I was intending to write about the whole Murdoch — charge for content thing — but have found I have too much to say. Bottom line: it’s a bad idea. But Tyler Cowen today asked whether the idea of charging of news on the web was in the core. Wait, “core!” Isn’t that this blog’s territory?
The starting point is that producing news involves high fixed costs and low marginal costs. If you give your content away and can’t earn any surplus then you are earning less than you could by shutting down. But that doesn’t mean that is in the core — where no individual or group of individual in tandem can profit from charging a price. Indeed, all those in the market will be charging. No one will gain by moving back to $0 as they will not cover costs.
It is only where there are non-monetary motives or other revenue sources that free pricing can be in the core. If the NYT does not add sufficient value relative to NPR, it may not be able to charge a price high enough to stay in business.
The point of all this is that it is not an equilibrium to be a private provider of news content and not be earning any revenue from any source at all. That is why we can’t simply put faith in free and expect things to work out. The real question is whether earning revenue from charging for content directly is an equilibrium relative to earning revenue through ads or something else? But alas I haven’t got time to write about that today.