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The Dumbest Words I’ve Read Today, AP Edition…

August 4th, 2009 · 16 Comments
Econ 101

According to various sources, the Associated Press is cracking down on the republishing of its content on the Internet. See this NYT article for an overview of the situation. I don’t want to get into the reasonableness of the AP’s overall plan, but I will say that it seems a bit like biting the hand that feeds you to try and charge Google for having the AP headlines show up in its search results.

What concerns me more is the, um, economic idiocy of the quotes made by Tom Curley, the AP’s president and chief executive. Among my favorites is the following:

‘“If someone can build multibillion-dollar businesses out of keywords, we can build multihundred-million businesses out of headlines, and we’re going to do that,” Mr. Curley said. The goal, he said, was not to have less use of the news articles, but to be paid for any use.’

Hm. Or perhaps this is better:

“What The A.P. seeks is not that articles should appear less often in search results, but that such use would become a new source of revenue.”

Perhaps someone should explain the law of demand to this man. According to Greg Mankiw’s Principles of Microeconomics*, the law of demand states that, all else being equal, the quantity demanded of a good falls when the price of the good rises. In other words, demand curves slope downwards. (This is not shocking news.) I can even demonstrate with a picture:

See? Higher price, fewer reprints. It’s not rocket science, people. I’m really not sure what Curley is thinking here. Maybe he is envisioning this scenario?

Call me crazy, but I don’t think that perfectly inelastic demand (where people buy the same amount regardless of what the price is) is a realistic assumption in this market. But how else would there not be fewer reprints as the result of a price increase? Maybe something else is going on in tandem that increases demand:

So what could be shifting demand out that Curley is hiding from us? Is he increasing people’s incomes? (Or decreasing them if AP articles are an inferior good?) Is he increasing the price of a substitute? Decreasing the price of a complementary good? Increasing people’s tastes for AP articles? (That one is a sure no, if the PR surrounding the matter is any indication at least.) None of these factors seem reasonable, so I have no choice but to conclude that the execs at the Associated Press could stand to learn a little Econ 101 before making further large-scale business decisions. Not living in a dream world would probably help too.

* I do not really mean to plug Greg’s textbook here, but I do enjoy it. Plus, the fact that he keeps me well-stocked in instructor’s editions means that it’s usually the easiest thing to grab when I need a quote.

Tags: Econ 101

16 responses so far ↓

  • 1 David // Aug 4, 2009 at 2:29 pm

    Duh! Just ask Stringer Bell: http://www.youtube.com/watch?v=gGgRtiCVo2w

  • 2 Joel Levy // Aug 4, 2009 at 3:10 pm

    There is a rational argument — Maybe they assume (calculate) elasticities are less than 1.0 — if so, the price increase would not reduce revenue and/or profit — as you know, it would do the opposite.

  • 3 Low Tek // Aug 4, 2009 at 3:20 pm

    @David Great reference sir! That is one of my favorite scenes from one of my favorite shows.

  • 4 Alex Golubev // Aug 4, 2009 at 5:35 pm

    Wow. That is one of the dumbest posts I have ever read. you sure you got the “reality” modeled correctly there? Is there a nifty one-line “model” for “door in the face” and politics? And how do you feel about googlereader stripping your advertising dollars? Hope you’re not getting paid for this

  • 5 Mexico Nate // Aug 4, 2009 at 6:11 pm

    @Alex, perhaps you missed the point of the post and could stand to review it or the suggested Econ 101 text. Basic econ supports the ‘reality’ model and the only way around it is to shift the demand line (sketch 3). The demand for information is clearly elastic, meaning that consumers will search out other sources (TV, radio, internet, newsprint, etc) if the price is raised. Face it consumers are used to getting their internet news free and any attempt to change that will be met with epic failure (barring a monopoly of all forms of information–not out of the question, sadly).

    After your review, if you are still having a tough time with elasticity try my secret. “The demand for beer is IN-ELASTIC.” Side note, I didn’t spend many Thurs, Fri, Sat, or Sun nights studying!

  • 6 Alex Golubev // Aug 4, 2009 at 6:54 pm

    @Mexico Nate, i definitely get the resoning WITHIN the econ101 mindset. my point was that it has very little to do with reality. Obviously no end user is gonna pay for AP news, i’m not THAT dumb (and trust me, my demand for beer has been highly in-elastic for years). I think AP could try to extract $ from google the same way bloggers b1tch about RSS aggregators stealing their advertising dollars.

    The 2nd point is that this analysis is a waste of space. Executives never give true reasoning face to face, let alone in news releases. it is all marketing, politics, and negotiations. Do you really honestly think, this douchebag exec thinks he can charge everyone per word?? The blogging world is becoming oversaturated. This had no interesting insight at all. File under Boring 101.

  • 7 Don Gooding // Aug 5, 2009 at 6:29 am

    Although I wouldn’t phrase it the way Alex has, I have to concur that this isn’t about charging end users for headlines, but rather trying to extract revenue sharing from Google… or at least that would be my goal if I were AP’s CEO. Think YouTube – it remains free, but content originators have more control as well as revenue sharing.

  • 8 Krzysztof Wiszniewski // Aug 5, 2009 at 10:09 am

    Jodi, I’m surprised, shocked even! You’re an economist. You really should know better.

    This isn’t a question of demand at all. It’s a question of supply.

    Econ 101 doesn’t really address the question of a zero-price market, because it assumes that supply will be zero. The problem of the IP market these days is that a virtually limitless supply at a price of zero is technically feasible, especially since the people that do have to bear origination costs are facing competition from those who don’t, but simply duplicate and disseminate.

    What Curley is really doing is asking: “What’s it worth to ya?” From Google’s perspective, it may make more sense to pay up and have AP present in its searches, if only to maintain the image of “If you can’t google it, it doesn’t exist.” Imagine if you couldn’t find something on Google, but you could on – gasp – Bing.

    From AP’s perspective it’s better to have people pay for using their items (which the serious publishers will, because AP are a “trusted source”) than to have them reprinted all over the place for free.

    It’s economics as usual.

  • 9 Alex Golubev // Aug 5, 2009 at 11:44 am

    @Don, agree that my prose was condescending, but so was the econgirl’s and it would be a waste of time trying to walk through all the different aspects of how flawed this analysis is. The rate of good posts is slowing to a crawl and that’s my biggest concern. “Coordination failures” caricature was one of the last original and isnightufl posts. I may not be representative of the niche this blog is trying to hit however, but i’ll speak my mind and give it a chance for a few more days before it gets x’d from my revenue-stripping GoogleReader 😉

  • 10 econgirl // Aug 5, 2009 at 1:06 pm

    @ Joel: Of course. I didn’t intend to make any comment about revenue, since, well, the AP is currently getting zero revenue from the republishers (at least the unauthorized ones), so an improvement there would not be particularly difficult. That said, the quotes reference specifically price versus “use” of the news articles, which is a measure of quantity. I have no doubt that this plan would raise revenue (and probably profit), it is the missing of the “you are by definition going to have fewer of your articles out there are a result” point that I object to.

  • 11 econgirl // Aug 5, 2009 at 1:15 pm

    @ David: Love it!

    @ everyone else: this topic has nothing to do with the end user paying for content, it only refers to the republishers of content (Google, bloggers, etc.) paying up. And, as above, the point isn’t about whether Curley’s plan is profit maximizing, and it’s not specifically about whether Google will pay up. The point to be made is that there is a tradeoff between price and quantity of use that he is not acknowledging. There are certainly some sites out there that will stop referencing AP content if they have to pay such a high royalty (or any royalty at all), thus decreasing use of articles. That is all.

  • 12 Mexico Nate // Aug 5, 2009 at 5:12 pm

    @Alex,Don – I see you on that. I just skimmed through and assumed the discussion was about charging end users. Google (etc) should be compensating for clicks generated but AP content. Welcome to the brave new economy, when I was in school this wasn’t even a topic of conversation!

  • 13 Zak // Aug 10, 2009 at 11:42 am

    hi Jodi, i’ve read a lot of blog posts on this issue in the past week days – it’s really interesting to see one with a different take on things, from an economic PoV, so thanks for that!

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