shirky.com Clay Shirky's Writings About the Internet
Economics and Culture, Media and Community, Open Source

WHO ARE YOU PAYING WHEN YOU PAY ATTENTION?

Two columns ago, in "HELP, THE PRICE OF INFORMATION HAS FALLEN AND IT CAN'T GET UP", I argued that traditional pricing models for informational goods (goods that can theoretically be transmitted as pure data - plane tickets, stock quotes, classified ads) fall apart on the net because so much of what's actually being paid for when this data is distributed is not the content itself, but its packaging, storage and transportation. This content is distributed either as physical packages, like books or newspapers, or on closed (pronounced 'expensive') networks, like Lexis/Nexis or stock tickers, and its cost reflects both these production and distribution expenses and the scaricty that is created when only a few companies can afford to produce and distribute said content.

The net destroys both those effects, first by removing the need for either printing and distributing physical objects (online newspapers, e-tickets and electronic greeting 'cards' are all effortless to distribute relative to their physical counterparts) and by removing many of the barriers to distribution (only a company with access to a printing press can sell classified ads offline, but on the network all it takes is a well-trafficked site), so that many more companies can compete with one another.

The net effect of all this, pun intended, is to remove the ability to charge direct user fees for many kinds of online content which people are willing to shell out for offline. This does not mean that the net is valueless, however, or that users can't be asked to pay for content delivered over the Internet. In fact, most users willingly pay for content now. The only hitch is that what they're paying isn't money. They're paying attention.

THE CURRENCY EXCHANGE MODEL

Much of the current debate surrounding charging user fees on the Internet assumes that content made available over the network follows (or should follow) the model used in the print world - ask users to pay directly for some physical object which contains the content. In some cases, the whole cost of the object is borne by the users, as with books, and in other cases users are simply subsidizing the part of the cost not paid for by advertisements, as with newspapers and magazines. There is, however, another model, one more in line with the things the net does well, where the user pays no direct fees but the providers of the content still get paid - the television model.

TV networks are like those currency exchange booths for tourists. People pay attention to the TV, and the networks collect this attention and convert it into money at agreed upon rates by supplying it in bulk to their advertisers, generally by calculating the cost to the advertiser of reaching a thousand viewers. The user exchanges their attention in return for the content, and the TV networks exchange this attention for income. These exchange rates rise and fall just like currency markets, based on the perceived value of audience attention and the amount of available cash from the advertiser.

This model, which generates income by making content widely available over open networks without charging user fees, is usually called 'ad-supported content', and it is currently very much in disfavor on the Internet. I believe however, that not only can ad-supported content work on the Internet, I believe it can't not work. It's success is guaranteed by the net's very makeup - the net is simply too good at gathering communities of interest, too good at freely distributing content, and too lousy at keeping anything locked inside subscription networks, for it to fail. Like TV, the net is better at getting people to pay attention than anything else.

OK SHERLOCK, SO IF THE IDEA OF MAKING MONEY ON THE INTERNET BY CONVERTING ATTENTION INTO INCOME IS SO BRILLIANT, HOW COME EVERYONE ELSE THINKS YOU'RE WRONG?

Its a question of scale and time horizons.

One of the reasons for the skepticism about applying the TV model to the Internet is the enormous gulf between the two media. This is reflected in both the relative sizes of their audiences and the incomes of those businesses - TV is the quintessential mass medium, commanding tens of millions more viewers than the net does. TV dwarfs the net in both popularity and income.

Skeptics eyeing the new media landscape often ask "The Internet is fine as a toy, but when will it be like TV?" By this they generally mean 'When will the net have a TV-style audience with TV-style profits?' The question "When will the net be like TV" is easy to answer - 'Never'. The more interesting question is when will TV be like the net, and the answer is "Sooner than you think".

A BRIEF DIGRESSION INTO THE BAD OLD DAYS OF NETWORK TV

Many people have written about the differences between the net and television, usually focussing on the difference between broadcast models and packet switched models like multicasting and narrowcasting, but these analyses, while important, overlook one of the principal differences between the two media. The thing that turned TV into the behemoth we know today isn't broadcast technology but scarcity.

From the mid-1950s to the mid-1980s, the US national TV networks operated at an artificially high profit. Because the airwaves were deemed a public good, their use was heavily regulated by the FCC, and as a consequence only three companies got to play on a national level. With this FCC-managed scarcity in place, the law of supply and demand worked in the TV networks favor in ways that most industries can only dream of - they had their own private government created and regulated cartel.

It is difficult to overstate the effect this had on the medium. With just three players, a TV show of merely average popularity would get a third of the available audience, so all the networks were locked in a decades long three-way race for the attention of the 'average' viewer. Any business which can get the attention of a third of its 100 million+ strong audience by producing a run-of-the-mill product, while being freed for any other sort of competition by the government, has a license to print money and a barrel of free ink.

SO WHAT HAPPENED?

Cable happened - the TV universe has been slowly fracturing for the last 20 years or so, with the last 5 years seeing especially sharp movement. With a growing competition from cable (and later sattelite, microwave, a 4th US TV network, and most recently the Internet draining TV watching time), the ability of television to command a vast audience with average work has suffered badly. The two most popular US shows of this year each struggle to get the attention of a fifth of the possible viewers, called a "20 share' in TV parlance, where 20 is the percentage of the possible audience tuning in.

The TV networks used to cancel shows with a 20 share, and now that's the best they can hope for from their most popular shows, and its only going to get worse. As you might imagine, this has played hell with the attention-to-cash conversion machine. When the goal was a creating multiplicity of shows for the 'average' viewer, pure volume was good, but in the days of the Wind-Chill Channel and the Abe Vigoda Channel, the networks have had to turn to audience segmentation, to not just counting numbers but counting numbers of women, or teenagers, or Californians, or gardeners, who are watching certain programs.

The TV world has gone from three channels of pure mass entertainment to tens or even hundreds of interest-specific channels, with attention being converted to cash based not solely on the total number people they attract, but also on how many people with specific interests, or needs, or characteristics.

Starting to sound a bit like the Web, isn't it?

THE TV PEOPLE ARE GOING TO RUE THE DAY THEY EVER HEARD THE WORD 'DIGITAL'

All this is bad enough from the TV networks point of view, but its a mere scherzo compared to the coming effects of digitality. As I said in an earlier column, apropos CD-ROMs, "Information has been decoupled from objects. Forever.", and this is starting to be true of information and any form of delivery. A TV is like a book in that it is both the mechanism of distribution and of display - the receiver, decoder and screen travel together. Once television becomes digital, this is over, as any digital content can be delivered over any digital medium. "I just saw an amazing thing on 60 Minutes - here, I'll mail it to you", "Whats the URL for ER again?", "Once everybody's here, we'll start streaming Titanic". Digital Baywatch plus frame relay is the end of 'appointment TV'.

Now I am not saying that the net will surpass TV in size of audience or income anytime soon, or that the net's structure, as is, is suitable for TV content, as is. I am saying that the net's method of turning attention into income, by letting audience members select what they're intersted in and when, where and how to view it, is superior to TV's, and I am saying that as the net's bandwidth and quality of service increases and television digitizes, many of the advantages TV had move over to the network.

The Internet is a massive medium, but it is not a mass medium, and this gives it an edge as the scarcity that TV has lived on begins to seriously erode. The fluidity with which the net apportions content to those interested in it without wasting the time of those not interested in it makes it much more suited in the long run for competing for attention in the increasingly fractured environment for television programming, or for any content delivery for that matter.

In fact, most of the experiments with TV in the last decade - high-definition digital content, interactive shopping and gaming, community organization, and the evergreen 'video on demand' - are all things that can be better accomplished by a high bandwidth packet switched network than by traditional TV broadcast signals.

In the same way that ATT held onto over 2/3rds of its long-distance market for a decade after the breakup only to see it quickly fall below 50% in the last three years, the big 3 TV networks have been coasting on that same kind of intertia. Only recently, prodded by cable and the net, is the sense memory of scarcity starting to fade, and in its place is arising a welter of competition for attention, one that the Internet is poised to profit from enormously. A publicly accessible two-way network that can accomodate both push and pull and can transmit digital content with little regard to protocol has a lot of advantages over TV as an 'attention to income' converter, and in the next few years those advantages will make themselves felt. I'm not going to bet on when overall net income surpasses overall TV income, but in an arena where paying attention is the coin of the realm, the net has a natural edge, and I feel confident in predicting that revenues from content will continue to double annually on the net for the forseeable future, while network TV will begin to stagnate, caught flat in a future that looks more like the Internet than it does like network TV.



Write clay@shirky.com with questions or comments.

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shirky.com Clay Shirky's Writings About the Internet
Economics and Culture, Media and Community, Open Source