AUGUST 10, 2009 3:09AM

Economics for CEO dummies

Rate: 13 Flag

By King Kaufman: What is it about news and newspapers that makes big financial guys, CEOs and major investors, forget the most basic laws of economics, the kinds of things any kid with a lemonade stand gets implicitly?

In a long New York Times Magazine piece about Philadelphia newspapers, Michael Sokolove, a former reporter for both the Inquirer and the Daily News, profiles Brian Tierney, the leader of the ownership group for the newspapers and their Web site, Philly.com. Sokolove writes:

As soon as possible, he wants to begin charging for online content. As he told me this, he banged a bagel on a conference table, which sounded like a rock as it hit. "You hear that?" This bagel stinks, he said. "It's got the same consistency inside and out, but if you went down to our cafeteria, it costs like $1.25. That's what people pay for stuff like this, so you mean to tell me I can't get them to pay that for online access to all the incredible stuff in The Inquirer and Daily News online? People who say that all this content wants to be free aren't paying talented people to create it."

Gah. Tierney and his co-workers being willing to pay a buck and quarter for that lousy bagel is an illustration of why people won't pay for news online. 

 Geno's

Hungry, boss? Why not go here?

Putting aside that he made an unfortunately apt comparison between a stale bagel and his newspapers, Tierney paid a buck and a quarter for that rock-hard bagel because that's what was available in the cafeteria. The cafeteria is selling scarcity, just like newspapers used to do. The lesson here is supply and demand.

The cafeteria knows that when a worker in an office building is hungry between meals, she often just wants to get a quick bite and get back to work. She'll settle for the crap in the cafeteria because she can't afford the time it takes to ride the elevator down to the street, walk to the nearby cafe, buy something and reverse the trip. Time is a cost too.

Tierney paid $1.25 for that bagel because he didn't have what he considered a better option. There are plenty of options for getting news without buying the Philadelphia Inquirer or Daily News or visiting Philly.com. 

But here's the really crazy part of his bagel theory: He's arguing that people will pay for quality by pointing out that he was willing to settle for crap! 

We journalists love this game, thinking that our golden pearls of information are worth paying for, that people will pony up to get their news from trained, trusted professionals, rather than settling for a warmed-over version from aggregators and bloggers and summarizers and second-rate online startups. The problem is, there's no evidence of this, and it doesn't make any sense given what people do in the actual world. 

There is, I am guessing, no free option for bagels around Tierney's office. But let's say there were. Let's say  dozens of little stands were giving bagels away all around the office, in the hallways and down by the copier, just everywhere. And one stand, the one with the best bagels, was selling them. 

Not many people would pay to get a bagel at that one stand, even though it'd be a better bagel than any of the free ones.  It's just a bagel. Good enough is good enough. 

The news is a bagel. 

In the real, non-hypothetical world, Tierney could have made the effort, paid the price in time as well as money to hit the streets and find a great bagel somewhere. There must be one in Philly. There are plenty of other great food options there too. But all he needed to do was fill a basic need. He was hungry, he got a crappy bagel. Good enough. Back to work.

Let's stipulate that Philly.com offers better quality content than any other source of Philadelphia news. That makes Philly.com the equivalent of that good bagel available somewhere in the neighborhood of Tierney's office. Local Philly blogs, aggregators, TV and radio stations and their Web sites and the like are the equivalent of the cafeteria bagel.

Tierney settled for the easier, cheaper, lower quality version, and he wants us to believe that this somehow proves people will be willing to pay for the harder, more expensive, higher quality version when it comes to news.

So the manager of the cafeteria has a better understanding of economics than the lead investor of the company. But don't worry. As soon as Philly.com starts charging for content, Tierney will learn.

Photo: http://www.flickr.com/photos/kevinwburkett/ / CC BY-SA 2.0 

Your tags:

Recipient's email address:
Personal message (optional):

Your email address:

Comments

Type your comment below:
"Putting aside that he made an unfortunately apt comparison between a stale bagel and his newspapers, Tierney paid a buck and a quarter for that rock-hard bagel because that's what was available in the cafeteria. The cafeteria is selling scarcity, just like newspapers used to do. The lesson here is supply and demand."

This here is a rock-solid point I very much dig. I've tried to be a journalist , and it got me fired (see comments). My journalistic efforts have gotten me fired on more than one occasion, at this point. No one wants true stories with teeth if they don't adhere to the sacred Chicago/AP-style code that continues to prove itself to be unprofitable in the face of Sarah Palin fart jokes, Michael Jackson, and similar fluff I've yet to take seriously.

Content is king, seems. That's what I've been preaching to the deaf choir for two years now. Stale bagels won't sell on an Internet full of fresh baked free ones.

Either way, good post, as always.
Not really much to add I just wanted to dog pile on Tierney as well. I think this was actually one of your better post though do you realize most of your analogies center around food - bagels, sandwiches, meatloaf...maybe that's just how the dice have been rolling lately but maybe Mrs. K should pack an extra apple or something in that Dodger's lunchbox of yours just in case.

As for philly.com and speaking as a web designer is he kidding? I am a firm believer in the notion that quality content and quality design sells...products, magazines, events, whatever. Something that looks good but has content that stinks will fizzle once the first-ins realize they've been had and spread the word, something that has great content but looks like crap will never attract an audience.

The philly.com sites kind of falls in that category, at least from my perspective. It is like Web 1996, as if instead of hiring an art director for the web site they gave the job to Tierney's executive assistant and she cranked out HTML pages generated by MS Word.

http://www.philly.com

Try not to avert your eyes. I particularly like the marbleized background and the sky blue/brown color scheme. It's as if they are saying, hey, if the 70's had web sites this is what it would have looked like.

I also don't think much of the content but that might be more of how it is haphazardly thrown up there than anything else.
There's such a basic lack of understanding of economics in both the journalism and biz worlds that's it's often laughable. I taught business journalism in the spring 2008 (when the Bear Stearns drama spectacularly unfolded), and I quickly found that I had to do a mini course in economics just to get students familiar with the idea of an economics trend story.

I don't really blame students, who are eager to learn, but the strange hand-in-glove quality of most business journalism: "Oh, sure, we knew that weird complicated numbers swap was going on all the time, but we couldn't *report* it then, it might tank the market." It's a torturous business, reporting on business. One of the best books about the Enron debacle, *24 Days*, details what it took for two Wall Street Journal reporters to unravel the mess--and they weren't even the ones who broke the story.

Now it looks like GE may have been doing the same kind of accounting swaps--is anyone out there online listening? I think it's very possible that citizen reporters who aren't charging for their bagels may make better business reporters.
Supply and Demand- simple economics! Good post.
The premise that traditional newspapers provide superior content is often untrue. During the last election campaigns, both primary and general, by far the best analysis I saw from from Nate Silver at fivethirtyeight.com. While the traditional media were giving us breathless horse race pablum, Nate was using real mathematics, explaining all the while exactly what he was doing. On a more trivial level, the best sports analysis out there is found in blogs, not in newspapers. Of course a lot of the worst analysis is also in blogs, but these are easy enough to spot and ignore.

Down the road the problem of who will do the front-line basic reporting will likely come to a head, but in the short term I am not bypassing traditional media because cheaper, albeit inferior alternatives are available. I am bypassing traditional media in favor of cheaper and better alternatives.
Rated -- very funny, and satisfyingly economical.

That said, the whole article is overkill, considering that what the major newspapers are selling is the "just good enough" bagel at best, though often stale, and occasionally makes you sick, while many online news sites now have much higher journalistic standards, not to mention much of the talent who once worked for the papers.

In short, it'd be one thing if their brands were even worth something anymore, but for most folks, they ain't.
"We journalists love this game, thinking that our golden pearls of information are worth paying for, that people will pony up to get their news from trained, trusted professionals, rather than settling for a warmed-over version from aggregators and bloggers and summarizers and second-rate online startups. The problem is, there's no evidence of this, and it doesn't make any sense given what people do in the actual world. "

I think that premise is dead-on, but your statement of the problem is wrong; I find very, very few "trained, trusted professionals" in journalism today. Instead, I find propaganda and editorials on both the Liberal and Conservative sides.

When journalism becomes trusted and concerned with facts, and not edju-tainment or some biased piece written to please corporate masters, then I suspect people might be willing to pay for it.
@Richard Hershberger

What Nate Silver does (and I think it's great) is commentary/analysis, not newsgathering. Same for most sports blogs. Someone still needs to send bodies to Iowa, run polls, etc.
Good one! LOL etc. Question: Has Salon.com ever made a dime?
Just went to Philly.com, and the sidebar stories are all about the Teen People's Choice awards.

If Zac Efron is making news above your fold, you're doomed. There's no way in hell anyone will pay for that content.
Let me quote Neal Stephenson from "Anathem":

"One day Diax was coming out of the temple after the singing of the Anathem when he saw these guys casting fortunes using dice. He was so furious that he grabbed a rake from a gardener and used it to drive the Enthusiasts out of the temple. After that, he ran the place. He coined the term theorics, and his followers called themselves 'theors' to distinguish themselves from the Enthusiasts. Diax said something that is still very important to us, which is that you should not believe a thing only because you like to believe it."

These traditional media people need to be whacked with Diax' rake a few times, I'm thinking.
A classic case of selling scarcity in the land of the free. It seems that the only sites that can really get away with charging for content anymore are in the specialized trades: finance, education, academic journals. But even that environment is slowly changing. I will continue to pay for the Chronicle of Higher Education and College Teacher Record because they are the best at what they do in a specialized market. But for everything else, free resources are not only good enough, but often better than many of the paid services. Open Salon is a great example high quality content that is far more interesting to read than many of the paid sites that I have visited.
The problem is that many of the old media companies couldn’t change if they wanted to. Technology is having a disruptive impact on their business models and the solutions are only obvious on the outside, where you don’t have to worry about the massive capital investments made under the old business landscape. Just as the giant mainframe businesses largely failed to transition themselves into the PC market, the media companies that make their living on the comodification of ideas will continue to lose ground to the younger start-ups that are not burdened with the overhead of the larger, more bureaucratic elders.
That was incisive analysis. Brings to mind an unanwerable volleyball spike. Tierny did serve up the ball beautifully, but you nailed it.

RIR - I do believe our esteemed King shares his baseball affection between his two home towns of St. Louis (origin) and SF (current). I could be wrong, though. If I'm right tho, and he does have a Dodgers lunchbox, that may account for the lack of apetite for what's in it :-D
I usually find that much of the best journalism here in Europe is done by reporters from state-run institutions like the BBC. That's probably because public funding allows them to make that exquisite bagel, without worrying whether it will sell better than the crap in the cafeteria. In reality, the news-bagels would have to be really, really good to pay for themselves. It's probably not realistic.
I disagree with the premise that there are lots of 'free bagels' lying around when it comes to local news. That's what newspapers need to focus on- local content. The web does great for national news and commentary. But local content is totally and completely lacking. People still have a need to connect to their local communities. That's where newspapers need to step up.