Perceptive post by Adam Tinsworth about why newspapers have been so traumatised by the Net.

A discussion yesterday with some of the Cardiff postgraduate journalism students reminded me of one of the elements I think is missing from the paywall discussion: a really deep examination of exactly what people really paid for when they bought a print newspaper or magazine.

The reflexive journalistic answer is “news” as, after all, the clue is in the name “newspaper”. My contention, though, is that we journalists have a bias towards the news element of the publication that our readers do not share. We got into journalism to “do news”. They were buying a mix of news, features, comments, comics and crosswords that added up to a valuable package of information and entertainment in one handy portable product. And the cheaper bits of the paper to produce cross-subsidised the more expensive bits (ie: news). Oh, and the advertising paid for more of it than the cover price did…

So, in essence, we never really charged people for news. It was just part of a wider offer.

Spot on. Print newspapers are value-chains which linked unprofitable products (news) which have (or had) the capacity to attract readers with profitable activities (advertising) which earned revenues that were directly or indirectly proportional to circulation. In the old days, readers had to buy the whole package — they couldn’t have news without the ads, or vice versa.

But one of the features of the Net is that it dissolves value-chains — it enables profitable cherries to be picked off. Which is exactly what Craigslist did with classified ads, which in any event work better online than in print because they enable people to search for what they want rather than wading through columns of small newsprint.

The Net has had an analogous impact on other industries too. In the 1930s Ronald Coase showed that an important determinant of how companies developed was the transaction cost of doing things that were essential to supporting their core businesses. If the transaction costs were low, then companies outsourced the activity. If they were high, then they took it in house — and grew vertically, as it were.

The arrival of the Net radically altered that calculation. In many cases B2B transactions costs reduced, because they could be conducted online — and in many cases automated by software. As a result, vertical integration no longer looked so smart — and outsourcing became much easier to do. Thus was born what Manuel Castells calls the ‘networked enterprise’. The rest is recent history.