MADE

The New York Times wants to start charging for content. It’s a strategy that’s worked reasonably well for publications like the Wall Street Journal and the Financial Times. But those publications provide a higher degree of actionable information that appeals to people in the financial industries. My prediction is that the New York Times’ new strategy won’t work. One of the reasons it likely won’t work is because it didn’t work the first time. The paper set up a paywall around their opinion articles several years ago and later abandoned it because they reasoned that they could make more money by charging advertisers for the increased traffic from free content. Now that online advertising isn’t the panacea it was predicted to be, they want to start charging again.

One of the big problems with media companies like newspapers and big record labels is that they operate with a command and control distribution mentality that worked brilliantly before the Internet came along. But it’s much harder to operate with that type of mentality in a world where the Web dices you up into into little pieces and throws you into a bucket with everyone else.

The question for these companies isn’t whether people are willing to pay $X for content. The real question for them is “Are we OK with less revenue?” These companies have grandiose expectations for themselves. But the other side of the expectations coin is also crucial. And that’s the expectation set in the consumer’s mind about what they should be paying for something.

The New York Times is undoubtedly going to get some people to pay for their content. Probably many. But not most. The main reason is that most readers already have an expectation in their mind about what they should pay for content. That price is zero. And that expectation has been set by the New York Times itself. It’s free.

The reason it’s so difficult to get people to pay for stuff that they previously got for free is that once people have tasted free, an expectation is set in their minds. It has little to do with actual price and much more to do with psychological habit. The more fundamental reason for that is that people aren’t inherently good at figuring out how much something should cost.

It makes plenty of sense because why would you arbitrarily set a price to something yourself if you could potentially find it for cheaper somewhere else? A price set by someone else is a context we use to assign a value to something. If that price has been zero all along, why would I all of a sudden pay? Unless it’s presented to me as a different experience. Starbucks is able to charge a lot of money for a cup of coffee because it’s created an interesting and somewhat unique experience around coffee.

Music is one industry where some pretty hardcore expectations have solidified around pricing. There seems to be two major camps of people when it comes to this. Most fall into the one-song-at-a-time legal download camp. These are people who aren’t real tech savvy , who go to iTunes to pay 99 cents for a song. The price expectation for these people seems to be in the $1.00 area, give or take a few cents. Then you have the much more tech savvy free download crowd. Their price expectation is set at zero. Of course, there’s also lots of older people who still buy CDs, but they aren’t the future.

The interesting thing about these two groups is that their price expectations are founded on principle, not economics. Someone who gets music exclusively for free is likely to be a believer in the notion that no one should have to pay 99 cents for a song. Someone who downloads through iTunes doesn’t believe a song should ever cost $3, yet will gladly pay $4.50 for a cup of coffee every morning, even though one could easily argue that a song provides a much richer experience than a cup of coffee. That’s the power of expectations.

Changing pricing expectations around music requires providing a different experience. Record labels have done a pretty miserable job at this overall, but there are innovative musicians out there doing interesting things with technology. Trent Reznor of Nine Inch Nails is just one example. Lesser known bands like Barcelona have also adapted through grit and innovation. The people who do manage to adapt successfully do so because they’re talented and they don’t sit around feeling sorry for themselves.