The harsh reality for newspapers in the fight against Facebook, is that people won’t pay for news

A useful guide, should you need one, in the business world is that you cannot force someone to pay more than they think a thing is worth. You might be able to get them to pay more than they currently do, that much is true, but an insistence on more than the perceived value will lead to them simply not purchasing the item being discussed. It is this which the Australian media seem to have forgotten in their lust for copyright fees from Google and Facebook.

The initial claim is that newspapers, TV stations and the like have spent considerable sums in creating the news pieces which people then read. This, too, is true. People then share these upon the platforms such as Google and Facebook – also true. The demand then becomes that the platforms should pay the originators for those pieces, that copyright. That’s where the problem is.

The fact that something costs to produce does not mean that another is willing to pay for it. If it were then of course no one would ever go bust running a business, and reality shows that cannot be true.

The new Australian law says the platforms must indeed pay. As Facebook Australia says, they’re not going to. They’re going to stop users from posting news items instead. Thus proof of that first contention – you cannot force someone to pay more than they think something is worth.

The truth here is that the Australian regulators who came up with this idea are indulging in Einstein’s definition of insanity – repeating the action but expecting a different outcome. We have been here before.

Spain passed a law insisting that Google News pay for the snippets of local newspapers that made up its news search engine. So Google closed down the Spanish version of the engine and didn’t the Spanish media whinge bitterly about that. It wasn’t worth running the service if that copyright had to be paid for. Much the same law was then passed in Germany and Google said, well, if you want payment, then we’ll not add your title into the index. Nearly the entirety of the German media stated that no, they didn’t want payment, so can we stay in the index, please sir?

The obvious conclusion is that the traffic being sent by platforms is worth more than the loss from people seeing snippets of copyright material. Having written for sites that deliberately target such traffic I know that being high up in the news index, or going viral across Facebook, will bring in hundreds of thousands of readers all monetised by a site’s own advertising. It’s worth cold hard cash to be on the platforms. To then demand to be paid to be there tastes more than a little of cakeism, the having and the simultaneous eating of it.

A rational universe

But this is to mumble about what ought to be, that the media should be paid for what they have produced – but economics isn’t about “should” it’s about “is”. It is, in more formal language, a positive science, not a normative activity. Economics describes what humans do when subjected to varied stimuli, not what they ought to do in some just and rational universe. What people actually do is not buy something if they think it’s not worth it.

We could be extreme about this but to ease us into the logic, think of that simple supply and demand curve set at the beginning of every economics book. As a price rises then fewer people demand that item. One by one – and all economics does happen at the margin – people decide they’ll not purchase that item at that rising price. They use a substitute, they do without, they do whatever, but they don’t buy.

To be that extreme we could imagine a world in which electric supply for a household costs $10,000 a month or more – were being extreme in an invented example. All would reduce their consumption, some would entirely stop. Some would go back to gas lighting and some would have the kids powering the bike-mounted dynamo in the basement.

It’s possible to pass the law insisting that it really does cost $10,000 to be connected to the grid but it’s not possible to insist that everyone be connected. For people will simply refuse to do something if the costs are perceived as being higher than the benefits.

That is the problem newspapers have. Sure, they cost to produce, but as we can see more generally people aren’t willing to pay to gain access to what is so produced. Print runs are cratering as prices, compared to the alternatives, rise. Subscription walls abound and yet only a few titles – those, by definition, deemed to be worth it – are making a success of them. People, or not enough people, will not pay for access to that news.

The price of news

It’s not even really true that the platforms are sucking away the advertising spend either. The crucial part of the old newspaper financing ecosystem that has gone is the classifieds and they’re now over at eBay, Monster.com, Glassdoor and the like, nothing to do with Facebook or Google. Or, in fact, the news. Such classifieds used to be one-third of newspaper revenue and a very much larger portion of profit.

What we’re seeing is that free news snippets and quotes are usefully priced. At any price above that, the buyers just aren’t interested. Thus, if a price greater than zero is insisted upon, as we’ve seen three times already, then the purchase will not be made.

Our proof of this contention is that the absence of Google News Spain has left a gap in the market. No one has filled it after several years. It’s not that difficult to spider a few hundred sites, index and present the results. Slap on a bit of advertising and the money will just pour in, right? Even after paying for the copyright of what is viewed?

The absence of someone doing that is rather good evidence that no, that’s not right. Or, as we can put it, news costs a lot to produce and doesn’t have much value. Not all that comforting to be sure but in conflicts between what ought and what is, it is always reality that wins.

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