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Old 09-28-2007, 09:09 PM   #1
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interesting article on the economics of e-content

It focuses on newspapers but it's relevant to e-books too and emphasizes one thing that is rarely mentioned.

To read e-books (e-papers) you need lots of things that cost money (pc, broadband, memory storage, devices...) that you do not need for regular books or newspapers, so that's a main reason people are not going to pay a lot for that content. Here:

http://blog.publish2.com/2007/09/21/...omics-of-news/
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Old 09-28-2007, 09:35 PM   #2
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It's a fair point: You already pay for the hardware and internet access, why pay for the news?

The answer is: You weren't paying for the news on paper... at least, not much of it. Do people really think a newspaper can be run off of their dime a copy? Heck, no... advertising runs a paper, and your dime just helps grease the wheels the advertisers paid for. If people don't buy the papers, they can still soldier on, but if all the advertisers pulled out, they're out of business yesterday.

Besides, the old newspaper model had hidden costs you didn't have to pay--like the cost of cleaning up the air from the diesel fumes of those delivery trucks, every day, 365 days a year. Believe me, thanks to newspaper advertisers, we get off cheap.

We've mentioned the advertiser-financing model on these forums before, and although it wasn't specifically mentioned in the article, advertisers are the ones who really hold the purse-strings for newspapers (as they do for TV and radio, for instance). The suggestion I'm making is that it might be the solution to e-papers, and if it works for e-papers, it might for e-books, too.
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Old 09-28-2007, 11:04 PM   #3
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Also the advertising model is used for magazines. Mostly what you pay for in a magazine subscription is the postage to have it mailed to you.

The reason that newspapers and magazines are sold rather than given away is to ensure that it reaches it target market. Here in the DC area there has been a rise in the last few years of the free morning newspaper (The Washington Examiner for example.) They reach their target market by limiting the distribution points to only where their target market exists.

There are a few (very few) magazines that do not contain advertising and exist completely on subscriptions and retail sales.
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Old 10-01-2007, 01:31 PM   #4
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I worked for a newspaper about 20 years ago. I was told at that time that the subscription and sales income roughly balanced physical printing costs and delivery. The entire writing and editorial staff, etc. -- the bulk of the operation -- was paid for by advertising. (And since the amount the advertisers would pay was determined by "readership", i.e. sales, they were always trying to increase subscriptions, but not really for the subscription revenue itself.)

I expect magazines are much the same. Books have run with a different model, but fiction hasn't always been published in books, as many have pointed out. I would not be at all surprised to see an increase in digital "magazine" publishing, paid for by advertising. The interesting thing about this model is that it could actually be in the publishers' interest to encourage copying and distribution of their content, if they could figure out a way to track readership so they could bill their advertisers appropriately.
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Old 10-03-2007, 06:31 AM   #5
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Maybe the guy should attend an Economics 101 class.

If you have a PC and internet access these are costs that you have already paid and what matters for purchasing decisions is the incremental cost of the content. People don't say, 'I've paid a truckload of money for my car therefore I'm not going to buy any petrol', or to take a less absurd example, in comparing transport costs, they compare the cost of the petrol with (say) the train fare and don't take into account the whole cost of ownership.

There are plenty of examples where people do pay for devices and then pay for content. Video and DVD purchase and rental, music downloads. People do pay for access to content on the internet - usually access to specialised databases.

In general I think the major reason why people don't pay for content on the internet is that there is a lot of competitive pressure from advertising supported media, and because no one has come up with a simple system for casual one-off 'micro-payments'.

There is an element of truth in the argument though in relation to eBooks which is that people (or at least some people) will look at the devices and they will consider the cost of ownership and the cost of books and take that into account in their buying decisions. So if a device costs $300, and it can only be used for reading, then some (many?) consumers 'that costs me x dollars per book' and unless you are a heavy reader you may decide that the other benefits (ease of download, portability, ease of storage) don't justiy the additional cost.

You could say that if there was more content out there and the content was cheaper, more people would buy readers and the prices of the readers would fall and publishers would sell more and make more money and everyone would be hapy. That's probably true, but if I were an individual publisher I would say, 'the high price of the devices isn't my problem, if I cut prices I will simply cut my revenues'. Economists call this a 'common action' problem, and there isn't an easy solution too it.

I should say that I'm not trying to justify publishers charging more for eBooks than pBooks.
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Old 10-03-2007, 09:05 AM   #6
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Personally I believe that the cost of accessing the Net and of miscellaneous things associated with that (software, storage, media cards) is a significant reason which reduces greatly what people are willing to pay for e-content. That plus access to so many things freely available.

You buy a dvd player and you are done, but with a pc and even a broadband connection you still need assorted stuff...

Nickel and diming people with micro payments may or may not work if a system is devised to support such, but there are big hurdles to devise a system that works; the obstacles are not technological, but economic since for anything involving real money you have to insure a high level of security otherwise nobody uses it, and that costs a lot.

Paypal is the closest we have now but it's not cost effective for micro payments. Some sort of anonymous e-cash may work, but there are political problems with that, so I am skeptical of micro payments for the foreseeable future.
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Old 10-03-2007, 09:26 AM   #7
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I have more confidence in micropayments, although a reliable method hasn't been worked out yet. I think micropayments have the advantage of being so low-impact that consumers are more relaxed about paying them, and less inclined to steal files with micropayments attached.
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Old 10-03-2007, 09:29 AM   #8
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I have more confidence in micropayments, although a reliable method hasn't been worked out yet. I think micropayments have the advantage of being so low-impact that consumers are more relaxed about paying them, and less inclined to steal files with micropayments attached.
Don't particularly disagree with that, but the problem with micro payments is that it's not cost effective at least for now to devise a secure system that people would be willing to use.
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Old 10-03-2007, 05:19 PM   #9
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Amazon has a micropayments system in Beta now. It'll be interesting to see how it plays out.
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Old 10-03-2007, 05:44 PM   #10
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As far as folks being unwilling to pay for content, part of that I think is the influence of the early dot-com days where everyone was trying to get the free/advertiser-supported model to work. People got quite used to getting all sorts of things for free. If we add to that the micropayment problem, it just gets worse. Sites that want you to pay for content need for you to sign on for a subscription. They can't just charge you for an article or an issue because their cost of charging you makes that unfeasible. If I don't know much about a site, if I don't have a strong feeling I'm really going to enjoy their content, or if I just want that one article, I'm not going to sign up for a subscription. Even a free trial subscription will make me wary because then I'll be on their mailing list. I don't like giving out my information. I already get too much spam.

I think periodical content is a natural for the electronic market, especially as readers get cheaper (and maybe start coming with color). However to get to that point, we'll have to get people past the idea that just because you download it online doesn't mean it has to be free. Anonymous micropayment could be a huge boon for this since not only does it solve the problems above, it allows people to purchase content that they may not want to have show on their credit card statement. Lets face it. One of the few types of online content that consistently makes a profit is *ahem* of a personal and adult nature.
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Old 10-03-2007, 11:18 PM   #11
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Amazon has a micropayments system in Beta now. It'll be interesting to see how it plays out.
At Amazon you can or at least could definitely buy .49$ items (remember those original shorts - I bought several), but you have a credit card on file.

The problem is how you do it at many sites without having a credit card on file with them and without purchasing a minimum set amount with them either.

For example I love PayPal and I use it at most sites that accept it, but many of them balk at purchases below 5$, and you have to buy a 5$ PayPal credit with them to avoid penalties and that is exactly what I do not want to do in a micro payments situation.

The "centralizer" of this payments has to be willing to accept say .05$ charges from thousands of sites without charging them too much for the service - at PayPal the minimum charge is .3$ something as far as I remember.
Maybe Amazon can do it, maybe someone else...
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Old 10-04-2007, 08:37 AM   #12
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Here's info on the Amazon Flexible Payments Service: http://www.amazon.com/b?ie=UTF8&node=342430011
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Old 10-12-2007, 06:17 AM   #13
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It might be useful to examine the original home video market. In the late 1970's home video equipment was very scarce. Individual video tapes cost between $79.95 and $129.95. The video tape industry made a decent margin on sales, but the video tape line was not a major profit center for the film studios. The hardware was just too expensive to support a high volume of machine sales ($795.00 to $1,795.00).

Ten years later the hardware was $295.00 to $495.00 and tapes were $24.95 to $29.95. Volume in sales of machines and media made up for lower margins and video tape movies became a major source of reveue worldwide for the film studios.

Ten years later the cost of VHS players dropped to $49.95 to $200.00 and movies could be purchased for $10.00. DVDs were introduced at a high cost for players and a high(er) cost for media.

The volume sales of media players was sparked by movie rental and the cost of media was reduced because of increased sales to a much larger user base.

Currently with e-books all media is in theory purchased (or obtained from the free lists or the dark side) and the providers are into the high margin low volume mind set. It will take many more users to force the price down for both readers and media. Wait 10 or 15 years and readers will be give aways like cell phones and media will be much cheaper.

Last edited by tspin46; 10-12-2007 at 06:35 AM. Reason: correct spelling errors.
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Old 10-12-2007, 04:09 PM   #14
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Don't forget, a major reason the cost of movies started coming down was because of the first advertisements placed on the tape. The first Batman movie was one of the first VHS tapes to debut at $25, and it included an ad (don't remember for what) before the movie. Volume helped profits, but they were partially subsidized by the advertising, and still are today.
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Old 10-13-2007, 03:59 PM   #15
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Irrespective of advertising revenue there must be sufficient units buying to support the model. Right now we are in the high price - high margin - low volume model. When the number of units reaches a critical mass the cost of hardware and software is going to fall.

When I first got involved in personal computers the common wisdom was that the computer you really wanted would cost $5,000.00 + software. The price value curve with the high volume of sales now makes it practically impossible to purchase a PC costing as much as $5,000.00.

Given that I am expressing memories of long forgotten times (late 1970's) that makes me old enough that I am unlikely to see the fall in e-book prices.
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