Rupert Murdoch came out swinging against Google News and other aggregators to what amounted to a claim they were stealing his advertising dollars. A similar claim has been made against The Huffington Post. In addition, RSS Readers have been the target of related concerns. I’ve been researching the whole – newspapers will die at the hands of the Internet notion and none of these claims really make sense when looked at with a clear-headed economic model.
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Here is the thing. Aggregators provide easy-to-find-snippets that point to mainstream media. A look at the front page of The Huffington Post confirms this. Many articles link off-site and when you click on them you get to see ads by the mainstream media. Same for Google News. So the aggregator can earn the first look advertising but the content provider earns the advertising dollars for the content itself.
Now if the aggregator did not exist, readers would have to find the news themselves. That consolidates the main brands and so consumers will be less likely to read content from different outlets. When that happens, advertisers who want to access that consumer must advertise on that outlet. So let’s be clear what this means: higher advertising rates and consumers not really consuming what they would want consume. It is a reduction in competition: pure and simple. It is not that the aggregators are taking ad revenue, they are not, it is that they are facilitating a more competitive market. They are the media equivalent of providing price comparison information for shoppers.
Even that is simplistic. Because we care about the incentives of mainstream media to provide quality and be rewarded for it. If consumers did not pick and choose, they would spend more time consuming the bundle of content on newspapers. That means that newspapers can cut the occasional high quality/expensive journalistic piece and not lose readers. Guess what? That is likely what they would do.
In contrast, aggregators only work by selecting the best content. So if that works that is what attracts the ad dollars on mainstream sites. It should not be surprising therefore that journalists and their employers depart on their views of blog and aggregator links:
My sense from friends at the Times and Post is that they’re thrilled whenever Huffington Post links to a story. (The publisher of the Washington Post, Katharine Weymouth, admitted as much two weeks ago: "I think Arianna has built an amazing site and drives a lot of traffic to us, so thank you!") And if you compare the traffic of, say, the New York Times to that of the Huffington Post, the story is one of the two rising and falling together — not the meteoric rise of HuffPo and the stagnation and decline of the Times.
Quality journalists realise that the closer readership is to their work the more likely they will become indispensible and rewarded internally. Links are their friend.
Related is the issue of RSS feeds. Those who use a feed reader know that, unlike this blog, mainstream outlets often provide truncated feeds. This means that if you want to read an entire Paul Krugman post or Slate article you have to click on the feed; something that really slows your reading. Those feeds are also ones you are less likely to share, facebook or tweet. That means they are less likely to be read by others. As Ryan Avent correctly argues, this means they lose the network effect (see also Felix Salmon). So I may click and read a truncated post and view the ad but at the same time this means it is far less likely that my friends will read it – and they will be going straight to the source. Add to that the fact that RSS readers support ads (and without any complaints) and it is perplexing as to why truncated feeds exist as anything but a user option.
This brings me back to the proposed NewsCorp solution against aggregators – paid content. Even if I had read paid-for content, that very fact means I am less likely to share it unless I know that my friends and readers so the media has to weigh my 2 cents for the article versus advertising not just from me but from others too. From an economics perspective, the price elasticity of charging for content is very higher indeed when a network effect is taken into account. I think NewsCorp will learn that lesson very quickly.