Journalism’s anchor problem: F’d by free

Image by inju via Flickr

The other day, Neuroworld looked at the neuroscience of the new iTunes variable pricing scheme. Well, here’s a problem that makes any difficulties iTunes may have raising their prices $0.30 look downright nonexistent: online news.

In the iTunes post, I discussed how iTunes had created what’s known as an “anchor price” — what consumers expect to pay and where their mental negotiation begins — at $0.99. Moving from the anchor, research tells us, creates pain for the consumer, sometimes called “buying pain.”

Well, guess who has an anchor price of $0.00? Pretty much the entire news industry. At least online.

And, so, in come Steven Brill (of Brill’s Content fame), Gordon Crovitz (former publisher of the Wall Street Journal), and some others with a new venture: Journalism Online. A new business that hopes to help newspapers convince news readers to pay money for what the readers believe ought, by the laws of God and man, to be free.

Suffice it to say there will be skeptics. Also suffice it to say that unless someone cracks this nut, the whole damn ship’s going down. (The journalism ship, that is. Great metaphor, I know.)

So, how do you move an anchor price of $0.00 up to… anything?

Let’s start with why it’s hard. Two major problems present themselves: 1) the transaction friction problem, 2) the power of FREE.

Transaction friction: There’s a big difference between having to pull out your (digital) wallet and not having to. We’re used to zero transaction friction in getting our online news. We go online. There’s our news. Done. Click your New York Times bookmark. Done. Click on LA Times. Done. Etc. Ask someone to get out a credit card — or any other payment method — and they’ll just go elsewhere. When’s the last time you read Salon?

The power of FREE: I’ve been reading Dan Ariely’s Predictably Irrational, so this one’s on my mind today. It turns out, even aside from transaction friction, that there’s a big difference between $0.01 and free. Free, essentially, short circuits our brains, making us unable to see the downside of a transaction. Even the most trivial cost makes us evaluate a purchase.

So, how do you get over both hurdles: transaction friction and FREE?

Well, if I really had an answer, I should be out conquering the publishing world, not blogging about neuroscience. But here are some thoughts.

First off, the iTunes model is a good thing to have in mind. While, for most of the history of recorded music, that music has cost something to own, that’s not the context in which the iTunes music store launched. The iTunes music store launched when kids, big music consumers, had been trained to see the anchor price of music as zero. It was the age of Napster and file-sharing not being considered “illegal.” (It may have been illegal, but the idea hadn’t really sunk in with people yet.)

How did iTunes get over that hump?

A few ways. The record industry started trying to attach a price to free (“you might not get caught, but there are a bunch of big companies that want to put you in jail — watch your back”). Musicians started raising awareness that music pirates were, in effect, stealing their livelihood. And, most importantly, it created an easy, low friction, low cost (well, a little less so today) way to buy music online.

iTunes reset the anchor price of a song from $0.00 to $0.99.

Is it perfect? No. Do people still steal music? Sure. Does it help the music industry make money? You betcha.

The question, then, is how do you reset the anchor price in journalism? I would argue for the following:

* Charge for all new delivery methods: This means not just the Web, but brand new delivery methods, where there is no current anchor price. On Kindle, on iPhone app, on Android app, etc. On Kindle, plenty of publications are already doing this. On the mobile apps, though, it seems history is repeating itself. The Times, for God knows what reason, has decided that even though people will pay $0.99 through the iTunes app store without thinking (for just about any app), they’ll give away their Times app for free. Stupid. The next iPhone operating system is even going to allow for subscriptions through the apps — any publication that isn’t trying to sell an iPhone subscription app has no interest in making money.

* Charge for the Web: If you’re big enough that people will pay. The Wall Street Journal (disclosure: my wife works there) has been smart on this front. They’ve never gone free and probably never will. Other papers, though, most notably the Times, decided that staffing bureaus around the world, hiring the best and brightest in journalism, carefully editing their paper, investing in investigative journalism — that’s all worthless. They might not put it that way, but that’s the signal they send to consumers. That’s the anchor price they set. I secretly believe the Times knows this and is just waiting to drive everyone else out of business before it starts to charge. We’ll see.

* Emphasize the value you bring: “We work hard on this paper, dammit,” might not sound like a great sales pitch. But I think the news industry, like the music industry before it, has to start explaining to people why they should pay for its product. It’s all part of giving people a good reason to get beyond free and to feel that it’s not unjust that they’re suddenly being charged.

* Make paying painless: We haven’t seen what Journalism Online has up its sleeve. But this is the big one. You’ve got to give people cheap yearly or monthly subscriptions, where they set it and forget it — not feeling the buying pain on a constant basis. If you’re selling on Kindle, you’ve got the Amazon payment structure. Good and fairly painless. If you sell through the iPhone, you’ve got the app store payment system. Even better, I think. The question is the Web. Does each news Web site charge you separately? That’s a recipe for lots of buying pain. You’ve got to create some big networks and still price them pretty low.

Journalism Online is likely going to be trying the network model. It’s a big hump, resetting that anchor price. In the end, I think the problem will only be solved when the big players get together and say: “No more.”

Will people still get lots of their news online for free? Sure. Not everyone can charge, and most blogs will stay free and rely on advertising. But high-quality content — highly reported and well-packaged — has serious value and should require the news reader to fork over some change.