Friday, February 06, 2009

Journalism for Profit

One of the ironic things about the Law of Supply & Demand is that, for as obvious a concept it is, too many people don't really understand how it works.  I mean, it's a rule that most people use on a daily basis without even thinking about it, yet when they describe it, they get it all mucked up.

And so I'm reading this stupid article arguing that newspapers should start charging for online readers and see this regarding NY Times Executive Editor Bill Keller:
Keller said the best evidence of the soaring demand is that websites that do "dependable" reporting are winning readers; he noted that the New York Times' website gets nearly 20 million unique monthly visitors. "The law of supply and demand," he said, "suggests that the market will find a way to make the demand pay for the supply."
And no, the Law of Supply & Demand does not guarantee a profit, no matter how high demand is.  I mean, trips to the moon are in VERY high demand, but the costs of getting there are still too prohibitive.  

And so it all depends on how much they need to charge in order to be profitable.  And that's where the catch is.  It's not about how many people want your product, but rather, how desperate they are to get it.  It's about the elasticity of demand.  20 million people might be happy to visit their site for free, but a majority of those are surely casual readers who only visited because it was free.

Market-Based Pricing

But it's not just Keller who imagines that the free-markets somehow guarantee success.  This sort of magical thinking permeates the entire conservative movement, which is forced to believe that the Mystical Market Fairies will always look out for them; just as long as they never stop believing.

And one of the best examples of this is their belief that anything that makes businesses pay more will only punish the consumers, as all cost increases are passed on to the consumer.  But that's total hogwash.  Prices aren't set by costs.  Prices are set by demand.  And cost is only a concern if the price that people are willing to pay isn't enough to cover the costs.  But beyond that, businesses don't care about costs.  They'll sell a twenty cent widget for fifty bucks if they can.  The only exception to this is during periods of high inflation, which only works because the cost of EVERYTHING is going up; so higher prices aren't necessarily higher, relatively speaking. And still, demand goes down during these periods until the effects of inflation level out.

Conversely, to believe that a business can pass costs directly to consumers is to imagine that they are purposefully denying themselves profits for no good reason.  If I sell a radio for fifteen dollars, I do so because I think that maximizes my profits.  And if someone sues me for millions of dollars, I'll still need to charge fifteen dollars.  Because that's still the price that makes me the most profit.  Sure, I could raise the price to twenty dollars, but that would most certainly hurt profits.  And if it didn't hurt profits, then my prices were too low and I should have been charging twenty dollars the whole time.

And that's just the way things work.  It doesn't matter if corporate taxes go up, or material costs go up, or if the company gets the pants sued off of them.  You can only sell products for what the market is willing to pay.  And again, to assume otherwise is to believe that companies are purposefully hurting their own bottom lines.  The cost of the product is only a concern as far as the viability of that product.  If a product costs twenty dollars to make and the market will only pay fifteen dollars, then you just won't make the product.  

So anyone who tells you that high taxes and lawsuits are paid by consumers are totally full of dooky.  Those can only be coming from the company's profits. Anyone who says otherwise is selling something.

Death to Free-Markets

And what's crazy is that, this is the very definition of the free-market system that conservatives imagine they're supporting.  The market sets the price, not the supplier.  It's the supplier's job to figure out what the market is telling them and to set prices accordingly.  And if the supplier is wrong, he loses money and might go out of business.  And no, high demand is no guarantee that the supplier will stay in business.  The demand for hover cars is extremely high, yet no one is hovering their way to work each morning.  Supply & Demand works, but it ain't magic.

And again, this gets us back on Keller's point.  He seems to think the Mystical Market Fairies are somehow going to make his product viable.  But I don't see that happening, because his product just isn't that great.  Sure, bored people will turn to his site for free, but there are so many free alternatives that most folks won't pay for it.  The article actually suggests that the media be allowed to collude and price-fix, and thus enforce a internet-wide ban on free news.  Because that's all the free-market needs: Less freedom.

But all this is for naught.  Because it's quite possible that the newspaper's days are numbered.  I'm not sure why.  I mean, why are TV commercials so much more expensive than online ads?  Perhaps that will change.  But what won't change is that online newspapers just aren't worth the price that need to be charged for them.  Supply & Demand only dictate that people will pay what something is worth; but there's no guarantee this can be done profitably.

How to Fix Journalism

And if anything, this might actually help journalism.  Because, while we do need sources of real journalism, newspapers don't really give us much of that.  Newspapers are full of opinion pieces, fashion tips, feeble attempts at humor, and other non-essential items.  I'm expected to shell out actual money to read William Kristol's latest meanderings?

Well, guess what folks, the internet will always have that stuff for free.  And better too.  Comic strips like Marmaduke and Nancy haven't made anyone laugh in the history of mankind.  We can do without them.  Same goes for book reviews, gossip columns, cooking tips, and all this other stuff that millions of people are happily giving out for free.  Who needs a movie critic when I've got IMDB?

And so if newspapers focused solely on the essential stuff that can't be easily duplicated by anyone with a computer, they'd not only have a better product, but they could reduce costs enough so that they could be profitable at the price people are willing to pay.  And then the race will be on for the best non-essential journalism that money can buy.  This is the wave of the future. The sooner newspapers get out of the entertainment business, the better for all of us.

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