Second, small amounts of that written version may be reproduced without violating copyright.

2c. So what has changed?

My understanding is that the copyright laws are neither new nor have they been recently changed. So why is it topical today to ask the question “who owns a particular report of a news event”. The reason must be that something else has changed in the production and distribution of the news. That thing is obvious – the internet.

2d. Rationale for the question.

So the only reason that we are asking the question ‘Who owns the news’ is that the internet has fundamentally altered the business model for news production and distribution. The ‘narrow question’ of ‘who owns the news’ is really simply part of a broader debate about the interaction between the internet and the media.

3. What has the internet done to the economics of news delivery?

3a. Convergence

The internet has led to a convergence in media delivery modes. This convergence is continuing and involves a variety of models:

3ai. Distribution by a common mode – the internet.

Media are distributing the same product via multiple media. For example, newspapers, magazines and other printed media have been putting their content on the internet for many years. More recently, video media has been offering their content via the internet. For example, following the US and the BBC, Australian networks (most prominently the ABC) are putting their television content on the internet for viewing after it has been screened on free-to-air.

3aii. Convergence of types of delivery modes used by single new outlet.

Traditional media using the internet are using tools ‘outside’ their standard repertoire to deliver content via the internet. Thus, traditional printed media outlets are using multi-media tools in their internet content – for example embedded video that is tied in to their printed media. Similarly, traditional free-to-air radio is using print (e.g. transcripts) on the internet.

3aiii. Using the internet to complement traditional delivery.

Traditional media are using the internet to complement their traditional delivery and improve the quality of that delivery. For example, edited interviews will be shown on free-to-air television with the ‘full interview’ able to be viewed on the internet. In this sense the outlets are cross selling between delivery modes.

3aiv. Convergence of traditional and new delivery modes.

The delivery modes themselves are converging. The i-Pad is simply the latest element of this. The mobile phone has been a multi-media delivery mode for almost a decade (think original ‘3 -mobile’ business model). LCD screens mean that the computer is a traditional TV as well as a high quality internet TV. Internet speeds have been increasing and download costs dropping – although Australia is still well down the list of OECD countries in terms of penetration and speed. So homes may still have devices that are dedicated to a single media such as a free-to-air TV or a digital radio. But homes will also have computing resources that allow them to access multi-media via the internet. And traditional devices will have internet capabilities (e.g. the Telstra T-box).  From the Age July 5 2010: “according to a study commissioned by the Australian Communications and Media Authority, which revealed that one in five Australians had already viewed full-length television programs over the internet with one in eight full-length films online.”

3b. Capacity.

A key constraint that has been reduced through the internet is capacity. It is easy to add  more detail to documents on the internet, to allow for links to further information and to simply make more information available to consumers. As internet speeds increase capacity constraints will become less relevant for audio and video news delivery via the internet. Time will not be a constraint as it is on standard television and radio. Pages will not be a constraint as per standard newspapers. The reduction in capacity constraint has fed into the convergence noted above.

3c. The internet has lowered the barriers to expansion and entry.

3ci. Local media now compete against the rest of the world for non-local news.

If I want news on the performance of the Australian cricket team in the recent one-day series, I can access Australian media or I can now access international media. Indeed, the best place to get coverage is the BBC website although I can also look up the website of other UK media outlets. When I want to check out the morning business news I can still use local media or I can read the NYT via the internet. This reduction in barriers to expansion is massive (e.g. when I studied in Boston 20 years ago!)

3cii. Entry into media and news delivery.

The internet has led to a range of new entrants in news and media. In entertainment, we now have youtube stars who have millions of viewers. In news, there are professional internet startups (Salon.com, crikey.com, Business Spectator) as well as amateur sources such as blogs. Of course, there is a cross over here – many professional journalists have blogs and the sites are linked to their traditional media and are used to enhance the traditional media.

3ciii. Advertising entry has destroyed the ‘rivers of gold’.

The internet has allowed entrants to take over the traditional ‘rivers of gold’ classifieds that funded newspapers in Australia. Realestate, automobile and employment advertisements have largely moved to the internet and are no longer tied in distribution to newspapers. Not only have entrants emerged to compete against the traditional newspapers, the war has been waged and, in Australia at least, the newspapers have lost.

3d. The internet has lowered consumer search costs for the news.

3di. Comparisons of alternative websites.

It is very easy for consumers to quickly compare media outlets on the internet. A consumer interested in a major Australian news story can quickly check the news and commentary on a wide range of local and international media outlets by simply accessing the relevant sites. Thus News, Fairfax, ABC, Business Spectator, Crikey, BBC, NYT, etc can all be accessed and compared in a matter of a few minutes.

3dii. Aggregators reduce the search costs even further.

The internet has created a new way for consumers to compare and contrast news stories through an aggregator. The most obvious version of this service is Google News. Using this service the consumer can isolate groups of stories that may be of particular interest to them and quickly compare small portions of each story through the ‘fair use’ policy. For example, lets say I am interested in news items on ‘antitrust and google’, I can put this into the Google News web site and get stories on Google’s proposed acquisition of ITA Software from Bloomberg, Fortune, San Francisco Chronicle, the Daily Mail and numerous other sources, using the ‘first line’ provided by Google to quickly check the angle of the story (e.g. straight news, commentary relating to the DoJ, commentary relating to share price, etc.) If this is not what I am interested in then I can check out other grouped stories (for example, the French decision against Google relating to advertising, the interaction between Apple and Google Ads and so on). In other words I can quickly check out the world for news stories from a huge variety of sources.

Summary of part 3:

So the internet (and the development of devices to use the internet) means that news delivery has gone from an industry that had high barriers to entry, very specific delivery modes that did not compete, and relatively localised geographic markets for most news sources to an industry with cross-mode competition, low barriers to entry, broad geographic reach. Consumers have been empowered to easily search between different media sources for news content. The internet has turned straight ‘news’ reporting into a commodity business. Information about mainstream news items can be accessed easily from numerous sources. Consumers can easily find those sources. If there are profits to be made by reporting news then entry or expansion will ensure that those profits are quickly dissipated.

4. What are the consequences for the production and distribution of news?

4a. Consumers have benefitted greatly – and will continue to benefit.

Consumers are hugely better off. Consumers have and will continue to have a vast array of sources for news. They will pay very little for much of this news. Consumers will also be able to tailor the news to their interests. Much of this is already available via the internet but it will come to dominate news delivery in the lounge room. Reading the paper on the train will simply disappear, replaced by electronic delivery of news. This means that news will be much more timely than traditional delivery.

4b. Consumers will pay little if anything for ‘commodity news’.

For general or commodity news of broad interest consumers will have to pay very little if anything. There will be a variety of delivery modes and the marginal cost of delivering to another consumer will be zero. Revenues for commodity news will be generated by advertising and so the competition will be for eyeballs.

4c. Consumers may pay for some ancillary or specialised products.

Consumers may pay for a variety of ancillary news products. Commentary on the news will be valuable and consumers may subscribe to their favorite individual commentators either directly (via a blog) or through a news provider.

4d. We do not know what the successful models for news production and distribution will look like.

There are likely to be a variety of different models tried in the next few years and some will fail. For example a news provider may make general news content available free (or supported by advertising) but ‘wall’ commentary to subscribers.

Alternatively, commentary may be placed around a ‘news feed’ and supported by advertising (like Business Spectator).

Alternatively, intrusive advertising may be used that can be avoided by subscription.

The successful models may depend on the type of news. For example, subscriber business commentary is likely to continue as a successful internet product just as it has succeeded as a successful ‘paper’ product for years. Some subscriber services will be tied to products (e.g. banks provide free analysis services to their clients at present).

Specialised business commentary comes close to a ‘long tail’ product. Specialist sports commentary, highly localised information and other ‘high value/small demand’ products may succeed on a subscriber model. But direct customer pricing will not work where there is not diversification and distinction. Products like Google news ensure that consumer search costs are trivial for low value news content.

4e. The next battle is about content source.

There has been an ongoing argument about whether content or delivery channel will dominate news.

The delivery channel of the future is wireline and wireless networks on electronic devices of various shapes and sizes. These networks raise a wide range of issues relating to investment and regulation – for example the NBN. These go well past the issue of today.

As noted above, content will matter, in the sense that consumers will only pay directly for content that is unique and cannot be easily replicated. In contrast standard content will need to compete for eyeballs and raise revenue via advertising.

But unique content depends on the source. This may be an individual journalist, writer or producer of content. But it will also be unique ‘events’.

One obvious example that is on at the moment is the world cup football. As competitive news providers vie to distinguish themselves, gaining the rights to unique events such as the world cup or different aspects of the news of the event (e.g. exclusive interviews in dressing rooms) will become increasingly important.

We have already seen that with the AFL and News Corp and Telstra. This means that significant winners in the battle for news media will be the creators of news-worthy events. While sporting competitions are an obvious example, events of narrower interest will start to attract interest, particularly if they can have wide distribution (potentially world wide via the internet). The annual Melbourne Institute – Australian conference is an early example of this broader ‘creation’ of unique news events, but it is likely to expand. So the battle is not between content and delivery – it is about the source of news.

4f. There will be significant industry rationalisation.

There are likely to be fewer standard ‘news’ companies. This will simply reflect declining profits for news delivery companies as consumers access news from a wide range of sources including direct reporting. Those companies that survive are likely to have lower cost models. This may be driven by low cost community journalism. It may be based on economies of scale and sharing of news – along the lines of press agencies. As noted above, commentary will still be unique and of value and the news delivery may be simply a side activity to commentary – essentially background for readers to know the issues the commentators are addressing. Accuracy and reputation of news source will be important and inaccuracy will be quickly discerned and communicated through ancillary news media such as blogs, facebook and twitter.

4g. Incumbents will battle to raise barriers to entry and expansion.

As with any industry where historic profits are being eroded by technological change, incumbents will attempt to either keep the new technology to themselves or to block the technology to keep barriers to entry high.

Remember the early ‘horseless carriages’ in the UK that were required to have a person walking in front with a red flag to warn of the danger (“In England, stupidity triumphed when Parliament passed the Locomotive on Highways Act in 1865. Popularly referred to as the “Red Flag Law,” it stipulated that all self-propelled vehicles on public highways be limited to a maximum speed of four miles per hour and be preceded by a man on foot carrying a red flag to warn oncoming horse-drawn vehicles.” Wikipaedia).

More recently it was illegal in Australia to colour margarine until the 1960s – which meant it had to retain its unappetising white colour. Even worse, some parts of the US required it to be coloured pink in the late 1800s.  Guess who lobbied for the laws in each case!

Expect similar battles over the news. In my opinion, Murdoch’s attacks on Google News have little if anything to do with fair use of material. News can withdraw its papers from Google News anytime it likes (but it has not). However, Google News makes the market for news far more competitive and transparent by lowering customer search costs – something that reduces News Corps profits. News Corp and others will use legal means to try and block news aggregators in order to reduce customer information and keep up barriers to entry and expansion. Other news outlets have also been attacking news aggregators and search engines.

4h. ‘Unfair’ competition with public broadcasters like the ABC and BBC.

A major issue for news companies in Australia, the UK and other countries with a government owned broadcaster is the competition from this publicly funded broadcaster. Both the BBC and ABC are leaders on the internet – presumably because they do not need to make a profit. In the past this competition did not really matter. Public broadcasters tended to service niches that were not large enough for capacity constrained traditional media. However, the internet massively increases capacity and makes niches valuable to differentiate and charge for consumption. Thus the traditional BBC and ABC ‘space’ is now a valuable product. Further, these companies have their own capacity expanded by the internet, digital TV and digital radio – enabling them to compete head-to-head with traditional media, but without the need for profit. The role of public providers and attacking the BBC has also occurred through News Corp (e.g. James Murdoch speech – ABC background briefing).

5. Will the traditional news company (like News) survive?

Some will survive in a changed form. Some new companies will thrive and grow into the new news giants. But many news companies will go the way of the local blacksmith and the typing pool – driven out of existence by new technology.

Who will the corporate winners be? No idea – but if I knew I would be very rich!                       

3 Responses to "Who owns the news?"
  1. I like this presentation. It’s quite comprehensive. Just have some comments on “The next battle is about content source” and “Will the traditional news company (like News) survive”.
     
    I think the next battle is about content including content source. It will be about the quality of news and which type of media can retrieve and generate the best news. Different modes of media provide different environment to an interviewee or a presenter which can make the interviewee or presenter think and speak differently, hence retrieve and generate different (at least, version of) news. In the battle of content, human capital (the show hosts, the interviewer, the summary news reporter) as vintage capital will be the determinants for winning because of the following reasons. (1) They create the environment of retrieving or generating news which can lead to different (at least, version of) news with different quality. (2) Quality of aggregated news can be lower than individual news if summary reporter is not of higher reporting attributes.
     
    As to which company will survive, it depends on how existing companies will be evolving for survival. Foxtel is winning. So is the News Corp!

  2. If you want to watch the video podcast, it’s here:


    I’m still uploading the rest of the videos by the other presenters (incl myself) and will post as a new topic later.
    kwang

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