The Faustian Promise of Online Paywalls?

How should one view the newspaper publishing business? Is it primarily a sui generis form of public utility, serving as the (at least former) principal bastion of the public's right to know and a central vehicle in preserving freedom of speech? Or is better viewed first and foremost as simply another business industry augmented by some special features, given its connection with content-gathering and publishing? Stated otherwise, should we view the newspaper industry more through the lens of copyright, freedom of speech and libel or as belong to the world of business schools and MBA students, being just another worthy subject for case-study analysis?

This tension is especially felt when journalists themselves address the issue of the current state of the newspaper world. This Kat was grateful therefore when the IPKat's friend Chris Torrero brought to our attention an article that appeared in this week's issue of The Economist. Entitled "Taxing Times: Newspapers versus Google" here, the tagline describes the thrust of the article: "As newspapers' woes grow, lobbying politicians to make Google pay for the news it publishes." The article is divided into two parts: First, it describes legislative efforts to extend copyright protection to newspaper articles that show up in search results (read: Google News), thereby enabling the newspapers to collect revenues from such search results (read: from Google). Second, and more importantly, it calls into question the business rationale for the copyright-driven move and offers an alternative view on how newspapers can monetize their contents.

As for the legislative activities, the article describes a proposed bill in Germany to extend copyright protection to cover newspaper excerpts ("some German newspaper executives say [Google] benefits from showcasing their material in search results on its news aggregator, Google News"). A similar bill has been proposed in Italy while, in France, President Hollande has reportedly warned Eric Schmidt, the chairman of Google, that France will also contemplate such an enactment if Google does not accede to the demands of payment from French newspapers. Austria and Switzerland may not be far behind.

Readers of IPKat will likely recall the high-profile dispute in the UK between the Newspaper Licensing Agency (NLA) and the Meltwater Group over the right of the NLA to derive income from online scraping of clippings. There, the High Court and Court of Appeal found in favour of NLA and its claim of copyright protection in the excerpts here here here and here. The article itself made no reference to the Meltwater case (an omission that is a bit odd, in the view of this Kat), but rather focused on the broader commercial pros and cons of aggregating newspaper excerpts. Those in favour of allowing the practice point to the claim that up to three-quarters of users of Google News tend to read the full article (this Kat included), while those against allowing such aggregation argue to the contrary.

On this issue, though, this Kat does admit to some bewilderment: either three-quarters of Google News users read the entire article, or they do not. What is exactly, then, is the argument here? More importantly, The Economist is not all that interested in the legal question. After all an aggregator, such as Google, can remove excerpts taken from sites that might give rise to a copyright problem in a given jurisdiction. Despite the hi-decibel range of the copyright debate (Google is reported to have argued that, if it is required to pay for article, this could "threaten its very existence", which is pretty hyperbolic rhetoric) The Economist takes the view that gaming the copyright system in connection with copyright protection of newspaper excerpts is not all that crucial. As the article says, "the real issue behind all of this, however, is the decline of traditional media" and "Google can hardly be blamed" for the challenges posed to traditional media in the in the face of the cratering of print advertising, and declining readership and an uncertain economic climate.

No, despite Google's Armageddon-like language, revenue from copyright-protected excerpts is not the answer to the business woes of traditional newspapers. According to the article, the problem is not about about copyright at the edges, but the very business model of the newspapers in the digital era. The solution ("the emerging business model") championed by the article is a new/old one--"metered firewalls", whereby you entice the readers with a few free articles, with the intention that the reader will then agree to pay for more content (such as used by "The New York Times and "The Economist" itself). Indeed, according to the article, the number of such paywall arrangements is reported to have doubled in the U.S. during 2012.

That is all well and good but, for this Kat, the case in favour a paywall model as a paradigm shift in the business model for newspaper contents still needs to be conclusively made out. Several years ago, we argued that a paywall arrangement works best (or at all) only when there is a strong brand behind the contents. The New York Times and The Economist are two such brands. If so, if it is the strength of the brand that ultimately drives the success of the paywall model, this bodes poorly for brands of lesser strength. Indeed, if the effect of paywalls is to exchange copyright concerns for the centrality of trade marks, do we face the spectre of a few mega-brands dominating the online world of newspaper contents? That might be good for the business model of those entities that survive, but less good, far less good, for the quality and diversity of public discourse.