Newsonomics

04.04.13

Can Consultants Help Protect a Monopoly?

The news business is about to go to paywalls. Will consultants help them collude on the price?

The era of free news is fast drawing to an end.  Newspapers have conceded that digital ad revenues are never going to replace what they lost in print, and so they're going to try to get the money out of readers instead.  Most of the major British and American newspapers are either throwing up paywalls, or considering it.  I imagine that magazines will not be all that far behind.  Information may want to be free, but its creators need to get a paycheck.  

Felix Salmon notes that consultancies will end up driving how these paywalls are priced: by working for multiple competitors, they can amass information on what works, and what doesn't--and then sell that information.  The market will probably converge on one, or a couple of firms, the better to share that information.  James Joyner wonders how this can be legal:

But my immediate reaction was: Why is this legal?

One longstanding critique of newspaper paywalls has been that few of us are going to fork over money for ordinary news—as opposed to niche information valuable to our business—when there are so many quality sources outside of paywalls. So, the only way for, say, the New York Times to successfully implement a paywall was for all its peer competitors to also go behind a paywall at the same time. But, given that paywalls had a poor track record of success, that erecting them is somewhat expensive, and that putting them up cut down on pageviews and thus advertising revenue, a Catch-22 existed.

But apparently MediaPass is going to allow these companies to engage in virtual collusion. They will, through a third party vendor, share their business information so as to stifle natural competition so as to be able to mutually raise prices. More than that, really, since they’ll be going from free to pay; it’s an infinite price increase.

This is actually quite common in retail; consulting firms collect cash register data, and then sell data on, well, what's selling.  Yet we're not worried that retail is a sclerotic monopoly.  Why not?  

The answer is that absent legal protection, cartels are hard to protect.  People defect.  The great oligopolies of mid-century were sustained by winking regulators who found it easier to monitor a cozy cartel, and by unions who had organized entire industries, and saw no benefit to be had from cutthroat competition.  When competitors were introduced from overseas, it all collapsed.

Eventually, the news business may get so bad that we're down to just a few organizations, and then James may be right to worry.  But right now, it's extremely competitive--which means that the information is just as likely to be used to seize market share by undercutting your competitors.