Earlier this week the Federal Trade Commission had an amazing two-day workshop on How Will Journalism Survive the Internet Age? Rupert Murdoch, Arianna Huffington and many others presented. I gave a talk on Advertising-Supported Media and the Future of Traditional Journalism how the role of advertising and two-sided markets would affect the evolution of the newspaper and journalism business. My short answer was that the labor-intensive model of traditional journalism would shrivel—perhaps not die like the typewriter but be a lot smaller than it is today. You can go look at the presentation. I want to devote these comments to an issue that Rupert and Arianna were slugging out—can you charge for online journalism and can you increase the price of newspapers?

Murdoch already charges for online access to much of the content of the Wall Street Journal and wants to expand that to the rest of his content. Huffington says balderdash although more eloquently with a lot of pizzazz. Then one of my fellow economists chimed in saying that since online media is a “two-sided market” (See further writings, Free Economics and Catalyst Code) that the viewer side has to be free because that’s the side that’s needed more. My guess is that it is going to be a tough slog to get consumers to pay for content online unless it is stuff that provides real value like financial information. So I tend to think Huffington is probably right. But I’m not certain and wouldn’t be too quick to write Murdoch off.

Here’s why. People forget that the current advertising-supported media hasn’t always been the case and clearly doesn’t need to be the case. It doesn’t even need to be two-sided. The magazine industry in the 19th century was largely a single-sided business in which consumers paid real money for magazines that had no or few advertisements. Even in the 20th century, print media has made considerable revenues from subscribers even though this was enough to pay all the costs and return a profit. Print media by and large hasn’t been free. Television and radio ended up being free mainly for technical reasons. It was very hard to figure out how to charge people directly (the Brits imposed a license on television sets to support the BBC). Once cable came along there was a lot of content that people happily paid for. The web is more like print media than like over the air media: it is easy technologically to charge for content. For various reasons though that’s not the price point that web properties settled on. A lot of that has to do with the belief—perhaps ill founded—that by pricing at zero web owners got a lot of eyeballs and they could then figure out how to make money from them. Brilliant when it worked. Except it often didn’t.

As a matter of economics there’s nothing that says that two-sided markets have to be two-sided (see magazine example) or that one side always needs to get a zero price or even a break. People often talk about singles clubs to illustrate the skewed pricing—but, yes, ladies do get free beer sometimes but generally though, women might get a lower price they usually pay almost as much as men. It is also possible in two-sided markets to have multiple equilibria. So that makes one wonder whether the magazine industry flipped from one to another (high price to consumers to low price to consumers/high price to advertisers) and whether the internet just got stuck in a bad place.

I think the real problem now for Murdoch’s efforts is that entry barriers are so low on the web, there is so much free content, and there are enough people who can make enough money—or get nonmonetary benefits out of putting out content that newspapers have an awful lot of free stuff to compete with. Maybe it’s a bad equilibrium but it may be tough to get out of. But again I’m not certain and it is worth a shot.