Never one to miss an opportunity to be contrarian — although Andrew “I Hate The Internet” Keen has stolen much of his Prophet of Doom act — Nick Carr has a post about the New York Times’ subscription service, TimesSelect, in which he dismisses criticism of the venture as the misguided rantings of “free content” ideologues like Jeff Jarvis.
Carr refers to a Financial Times piece about a study by Matthew Gentzkow, in which the economist looked at the competition between the Washington Post print edition and Web edition. As the FT column describes it, Gentzkow analyzed the readership data from both the print edition and the website and came to some conclusions about how much one cannibalized the other. Says the FT:
“[Gentzkow] found that people who had access to fast internet connections were, other things being equal, less likely to read the print edition. He found reasons to believe this was specifically because of access to washingtonpost.com, not to the Internet in general.”
What are the reasons he found to believe this? I read (or tried to read) the entire paper online, and I still don’t know, in part because of sentences like this one:
“Both reduced-form OLS regressions and a structural model without heterogeneity suggest that the print and online editions of the Post are strong complements.”
And that was in the early part of the paper, where Gentzkow was summarizing his findings — before he got to the part with the long calculus-type formulas and algorithms. At one point, the economist says that according to his research on the levels of substitution between the two products:
“Removing the [news website] from the market entirely would increase readership of [the newsaper] by 27,000 readers per day, or 1.5 per cent.”
He therefore concludes that the Post has lost $5.5-million in newspaper revenue as a result of providing its news online for free. Does that make any sense? It might to an economist, but I would argue his thesis fails the reasonability test. If the washingtonpost.com website were to disappear or be locked behind a pay wall tomorrow, does anyone really think that 27,000 people would suddenly go out and start reading the paper edition?
Gentzkow clearly does. I think they would be more likely to just go elsewhere for their news, such as Google News or Yahoo News or MSNBC or CNN. It might be tempting — and make for a much simpler business case — to argue that a product like the Post competes primarily with its own website, and vice versa, but I don’t think that is the way things work.
A pay wall for the Post or the Times or any other paper simply blocks people out who then go elsewhere (my friend Rob Hyndman has more on that angle). That’s not a religious view, as Nick would like to portray it — in fact, I would argue that it’s a lot more “rational” than Gentzkow’s analysis. And I’m pleased to see that Fred Wilson appears to agree with me.