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An extended version of this article is to appear in the monthly magazine Interactive Media International (ISSN 0953-7856) published by Interactive Media Publications Ltd.

Is this the way the money goes...?

The move to the Internet, despite its apparent inevitability, is not at all commercially self-evident for publishers and broadcasters. Although they create and sell content, those whose publishing activity is closest to that of the Internet (newspapers, magazines, some television and radio) get the major part of their income not from selling content but from selling access to their audience to advertisers. In the on-line context, substantial revenue from "banner" advertising is reserved to a few web sites. What's more, every web site, commercial or not, is a publisher vying for a part of the global audience. A new economic model seems to be called for in which income (if income there be) comes from a combination of sources with the sale of content and advertising space being only a part of that revenue.

From the material to the immaterial

Society is undergoing a fundamental transformation from an economy based on material goods to one centred on knowledge. In the former system, knowledge generally needs to be embodied in material goods before it can be sold. Just think what is necessary to protect an idea: it has to be incorporated in a copyrighted, printed publication or a patented prototype. In the transition from the material to the immaterial, the major challenge becomes finding a reliable, workable relationship between intangible knowledge and the exchange of "measurable" value.

The mechanism currently used is a variant of the so-called "supply and demand" system. Unfortunately, as digitised information can theoretically be infinitely replicated, ways have to be developed that create an illusion of scarcity for information to take on any value at all in a market based on supply and demand. As for the exchangeable value, it is generally represented by money, which itself has become immaterial. No more coins, bank notes, cheques or plastic money, just an agreement about a figure, the corresponding currency units and digital signatures to secure and authenticate the transaction.

Free content?

The process of content creation has undergone a substantial change with the digitalisation of information, shifting the emphasis more and more to the re-working of new or existing content so as to enhance its value. This is partly done by using interactive software between databases and websites offering such services as searching, filtering and on-the-fly creation of tailor-made content as well as on-line payment and direct participation. One of the results of this shift has been an apparent devaluation of the "original" content (ideas, music, poetry, pictures, ...) and an increased precariousness of the already fragile status of the author.

The fact that people have been prepared to provide the majority of content and on-line services free of charge up to now, has meant that the brunt of costs in the on-line world is seen as being due to tools and telecommunication costs. While the remnants of teleco monopolies continue to create excessively high prices in many countries, the main reason for this lopsided situation is that the real cost of content creation and handling has not been taken into account. This attitude can be seen on the part of companies and administrations that are prepared to pay the necessary telecommunications and software costs to operate a web site, but who are much less inclined to invest in staff and know-how to produce content for the site.

However, as the knowledge imbedded in content is increasingly seen as the major asset of the Internet and we move to a commercial model in which investment in content needs to be justified and bring financial returns, there can only be as much intermediary work on content as customers, whether they be businesses or individuals, are prepared to pay for. If the real costs of developing content are to be recuperated, what will be the impact on the price to the end-user? And to what extent would the move away from a Net where "a lot can be had for nothing", slow down the up-take of the Net as a "universal" tool?

The redistribution of wealth

This raises the overall question of the redistribution of wealth amongst the actors involved (telecos, ISPs, software and hardware companies, content makers and managers,...). Economic and regulatory models are clearly necessary for the system as a whole to work satisfactorily on a long term basis. In addition, if the system is to be sustainable, not only is it necessary that income be redistributed in such a way as to incite on-going investment in the Internet and related services, but the development of the system should also contribute to the long-term well-being of society in general. (On this subject, see the recent "Economist" lead article about the need to tax car and lorry usage because of their disastrous impact on society.

As society places more and more emphasis on on-line exchange and commerce, the need to devise a satisfactory economic model will become increasingly urgent. Experience has shown that working models in such complex circumstances do not just evolve on their own. To what extent will the actors involved be able to set aside their drive for short-term gains and their cut-throat competition, so as to collaborate on the development of a sustainable model? In this quest for suitable ways of working, will they accept and be able to take the responsibility of self-governance? And it not, what political force will be in a position to constrain their action that it be in the interests of society at large? With the apparent dissolution of boundaries between activities such as telecommunications, content creation and management and the conception and production of tools, will existing companies be flexible enough to affront the change? And finally, in the long-run, as ever increasing value is placed on knowledge rather than material goods, will new mechanisms of estimating value supplant supply and demand as the basis of exchange and commerce?

Alan McCluskey, Saint-Blaise.

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Created: January 8th, 1998 - Last up-dated: January 8th, 1998