Micropayments are the answer

The New York Times today has an article about how YouTube is transforming the nightly news. As more high-quality, user-generated content is uploaded to YouTube by professional news networks, semi-professional hobbyists and amateur aspiring Ron Burgundys, the potential for customized, localized news delivered directly to your computer whenever you want it becomes a reality. Google, which owns YouTube, has already built out Google News to deliver fresh and personalized news that they’ve harvested from news sites around the web, and YouTube video news is a logical next step.

No doubt, this is great. However, with smaller city newspapers failing across the country and even the venerable Times in trouble, the long-term sustainability of content providers is a serious question. Right now, Google News and YouTube news videos are fueled largely by professional journalism companies that make their money selling advertisements in print and video media. However, as Google steps in and uses the content without providing an adequate revenue stream back to the content creators, the prospects for professional journalism look dim.

Clearly journalism as a money-making endeavor will not go away. What will happen, on the other hand, is that news outlets will find ways to capitalize on what is actually an amazing opportunity to reach a huge audience with dramatically lower costs. As an example, I’ve never paid a dime for a newspaper, yet after getting an Amazon Kindle2 about 2 months ago, I now pay for subscriptions to two newspapers. The key for me was convenience and quality — the ability to have a full news source on my Kindle every morning on the train was well worth the $10-$15/month I pay for my subscription. A content delivery device that didn’t exist 2 years ago is what it took to get a 24-year-old guy to start paying for the paper.

What about the web? How can providers continue to afford to let Google assemble their content into dynamic newspapers and give it away free? The solution is micropayments. Want to read an article on Google Reader? Why not charge a nickel (or a penny!), the bulk of which goes directly back to the content provider? Of course, a few cents doesn’t sound like much, but obviously the key is making it on millions of users. Collect a nickel, and watch what happens to the web. The best content providers — professional and amateur — will now have a way to make money off of their work directly. News outlets will still exist, but there will also be plenty of semi-professional, independent authors and creators who will churn out material that will be just as good.

Undoubtedly, there are many stumbling blocks to charging people for what they’ve become accustomed to getting for free. Dan Ariely, the MIT behavioral economist and author of Predictably Irrational has found that the difference between even 1 cent and free is enormous from a psychological perspective. Things that are free just have a certain allure that even the cheapest alternatives do not. The way to overcome this stumbling block is to disassociate people with the money they’re actually spending. We could do this by allowing (but not necessarily requiring) people to prepay their nickels every month with their internet bill — perhaps include $2 worth of content in a “bank account” with the monthly internet. Alternatively, Google could pay these nickels for you — in this case they would simply be a structural mechanism to allow payment to flow back to the originators.

The internet has irreversibly changed traditional content distribution models, but so far, revenue models have largely stayed the same for content providers. The providers that push for and embrace new models will be the ones that generate incredible profits. Micropayments are the solution that will fix the content-revenue link on the web.