I keep coming back to the idea of business models in news for a couple reasons. The main one is that we are seeing a major industry being transformed right in front of us, in real time. And a critical industry at that. We’re seeing all of the issues that surround the idea of free coming together in one place – and it’s leading to a lot of innovation, especially in the area of business models. This makes it a fascinating case study. (Here’s Chris Anderson’s take on these issues.)

Clay Shirky gave a talk this week at the Shorenstein Center on the Press, Politics and Public Policy addressing the issues facing the news industry. Shirky investigates the idea that one of the key functions of newspapers is to provide ‘accountability journalism’ – reporting stories that keep powerful institutions in line. If newspapers cease to be viable, what mechanisms will we have to ensure accountability? Shirky offers a few ideas on this.

Joshua Benton has made a comprehensive post that includes a full transcript of the talk, the audio version as an mp3, links to posts discussing the talk, and some commentary of his own. It’s worth your time to read the transcript or listen to the full talk. Dan Kennedy is one of the people to pick up the themes of Shirky’s talk, and his summary includes this section:

“It may be that we’re seeing advertising priced at its real value for the first time in history,” Shirky said — and that value, he added, is a “tiny fraction” of what newspapers traditionally charged.

With newspapers supplying about 85 percent of accountability journalism, Shirky said that what we need are a large number of small experiments to try to make up some of the gap. He divided those experiments into three parts:

* Commercial: The traditional advertising model for newspapers, magazines and broadcasters.
* Public: News organizations funded by money unconnected to commerce, the prime examples being public radio and non-profit news sites.
* Social: Journalism produced mainly through donated time, including certain pro/am crowdsourcing initiatives such as Off the Bus, a citizen-journalism project that covered the 2008 presidential campaign for the Huffington Post.

“No one is smart enough to get it right, which is why we need a lot of experimentation,” Shirky said.

There are two important points in this. The first is the idea that we might only now be seeing newspaper advertising priced correctly. One of Shirky’s contentions is that for a long time, newspaper advertising was substantially overpriced relative to the benefits provided, and that the extra revenues generated in this way were the primary drivers of investment in accountability journalism in the first place. I think that is in large part what has led to the news industry misunderstanding their business model. Identifying the current business model might make it easier to try to change it. Seth Godin’s post today gets at exactly this issue:

Authors have traditionally relied on publishers to bring them readers. The author gives up the majority of the income and the publisher brings them the readers. But then you see someone like Frank at Post Secret who builds his own audience for his (sometimes nsfw) content. He owns a platform, it’s not something he rents. Now, using a publisher is a choice, not a necessity. Just about every successful author going forward (except for the lucky exceptions like Dan Brown) will own her own media channel. Not just authors, of course…

The second key point is that we’ll need to innovate like crazy to replace the accountability journalism that will be lost if newspapers go under. There are a number of experiments taking place right now, and we’ll need a lot more. That’s part of what makes this transition so exciting to watch (from the outside at least – it’s clearly incredibly wrenching if you’re in the middle of it). One important issue here is that journalism in general, and accountability journalism in particular, has always been subsidised by the other parts of the news business model. This subsidisation will almost certainly continue in whatever new business models end up working for news – and being clear on this is essential to avoiding another breakdown in the provision of this critical public good.

As technology continues to drive the price of information down towards zero, I still think that two ways to make money with a business model that accomodates free information are through aggregation and filtering. The business model for politico.com is an excellent example. Their website traffic is driven primarily through the staggering amount of Washington DC insider information that is aggregated in one location. Most (but not all) of the news that they have is generated elsewhere – their primary service is to provide it in one place. This is typified by Mike Allen’s ‘Playbook’, released every morning:

It is often entirely undifferentiated news. The minor mixed with the game-changing. Since Allen is as close as you can get to real time itself, there is almost no filter. Since his goal is as close to 100 percent detail as possible, there is almost no distinction between the ordinary and the noteworthy. So, in that sense, he isn’t the news. Indeed, what he gathers is not really news. Instead, it’s something near the totality of available information.

They make some money off of website advertising, but the bulk of their revenue comes from the print editions that they sell in the afternoon. Again, there is not much that is novel in the print version – nearly all of the material there is available for free on the website. So why do people pay for it? Because it’s filtered. The morning ‘Playbook’ includes everything – but the afternoon print version only has what’s important. ‘Playbook’ aggregates, print filters. Both make money, but most of the money comes from filtering. And it’s doing these two jobs well that allows Politico to keep a fairly large staff of reporters that generate original content.

The content creation is subsidised by the two functions that are essential in the world of free – aggregating and filtering. So as we try Shirky’s multitude of experiments, I think it will pay to keep these two functions in mind when we’re building new business models for creating accountability journalism.

Follow up posts here, here, here, here, here and here.