The History and Economics of Information, Part III
The growth of the print industry, and why news is profitable when books aren't.
So Guttenberg invents the press, the church and monarchy provide an early market, and the reformation helps the technology diffuse.
There were still underlying problems with the business model. The structure of printing itself meant that there were large fixed costs but very low marginal costs to delivery. This incentivised printers to push pamphlets or books that had already experienced success. Print became a hit-driven industry. Unfortunately, the hits also suffered most from the infinite replicability problem.
Meanwhile, advertising was prohibitively expensive and unreliable. Not only would there have to be a dedicated print run for your message, but you also could not ensure that people would pay attention to it. After all, how often do you look at flyers?
Printers desperately wanted a consistent way of making money. For that, they needed a way to impose scarcity. 17th Century Europe could not reliably impose copyright, so they would have to find some other way.
Prints first reliable business model
Information had always been key to making business decisions. Modern-day banks spending millions, even billions to ensure they get information milliseconds early. In the 16th century, prior knowledge about the direction of prices of commodities, the wool harvest in England, or a new war could drastically affect the outcome of investments. Accordingly, Europe’s leading businesses had employed individuals to prepare reports long before the 15th century. This soon became outsourced to specialists. This was an industry that preceded print, and one that was highly profitable because of two reasons:
a) The information about the latest happenings declined in value with time. In other words, this information had temporal scarcity.
b) There was a relatively limited demand for this information. The ordinary citizen of France was not concerned about the price of silk coming from the Mediterranean. For cloth merchants in France, this was critical.
If this model sounds familiar to you, it should. These were the world’s first newspapers.
The Birth of News
Johann Carolus had operated one such service for merchants. In 1605, he decided to use print to reach a wider audience for his news. True to form, the market quickly followed, and other printers quickly copied him all over Europe. They were onto something.
The temporal scarcity of news meant that when substitutes enter the market with the same good, the incumbent has already moved on to the newly relevant information. This lead time to information acted as a barrier upon which a brand and superior distribution channels could be sustainably built.
Newspapers went through a few iterations before they became sustainable. There was an established market for pamphlets that sold at low prices, mainly due to the infinite replicability problem. Printers eventually created a low-cost, information-dense version that could be sold at a profit. Crucially, they also managed to establish a regular distribution channel.
Subscription
The key to the rise of newspapers was gathering readers as regular subscribers. It’s worth taking a moment to unpack what subscriptions really are.
To paraphrase Ben Thompson- It is an ongoing commitment to the production of content for the regular delivery of value.
Regular Delivery is important because of convenience- you save the customer time and energy (two scarce resources) by ensuring he gets the content directly
Production of content is important because you are not just paying for content that is already circulating in the market, which has seen its value eroded due to the infinite replication problem.
Over-time, newspapers would leverage scale to deliver the content directly to the customer’s doorstep by building delivery infrastructure such as trucks. To accommodate the rising demand for news, they began building a network of newsagents. This was very expensive.
Luckily, newspapers found another monetization method.
Advertising
Printers already used to work with advertisers. They quickly figured out that it was much more efficient and effective to bundle the advertisement into an established stream of information like a newspaper. This was highly profitable since the cost of printing was already paid for by customers. What’s more, advertisers had few options, giving printers leverage that they never enjoyed over consumers.
This also helped establish a truly defensible business that dependant upon four different things that had to be done well- the printing press, a news network, a delivery channel for customers and a relationship with advertisers.
The Book-Publishing Industry
Newspapers were inherently more defensible and profitable than books. While we don’t have any numbers from the 18th century, this disparity in profits was evident in the 20th century. As of 1997- the operating margin of the newspaper was said to be 30%, while it was the low 10% for book publishing. This is also probably media magnates like Rupert Murdoch owned newspapers and not book publishers.
While newspapers discovered a lucrative market, book publishers were still struggling to consistently make profits.
Yet there was an opportunity in the market, one that was formalized nearly 500 years after Guttenberg by Clayton Christenson, called the Law of Modular Conservation. The Law itself is a bit of a mouthful- but the relevant portion for us states that profit in a value chain flows to whichever company is able to successfully integrate different pieces of that value chain.
The European book market offered a few points of integration- book fairs. The Frankfurt book fair, in particular, was the centre of the European book world. This was a point of integration captured by Dutch Publishers, particularly the Elzeviers.
Elzeviers had established a lucrative business by becoming the official printer of one of Europe’s largest universities in those days- the University of Leiden. This captive business provided the Elzeviers with the capital at high volumes while driving deep discounts. They complemented this price advantage by slowly building unparalleled distribution, first in Holland itself, but then across the Continent.
Elzevier is thought of as first and foremost a book publisher, primarily due to famous Elzevier editions that had captured the attention, but the truth is that they made most of their money through the wholesale business. Indeed, they paid scant ahead to copyrights, often violating copyrights of other publishers.
The golden age of the Dutch Publishers couldn’t last, however- European Geopolitics of the 18th century were just too fragile. No other company would exert a similar amount of power over the book market, until you-know-who in the 21st century.
Thank you for reading. You just read the third part of a five-part series outlined below. I recommend reading in order, but feel free to skip ahead to any part you find more interesting.
Part I explains the basics economics of information and the state of society before the printing press
Part II explains the story of the early print industry and its impact on society
Part III covers the birth of the newspaper industry, and why the news was profitable in a way that books weren’t.
Part IV covers the growth of both the newspaper and the book publishing industry until the 2000s
Part V explains the impact of a world of abundant information on books and newspapers