Maybe Information Really Doesn't Want to Be Free
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Could the era of ubiquitous free content be ending?
Ask New Yorker media columnist Ken Auletta and he'll tell you it just might be. And not just because traditional media companies find themselves desperate for a new source of revenue in the digital age, but because the company that has arguably done more than any other to promote the ethos of free content has come around on the issue.
That would be Google (NASDAQ: GOOG), and Auletta ought to know better than most. The author of the recent book "Googled," Auletta was granted unprecedented access to the company, sitting in on closed-door meetings and conducting more than 150 interviews with employees and meeting dozens of times with the founders and top executives.
In a keynote address delivered today at an industry conference hosted by the Software and Information Industry Association in New York, Auletta argued that a strictly ad-supported business model for the media business is beginning to lose credibility.
"Advertising is a very slender reed to lean on," Auletta said.
At Google, which by Auletta's account now considers itself a media company, if not in the traditional sense, it was the recession that convinced CEO Eric Schmidt that advertising by itself was not enough to sustain the business.
Schmidt on several occasions last year expressed the opinion that content publishers such as newspapers would have to begin charging for content, even though that would entail a radical revision of consumer expectations for a system that has no guarantee of success.
Google's YouTube video property has long been a money loser forcing the search giant to take steps towards a paid-content model. Most recently YouTube announced an expansion of its movie-rental lineup via a partnership with the Sundance Film Festival.
Google versus Netflix?
"I think you're going to see YouTube become a platform not just for user-generated content but for paid content," Auletta said. "They're going to compete with Netflix."
Of course, advertising still accounts for more than 95 percent of Google's revenue, and that proportion isn't likely to change anytime soon. Auletta has little sympathy for the traditional media companies that continue to blame Google for their own trouble adapting, and his admiration for what the company has accomplished in broadening access to information over its brief history is evident.
"In the short run, and I emphasize the short run, there is no question that what they are doing is good for the consumers," he said.
Quick to add a caveat, Auletta warned that the inevitable result of the free-information ethos is that quality content that is expensive to produce becomes a "commodity," one which consumers are loathe to pay for.
"In the long run, we suffer," he said, echoing the concerns many in the news and publishing business have expressed.
"The same is true with quality of programming. It costs a tremendous amount of money to produce a one-hour program on network television," he added.
For the publishing industry, an emerging breed of devices has offered a glint of hope. Amazon's (NASDAQ: AMZN) Kindle, particularly the large-screen DX, offers newspaper, magazine and book publishers an opportunity to monetize their content in a digital format, even if at a significantly lower margin than the printed product.
The long-anticipated Apple (NASDAQ: AAPL) tablet, expected to debut tomorrow, carries a similar promise. In media circles, the Apple tablet has been heralded by many as a ray of hope for an ailing newspaper industry, marrying the slick software and design for which Apple is famous with its iTunes payment platform.
Of course, as with Amazon's Kindle, Apple can be expected to drive a hard bargain, offering publishers a revenue split on its own terms, effectively commandeering the business model, just as it did with the music industry.
But if the tablet is the great hope of the day, it is only one of many, and by no means the last word, by Auletta's reckoning. Media companies of all flavors are struggling to develop pay models, be it subscriptions, micropayments, or some hybrid, all in the hopes of opening a new channel of revenue to recoup the shortfall created by narrow-margin online advertising.
"They're going to try many different things," Auletta said. "They're basically saying we need to try to avoid becoming what we are becoming, which is a commodity."