Can e-readers like Kindle save newspapers?

Several new e-reading devices are due in the next year, including ones from News Corporation, Hearst and Plastic Logic, and Amazon is about to announce a larger version of Kindle for reading newspapers, magazines and  textbooks, The New York Times reports.

  • Dale Harrison

    This is looks like a desperate attempt to re-tweak the old media business models hoping to make them function again.

    The answer will not be found trying to salvage the old business models through clever gadgets, new forms of paper, new laws, lawsuits or pay-walls.

    A lesson worth remembering is that at the turn of the 20th century, people had a transportation problem…and the solution turned out not to be a faster horse…but a Ford. And one should note that the Ford didn’t arise out of the “horse industry’s” R&D efforts, nor the “Horse Industry Stabilization Act” nor the horse industry’s attempts to experiment with new Business Models. I think the future of the media business will look as different as Ford and GM’s operations look from horse traders and blacksmiths.

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    What’s historically given value to editorial content is the relative scarcity of distribution versus readers (not the Kindle kind). Newspapers have historically had natural localized economic monopolies coupled with a finite number of column inches with which to distribute news and ads. That natural monopoly meant that each paper had total control over the amount of content they allowed into their local marketplace.

    Monopoly constraint of distribution and supply will always lead to prices (and profits) significantly above open market rates. These newspapers then built costly organizations commensurate with this stream of monopoly profits (think AT&T in the 1970′s).

    The dynamics of content replication and distribution on the Internet destroys this artificial constraint of distribution and re-aligns ad (and subscription) prices back down to competitive open market rates. The often heard complaint of Internet ad revenue being “too low” is inverted…the real issue is that traditional ad rates have been artificially boosted for enough decades for participants to assume this represents the long-term norm.

    Unfortunately the Internet came along and changed all the rules!

    Any individual reader now has access to what is essentially an infinite amount of content on any given topic or story. All those silos of isolated editorial content have been dumped into the giant Internet bucket. Once there, any given piece of content can be infinitely replicated and re-distributed to thousands of sites at zero marginal costs. This breaks the back of old media’s monopoly control of distribution and supply.

    The core problem for the newspapers is that in a world of infinite supply, the ability to monetize the value in any piece of editorial content, will be driven to zero…infinite supply pushes price levels to zero

    This isn’t to imply that editorial content doesn’t have real value to most of its readers…it just means that no one source can marshal enough market power to effectively monetize the value of their content in the face of infinite supply and massively fragmented distribution.

    There absolutely are answers to the question of how to create value with online news and to be able to monetize it…but I doubt that new kinds of paper will be any more successful than faster horses…

    dale.harrison@inforda.com