Subscribe to Ivey Business Review


1) Enter your email:




And for his next act…

While Jeff Bezos’ acquisition of the Washington Post is a historic moment for the newspaper industry, he might just have a far bigger revolution in mind.

Unlike my colleague Prashob Menon, I never did get around to commenting on Jeff Bezos’ acquisition of the Washington Post back in August. I might have continued my neglect had Ken Doctor’s recent post for Nieman Lab not jogged my memory and got me thinking again on a recent flight about just what Mr. Bezos has up his sleeve.

While no one seems clear on exactly what Bezos plans to do with the Post, I like many of Ken’s hypotheses about what could come next. I find the idea of packaging the Post and the Kindle fire particularly compelling – potentially because my friend Joseph Ghobrial and I advocated for the same model 4 years ago when the iPad was nothing but a rumour. Not so humble bragging aside, however, I can think of at least one more model not in Ken’s analysis that is just radical and dangerous enough that Bezos might consider it.

Breaking the Bundle

Many have looked at the digital history of the music industry as an analogue for what the future of newspapers could look like. While it has not returned record labels to the “glory days” of the 1990s, most have managed to limp on – a sad fate that is probably still an attractive one to large swaths of the newspaper industry.

But for that analogue to ring true, one crucial ingredient is missing: an iTunes for newspapers.

Despite all the discussion about the importance of “breaking the newspaper bundle”, few have even experimented with a model where users can purchase individual articles rather than having to stay within monthly content limits or purchase a full subscription.

Part of this reluctance is philosophical. While digital distribution did give record labels another tool for fighting the effects of piracy, it also helped catalyse years of brutal restructurings and collapsing revenue. In the case of the newspaper industry, there are few doubts that many newspapers would fare much better. Ultimately, it is a risky model as it makes revenue more volatile and lacks a clear industry precedent, so a strong aversion is unsurprising.

That said, the reluctance to even experiment with such a model, given the level of desperation within the industry, has to be more than just an industry-wide gag reflex. Not only does it represent a potential way to monetize content for readers who can’t justify a $20 / month subscription, but with growth beginning to wane for some of the flagship paywall models, some experimentation is clearly needed.

But for a model that “breaks the newspaper bundle”, technology is clearly another barrier. There are few payment methods that are sufficiently ubiquitous with enough pre-existing credit card data to implement such a platform. Any effort by individual newspapers, or even larger consortiums, faces an uphill battle against a user base who would much rather pay without extra signups and verifications, through a platform they already know and use elsewhere.

iTunes is one of those platforms. Amazon just so happens to be another.

A New Hope

Picture1

With 182MM active U.S. accounts full of credit card data and robust payment processing capabilities such as 1-Click, if anyone can pull off a seamless payment system for individual articles it is Amazon.

The better question is then, perhaps: would it work? The answer here is far less clear. On an individual author basis, Bezos would need 1 of every 20 Post visitors to pay 50 cents per article to break even on the scheme (assuming that overhead and an allocation of print / other revenues is largely a wash). While these figures may sound modest, for industry that has been giving away its content for free online for nearly two decades, they still represent a stretch.

That being said, the beauty of such a model and Amazon’s technology is its inherent flexibility. By virtue of the individual pricing, Bezos has at his disposal a multitude of segmentation options to extract every ounce of value possible from consumers:

  1. 1. Tiered pricing structure – articles can be priced such that they gradually get more expensive as an individual reader shows a greater “willingness to pay” through ongoing purchases. At some point, this amount could be capped or made less efficient than the subscription alternative.
  2. 2. Declining balance model – rather than showing a price tag every time an article is purchased, which clearly reduces the incentive to go through with the transaction, readers could deposit $20 into an account (or set spending limits on their purchases) that are slowly credited down as more articles are purchased. This reduces the risk that the consumer needs to be re-convinced to purchase an article during each session, increasing convenience and their likelihood of buying.
  3. 3. Sections or series – once the philosophical bundle of de-aggregating a newspaper is broken, there’s no reason that sections or special reports couldn’t be easily packaged for a single lump sum price. Some outlets, like ForeignPolicy.com, use this model to create full ebooks, which are far more costly to produce. There’s no reason the best of a day’s journalism or sections like Ezra Klein’s Wonkblog could not be wrapped into small, bite sized chunks for consumption if the business case was there.

Such a model would also have significant implications for the Post’s core product as well. For example, the long-form pieces that many journalists love to write may suddenly become more practical through differential pricing and the ability to market and sell them individually. The Post would also be able to track specifically the value of individual writers or stories through their click-through rate, allowing them to create better incentives and priorities than those using far less exact methods such as the Globe and Mail’s new paywall conversion system. Even Amazon’s renowned recommendation engine could be leveraged to produce a personalized newsfeed for readers based on not just their reading history but their purchasing as well.

It would be a smart, sleek platform that none of the Post’s current competitors could replicate. Speaking for myself, you can sign me up.

First Washington…then the world

But even if Bezos rebuilds the Post into the sexy new age paper I describe above, so what? He would have saved a storied paper whose content he enjoys from possible extinction, dazzled the public once again with his business savvy and maybe even eked out a small profit in the process. Perhaps this is enough for him, but it feels far more incremental than the type of ambition we are used to from “the ultimate disruptor”.

But what if this is just Act I? What if, instead of the revival of a single beloved institution, the Washington Post is just the lucky test subject for Bezos’ grander vision of what a newspaper should be in the 21st century? Yes, he can build the platform and test the hypothesis that consumers are willing to pay for this type of content but, more importantly, if the Post survives this transition he has the all-important example he needs to rally more papers to his cause.

The philosophical barriers to this type of radical reform within the industry are steep – otherwise this type of experimentation would have occurred already – but if he can make it work for one of the industry’s patron saint companies, Bezos may find a growing list of converts ready and willing to give his system a try. For Amazon, if the Kindle Fire then becomes the gateway to this content, far from giving the device away for free, there may be millions of newspaper loyalists climbing over themselves to get their hands on one.

It’s worth reiterating (again) that there is certainly no guarantee of success with such a model, or that the above is even the model he would ultimately pursue. But with so little on the line (less than 1% of his net worth), Bezos can afford to take risks and aim to leave another dent in the universe, this time extending far beyond the revival of a single old-fashioned print daily.

We would be foolish to expect anything less.

ADDITIONS: While discussing the article via Twitter with David Skok from Global News, who raised an important concern regarding the incentives that this system would create, I had at least one further thought on the gameplan above: why stop at newspapers? Why would Bezos design a system that still allows the newspaper brands themselves to remain an intermediary between the platform and the content creators themselves? There is no reason the system could not eventually be opened up to allow individual authors to charge for their content through Amazon’s platform. They’re already in the midst of pursuing the exact same model with books by allowing self-publishing and it would seem to be equally replicable here.