If the major reason for the American daily newspaper industry's demise were its stories contained too many dangling participles, then the industry could more easily comprehend its situation than instead hearing that the reason was it had violated the Principle of Supply & Demand.

The understanding of economics, particularly media economics, has never been its strong suit, except if the topic is how many tons of newsprint to buy, how many points a major stock market dropped, or how cut expenses to match revenues. Most newspaper publishers, editors, or journalists tends to equate economics as solely the science of government financial policy, household spending, Wall Street speculation, and petroleum pricing. They don't understand or have forgotten that a major branch of it is the behavioral science of Microeconomics - the study of how individuals make decisions to allocate their time and activities.

The main paradigm of microeconomics is known as rational choice theory or rational action theory, which states that individuals choose the best action according to their preferences and what constraints of supply, demand, time, and access face them. In it now lays the demise of American daily newspapers as we know them.

How did the American daily newspaper industry violate the Principle of Supply & Demand by failing to adapt the industry's core product to a radical change in consumers' supply of news and information during the past 35 years? To understand how, both start and end at the roots of the newspaper industry.

Start in the European city of Strasbourg during 1605 when the world's first newspaper began publication. It used a technology developed there 164 years earlier by the metalworker Johannes Gutenberg, who had invented a device for producing innumerable copies of the same text. (Please keep that concept in mind, because it's now moldering the newspaper industry). The Supply & Demand equation for accessing daily changing information was then quite the opposite it is today: Consumers had little or no supply of daily news until the daily newspaper. So to produce newspapers, this adaption of Gutenberg's book printing technology spread quickly worldwide.

Some modern critics of newspapers say the industry is leaden and 'doesn't think outside the box.' They probably don't realize the historical irony that underlay their criticisms. The core of Gutenberg's technology was a box containing lead type whose impressions could print innumerable copies of the same thing. In that core is the inherent limitation that it produces the same edition for everyone. Although in the 19th Century steam and later electrical power speeded Gutenberg's technology and the introduction of offset lithography during the middle of the 20th Century eliminated its use of lead, the analog technology used to produce today's daily newspapers is still Gutenberg's. Indeed, today's analog printing technology still has the same limitation that it had in Gutenberg's days - it produces the same edition for everyone.

That technological limitation delineated the newspaper industry's editorial and advertising practices during the past four centuries. Because each edition had a finite number of pages and was printed by analog technology had to produce the same for everyone at once, newspaper editors had to select stories according to two criteria:

Some attribute their grave condition to advertisers suddenly switching huge portions of spending from print to online - an excuse that ignores more than 30 years of declines in those newspapers' printed editions' circulations and readerships. Some others attribute their deterioration to not having transplanted their content into online quickly enough -an excuse that ignores not only the dozen years they've spent transplanting it but how their online editions are now read even less frequently and less thoroughly than their printed editions.

Most of the print newspaper experts who diagnose these companies' condition still prescribe stale nostrums such as more consumer focus groups, subscription price incentives, more stylish typography, or shorter stories. Meanwhile, most of the experts who diagnose these companies' Web sites prescribe balms and accessories such as giving blogs to reporters, adding video, or having the readers themselves report the stories. American daily newspaper companies have long been too financially impatient to submit themselves to anything but ostensibly quick cures and they've even longer been too conceptually myopic to perceive the real reasons for their declines.

I'll declare the real reasons. There are but two and neither has anything to do with multimedia, 'convergence', blogs, 'Web 2.0', 'citizen journalism,' or any ancillary topics you may have heard presented at New Media conferences this millennium.

Nor is either of the real reasons advertisers' abandonment of printed newspapers. Their abandonment is a symptom, not the reason for the decline. Contrary to myopia of many newspaper executives, advertisers aren't newspapers' primary customers. Although advertising revenues may be sunshine for newspaper executives, the roots of their business are readers. A newspaper with readers will attract advertisers but a newspaper without readers will not. Readers ultimately support and sustain the newspaper business.

To understand the real reasons why the American daily newspaper industry is dying, first understand why more and more Americans are no longer reading daily papers and how their abandonment of newspapers has been wrought by changes in their own media economics. Also comprehend why the epicenter of the newspaper industry's problems in post-Industrial countries is America and exactly how grave the situation is there.

No one talked about the “experience” and only one guy (a ringer from Scribe Media who was happening by) talked about RSS feeds or doing any personalized aggregation, or using any new technologies. None seemed terribly able to say why they watched one channel or Web site over another. It all seemed rather random and haphazard, that folks just happened upon a channel, whether TV or Web, and stuck with whatever they were fed. Few expressed a strong preference for any news or information brand.

You can write and shoot and brand and produce your heart out. But whether your stuff gets seen might all come down to whether your bizdev folk got the headline on the AOL or Yahoo homepages.

A few weeks back the editor of the Cleveland Plain Dealer on "On the Media" talked about how newspapers in Ohio were reaping great benefits trading material, and linking and cross linking. More importantly, she said she was no longer reliant on The Associated Press for her stories from the region but instead was getting the original versions direct from the other sources around the state rather than paying “a big chunk” of her budget, about $1 million for rewritten AP stories. Picking up directly, on the Web, and putting other papers’ stories directly in the newspaper was also better quality, she said, and readers were noticing:

“I mean, we've always had access to news from all over the state. It was just, you know, it went through the AP mill. I frankly think we're getting better, more distinctively written stories because they're not going through the AP mill.”

I’m not saying this will happen immediately. AP, whose core business is the not-for-profit cooperative dues of member newspapers, has offered to cut its rates starting next year. Newspapers, despite ad and circulation declines for decades, have been notoriously slow moving, and many will be reluctant to pick up content from papers they might think of as competitors; the AP has given them the cover they sought to do so less blatantly. But the economic pressures are only increasing as revenues and readership decline more precipitously, and any success in Ohio could be the thin edge of a wedge. “We've set up this little cooperative,” said the Plain Dealer editor, Susan Goldberg. “I don't know how it'll work in the future, but right now it's working really well.”

Add to that AP’s deal to have its direct results placed higher in Google than member papers, further pissing them off, and newspapers will look harder at the Ohio example. We're talking months or perhaps years, certainly not decades. The example could spread nationally or internationally.

CEO Tom Curley has been leading the AP into a future in which an increasing share of its revenues comes from sources other than member dues, such as direct photo revenues, Web content services and broadcast fees. But the transformation may not be fast enough. AP doesn't have the luxury of Bloomberg or Thomson Reuters in which news gathering can be supported by financial terminals that really bring in the bucks.

AP should own the Web. It has its roots in the trading and sharing of information. It gets a significant chunk of revenue from providing the backbone through which others pass content. It coded and tagged and parsed content with everything from category codes to prioritization markings, and ways to match text and photos decades before those practices became fashionable for everyone. But culture and old habits are very hard to change, and I fear for the company's viability hope it can work out a more creative win-win solution for all.

It's the operational part -- integrating the two -- that will be a challenge. Very different cultures, even if CNET is one of the more traditional-style companies in its space.

Wilson looked at many of the more successful Web ventures and observed that what they had in common was a basic service that they offered for free and a step-up premium service that they charged for.

The basic voice over IP service Skype, for example, lets users call anyone anywhere for no cost, so long as both the caller and callee are at broadband-connected computers. However, if you really want to be able to call anyone anywhere—that is, to a land line or cell phone -- there are per minute charges. Want voice mail? Upgrade to Skype Pro.

A wonderful service I use called LogMeIn employs a similar approach. It gives me access to my desktop computer from any other computer, anywhere. A free version lets me see all my directories and files and transfer them to my remote laptop. The upgraded version actually displays the screen of my desktop, with access to any program or file, as though it was on my remote computer.

There are many other examples.

But for the Freemium model to work, Wilson observed there are other characteristics that demarcated the more successful implementations and the others:

• Ideally, they don’t require any downloads or plug ins to start. Lots of exceptions here, but it is a helpful goal.
• Support every browser with any material market share. There is no excuse these days to be FireFox or Safari challenged
• Make sure the service works on various flavors of Windows, OSX, and Linux.

In short, he says, eliminate all barriers to the initial customer acquisition.

But unlike 30 day free trials before having to pay, a true Freemium experience ensures that whatever the customer gets day one for free they are always going to get for free. Nothing is more irritating to a potential customer than a “bait and switch.”

If Freemium is such a great approach, why wasn’t The New York Times’ foray into this model more successful? It gave away a basic service and, with Times Select, offered a premium upgrade.

Part of the answer (there is sometimes but not usually a silver bullet) may be that the model is most likely to succeed when the customer implicitly understands why the paid service has to cost money. Free e-mail accounts that offer greater storage for a fee. Termination cost on other carriers networks in the Skype model is explicit justification. In the case of TimesSelect, it would be obvious to most readers that arbitrary withholding of access to some portions of content was not related to significant costs. It may have made some sense as a “value” play, yet it clearly did not work. “But if your free service is loved and you do a good job articulating the value that comes with the paid service, you can convert to paying users with good results,” concludes Wilson.

The Freemium model was augmented one year later by another venture capitalist, Josh Kopelman. He has labeled his observation “The Penny Gap.” I recall meeting Kopelman when I was teaching at Temple University in Philadelphia. He had started Infonautics Corporation, the predecessor of today's High Beam Research, in the early Internet days. I assume from that he learned some lessons about offering a subscription service that gave users access to a wide range of magazines, journals, reference and newspaper material. (And that he was more successful with a subsequent venture, Half.com, acquired by eBay).

The Penny Gap says in essence that getting a user to go from free to any sort of payment, even a penny, is harder that getting a paying subscriber to pay more. Going from free to $1.00 is a much higher hurdle than from $1 to $2, even though the difference is the same. The Penny Gap is a disconnect with classical economic theory, which would hold that demand increases as the price decreases. As Kopelman illustrated in the accompany figure, getting users to make any financial commitment is the greater hurdle than the amount itself.

What does this say about the content-heavy online ventures of the legacy media business? In large measure it helps explain why they settled for the most part (well, except for The Wall Street Journal) on an advertiser supported Web model. From USA Today to Slate to The New York Times media sites have tried and failed to make a user pay model stick, despite offering some high grade content.

But by dissecting the successful non-media sites that have achieved a substantial user-pay component, could media firms find areas where they can truly find value added to justify a premium? I’m not optimistic. Two years ago I might have offered that a comprehensive ad-free video service could be sold at a premium. Recall CNN tried that with its Pipeline service, providing real time video streams and an archive of telecasts. It met many Freemium characteristics, including a presumption of additional cost for all the storage and bandwidth. Apparently Time Warner determined that more advertising revenue outweighed the subscription dollars. Hulu, the new NBC Universal-News Corporation joint venture, is all free, all the time. It has not made noises about offering paid-for premium content.

The bottom line is that as a generalization the media business may not get over the Penny Gap chasm. For those firms that have been on the electronic side, where advertiser supported has long been the total revenue stream, maintaining that model may be easiest to accept. For that segment of the print media that has been used to drawing at least some of its revenue from consumers, resigning itself to only advertising may be tougher. And perhaps a bit of a blow to its self-esteem.

I say this as an outsider. I don’t have access to the crunched numbers and five year outlooks no doubt ginned up by the Microsoft investment bankers. And, to be sure, many business pundits have a similar pat justification, all along the lines that both Microsoft and Yahoo have persistently tried to best Google but failed. “No one can compete with Google on their own anymore,” says Jon Miller the former chairman and chief executive of AOL. “There has to be consolidation among the major players.

Suddenly Microsoft, just a few years ago the bad boy of the computer galaxy, is—what—the white knight? Mark Read, director of strategy for the WPP Group, which owns ad agencies like JWT and Ogilvy & Mather, opined, “It is good for investment. It is good for competition.”

A combined Microsoft and Yahoo, notes The New York Times, would beat Google in Web traffic and come closer in ad revenues. Most importantly, the pair would give Google a greater challenge as it tried to enter display advertising, because Yahoo has the largest share of that market.

But wait a second. What does a merger with Yahoo really do for Microsoft—to the tune of a cool $44 billion? Lets look at some numbers.

Google has grown dramatically, going from zero to $17 billion in revenue. It is highly profitable, a bit (well, $200 million) over $4 billion in 2007. Very impressive. But Microsoft had almost 3.5 times that revenue -- $58 billion—and four times the profit-- $17 billion.

So what does Yahoo bring to the party? Not even $7 billion in revenue and a piddling $660 million in profit. It brings a search engine that’s technically pretty good. But Microsoft already has a comparable piece of technology. Yes, most of its revenue is derived form online advertising, nearly twice that of Microsoft.

And what’s the synergy of Microhoo? (or Yahsoft?). Not much that is obvious. Microsoft forecasts at least $1 billion in annual cost savings for the merged entity, from synergies in areas such as combining engineering talent.

Sure, a merger of this magnitude—pegged to cost savings rather than market opportunities-- would make sense if Microsoft was a struggling enterprise. It's not -- and a 29% profit margin at that. It has $21 billion in cash and short term investments. Assuming it actually realized the savings—so what? Microsoft already has the resources to compete with Google—if it is possible at all.

Then what does a Mircohoo end up with? Despite trying, Microsoft has not come up with a strategy to erode Google’s dominance in search and online advertising. Its share of the search market ended last year at 9.8%, down from 12% in mid-2006. Yahoo does better, but fell from an estimated 28.8% mid-2006 to 22.9% last year.

Now, let’s see. We take Microsoft’s failed strategy and add it to Yahoo’s failed strategy... and the best they can come up with is some savings effect, as the combined entity slides further behind.

I understand that the hope is that the two combined would bulk up to a third of the search market—perhaps in aggregate enough to prime the pump to attract more advertisers. But Yahoo alone had nearly a third of the search business in 2005 and that did not keep it from sliding downhill since then.

The combination of Time Warner with AOL in 2001 has been a disaster. However, it was primarily the outlandish $112 billion price tag, negotiated at the peak of the Internet bubble, that made it ridiculous. The notion of an old time content company wanting to modernize by associating with the new media start-up had some strategic sense, even if the conflicting cultures and stratospheric valuation doomed the combination. I could understand the potential synergies, even if not to the degree that could justify the cost.

I can also understand Microsoft’s necessity to segue from the operating system and packaged software business to a greater reliance on Internet-derived revenue. It knows it needs to modify its current business model. But I can think of better uses of $44 billion to get there. Glad I sold my Microsoft stock last year.

Yesterday he declared that "the sky's-the-limit profits from traditional broadcast TV are over….Free-to-air television faces a lot of challenges, just from the sheer fragmentation of the audience.” Overall he characterized broadcast television as a "highly challenged industry in America."

This may actually be on the minds of some of the striking Writers Guild of America members. The Wall Street Journal reported than some of the writers who work for the soap operas are resigning from the union and going back to work. The audiences for the soaps have been sinking for years. “Writers and producers in the genre fear that by the time the strike finishes, their audiences won't return.”

On Monday Murdoch publicly admitted that he expected the online version of The Wall Street Journal will soon be free. News Corp. will likely close the deal to acquire Dow Jones next month. "We are studying it and we expect to make that free, and instead of having one million [subscribers], having at least 10 million to 15 million in every corner of the earth, keeping up-to-date minute by minute with all business and economic news from around the world," he told an audience in Australia.

Such comments give some insights in News Corporation's strategy and business model. Clearly, advertising will play a larger role in the business model for online content. On the other hand, he is hedging his bets on advertising from broadcasting. First, he advocates making television productions very high quality, so they can be sold to the global market “and then be brought back to America--or to anywhere in the world, for that matter --and be sold as DVDs.”

So, television becomes more consumer financed, while online becomes the prime advertiser-supported medium. At least in Murdoch’s view. How will this be affected, if at all, should DVD’s be supplanted by online delivery, such as by Netflix or Amazon’s Unbox or iTunes video service? Actually, News Corp has a bet there, with Hulu.com, its ad-supported online video venture with NBC Universal.

News Corp. has developed a “portfolio strategy”: When the crystal ball is cloudy, invest in a range of possibilities. Not all need to be a success. Two or three big ones will do.

Serwer foresees “two other equally important seismic events”: the passing of the old guard at the family controlled media companies and the “dismantling of media giants.”

Both these factors could as easily fit into a discussion at my Who Owns the Media? blog. But they also are appropriate for this venue because they address the shape of the future media landscape.

While both of Serwer’s “events” are right on, neither is “seismic” nor events, in the sense that they are ongoing process, not a product of a single incident.

Sumner Redstone's Viacom and Rupert Murdoch's News Corporation are as likely to continue under the next generation of ownership much as Newhouse has gone on after the death of its patriarch, S. I. Newhouse or Time Inc. (now Time Warner) after the age of Henry Luce. Sure, there may be differences. But they are not likely to be “seismic.” On the other hand, a new cadre of moguls may in the making,: Can you say Larry Page, Sergey Brin, Jerry Yang, David Filo, Mark Zuckerberg?

Similarly, the disaggregation of “media giants” has been an ongoing phenomenon for many years, for reasons ranging from financial needs to the latest trends in strategy. As one example, there is the recent split between Viacom and CBS. Adam Thierer has kept a “diary” of other media company divestitures.

Nearly 30 years ago, in the first edition of my book Who Owns the Media?, I compiled a table of the dominant media companies, based on the breadth of their media holdings. At the time, the company with the largest holdings across the media industry was Times Mirror Co, best know as publisher of The Los Angeles Times. Since then it sold off its magazines (e.g., Popular Science, Outdoor Life) and its book publishing (e.g., Mathew Bender, New American Library) and eventually sold what remained to the Tribune Co., which itself is in the process of selling itself to a private investor and an employee investment fund.

Another on the other short list of companies that had major positions in more than one medium was the old CBS, which back in the early 1980s, besides its television stations and networks, owned a stable of magazines that included Woman’s Day and Road & Track, and book publisher imprints including Holt Rinehart & Winston. All of that was sold off in pieces before CBS, as part of a revised strategy to focus on its “core” television business, undid the “media conglomerate” strategy that was in vogue in the 1970s and sold itself to Viacom.

On the other hand, Microsoft’s CEO Steve Ballmer said Tuesday that he expects 25% of the company’s revenue within 10 years to be generated by advertising-supported products and services. Sounds very media-ish.

So, yes, the media industry will look different in 20 years, just as it has evolved over the past 20 or 30 years. But the key world is “evolve.” This is not seismic. The digital revolution may be an appropriate use of “revolution” in the context of the centuries dominated by print. But we’ve seen digital coming for at least 25 years. The mass market Internet goes back 13 years. And newspapers and broadcast stations are still profitable. There has been and still is time to adjust.

Lots of long term rumbling, but no earthquakes, Andy.

Calculated from the Times’ press release , TimesSelect had about 227,000 subscribers beyond its print base. This was generating an estimated $10 million annually. By online subscription standards, both are substantial numbers (though dwarfed by The Wall Street Journal’s base of one million online subscribers).

The Times’ release clearly points to the strategic basis for its decision: It could do better than $10 million in advertising by opening up its columnists and archives to a larger audience. No subtlety here: Denise Warren, chief advertising officer expected that “with the removal of the pay wall… Advertisers on the site can expect to see an unprecedented number of Times readers interacting with their brands." American Express is the first “sponsor” of the newly opened site.

TimesSelect was a bit controversial from the start, and not just with consumers. Many of its columnists, who, after all, get both ego satisfaction and presumably greater impact with a bigger audience, were unhappy being sequestered behind the pay wall.

Although the venerable Times yielding to the advertising-over-consumer payment model seems to add further credence to the “information wants to be free” trend, I have gotten wind of a new venture that aims to succeed as a user payment model for content providers where micropayments has failed. I will supply more details when available.

For today, I want to highlight the data and analysis published last week by the media-centric private equity firm, Veronis, Suhlis & Stevenson (VSS) in its latest Communications Industry Forecast, covering through 2011. This has nuggets which, if accurate (this is a forecast) would bring to higher resolution the winners and losers in the media arena. For example, total spending on all communications grew substantially faster than GDP between 2001 and 2006. Furthermore, VSS predicts that communications industry spending will continue to grow faster than the overall economy through 2011, making it the third growing sector of the economy.

That’s some good news. On the other hand, the report finds that, for the first time since 1997, consumers spent less time with media in total last year than in the previous year. VSS believes this decrease, though small in percentage terms, is due to changing consumer behaviors and digital media efficiencies. “The drop in consumer media usage was driven by the continued migration of consumers to digital alternatives for news, information and entertainment, which require less time investment than their traditional media counterparts.” It continues: “Consumers typically watch broadcast or cable television at least 30 minutes per session while they spend as little as five to seven minutes viewing consumer-generated video clips online.”

VSS does not see this decrease as part of a long term trend, expecting consumer media usage to stabilize in 2007 and increase slightly through 2011. However, this would be driven by time spent with out-of-home media and videogames as the only major segments to achieve accelerating growth in this timeframe. Overall consumer time spent with media is forecast to increase at a compound rate of 0.5% from 2006 to 2011, down substantially to the 0.8% in the previous five-year period.

The real headline, however, is this prognostication: “In what would be a watershed moment in communications history, VSS predicts that Internet advertising – including pure-play websites and digital extensions of traditional media – will replace newspapers as the largest ad medium in 2011.”

I assume they mean that advertising in printed newspapers will be supplanted by advertising online—which includes the advertising that newspaper publishers generate from their online sites. Still it would be another stake in the heart of what once the biggest rooster in the barnyard.

But here’s another bombshell: “In addition to shifting their attention to alternative media, consumers are also migrating away from advertising-supported media, such as broadcast TV and newspapers, to consumer-supported platforms, such as cable TV and videogames.” Time spent with consumer-supported media grew at a compound rate of 19.8% from 2001 to 2006, while time spent with ad-supported media declined 6.3% in the period. This is not a measure of revenue but of consumer time spent. But with all the buzz about everyone moving to totally ad supported models (see Rebuilding Media’s latest foray into this space), this finding more than suggests that consumers are willing to part with their discretionary income for the right content or platform.

Another data point is found in a piece by Bobby White in The Wall Street Journal (sub. required). "Across the cable TV industry," writes White, "… independent channels are also turning away from TV to the Internet." Black Family History, The Lime Channel, The Employment and Career Channel, Horror Channel and HorseTV are among those that pulled the plug on their cable affiliation in favor a going Internet only.

“The shift illustrates how the Internet is offering a second chance to certain segments of old media. Web-based TV is now becoming a more viable business route, and Internet video is exploding. Running an online-only video channel, which doesn't require expensive cameras and broadcasting gear, is cheaper than operating a cable TV channel. While starting a new cable channel today takes an initial investment of $100 million to $200 million, a broadband channel needs just $5 million to $10 million to get going, says Boston-based research firm Broadband Directions.”

It’s a constant challenge when in the midst of change to separate trends from simple data points. One needs a series of data points over time that show direction. The Journal article may well be a data point that fits into the trends the VSS study provides. It seems though that enough data points are aggregating to confirm some direction with far reaching strategic implications for and broad array of players in the media industry.

“…A system [for the Internet] for tracking, exchanging and settling value (including payments) for information commerce (text, music, game plays, entertainment, advertising views etc.).” Beyond that basic component, the premise of the conference organizers for such a system adds an ideological component: That the system “should be ubiquitous yet never be owned or controlled by either the government or a dominant private, for-profit entity. It needs to be massively distributed and - in some fashion - collaboratively owned.”

The backstory: Among the prognosticators at the start of the online age, the original business model for online information was that the user would pay for content. Why the need for a micropayments in the first place, when there are credit cards and the like? The assumption was that the transaction cost would be prohibitive for payments that might be five or ten cents to read an article. The earliest models, therefore, were monthly subscriptions, such as the first iterations of online versions of the Atlanta Journal & Constitution and the LA Times on the pioneering Prodigy service. Version 1 of USA Today on the Web was for a monthly subscription. Slate started free, then switched to mostly subscription, but went back to free when it became obvious that the revenue from subscribers in the thousands would be less than advertising revenue from readers in the hundreds of thousands or higher. But requiring subscriptions to anything could discourage spontaneous access to a stand alone article from nonaffiliated writers or minor publishers.

As we all know now, the mass audience never bought in to the option that it must pay for most of its news and general information. With a few readily identified exceptions (let’s think—oh, The Wall Street Journal Online comes to mind…), newspapers, magazines and everyone else soon discovered that they could make more money by offering free access and use the many additional eyeballs to sell advertising, initially in the format of banners and similar versions of “display” ads.

This model worked to a point. Still, it was particularly unsuited for the small players, who did not have the wherewithal to sell advertising and , in any event, with monthly hits in the hundred or thousands, could not get the interest of these advertisers.

But the marketplace works in neither strange nor mysterious ways. Aggregators such as Doubleclick soon arose to make it easier to include ads on a site. Later, the major breakthrough was the introduction of the AdSense program by Google. This created the column of text ads that are ubiquitous throughout the Web. The ads that are displayed are, more or less, related to the content of the Web site. AdSense has made it possible for small advertisers to get cost-effective targeted placement and has made it nearly effortless for even the most humble Web site to see some revenue.

This growth of Internet advertising was seen by some participants of the conference as having sidelined the development of any payment or user-identity systems. “Why did micropayments fail?” asked one of the conveners.

However micropayments have not failed-- they just did not evolve in the way that had been foreseen by the early developers. AdSense – and similar programs—have created a form of micropayments funded by a third party-- advertisers. Numerous Blogs and other information sources-- including some from mainstream media-- are earnings modest to substantial sums by way of aggregating many "clicks," frequently at five cents or 25 cents each. This is precisely the micropayments idea-- just from an unanticipated angle.

The objective of the mini-conference was to identify needs and requirements for an Internet information payments infrastructure and consider next steps on how to create the needed.

My own take on this—as I was asked-- was that if there is truly a need, then there are any number of smart entrepreneurs out in the universe who would grab the opportunity and an equally substantial group of venture capitalists looking for ways to invest in something that has not been done, is needed—and can be sold for a profit. This soluton, to be sure, runs into the ideological component among some in the community who hold that such a system cannot well serve content providers who may not be mainstream. I disagree. If the AdSense approach – i.e., free-- cannot generate enough income for this group of content providers, I have my doubts about how many takers they will have at ten cents a crack.

There is also growing evidence that strongly suggests that individuals and groups with something they want to say or show are not necessarily motivated by the money but rather by the opportunity of a forum. I call them missionaries, as opposed to "merchants" who are motivated by the profit motive more than the attraction of having a media platform. Hence the proliferation of Blogs, Podcasts and Web sites--many with sophisticated graphics and substantive content—yet without an obvious business model. This is the world of citizen media makers, about whom I will have more to say one of these days at my Who Owns the Media? Blog.

The Internet has provided a forum for a mind boggling cacophony of opinion, art, information and entertainment. The question for the next conference should be: Has the lack of a user-micropayment system held that back? How would the offerings via the Internet look differently if such a user-micropayment infrastructure was in place?

Although talk about disintermediation has subsided and the predictions of some self proclaimed visionaries have not been fulfilled, the reality is that this phenomenon has in fact been operating and is picking up steam.

It is most clear in many financial transactions. Pre Internet I recall paying about $150 on average to buy or sell a stock. I’d have to call a broker, who would call me back later with the results of the order. And he or she got a hefty commission. Today, services such as eTrade, Fidelity and many others facilitate electronic orders that pass through them to the exchanges. Commissions have fallen to as low as $5 a trade.

eBay is a disintermediation vehicle for many types of transaction. About eight years ago, cleaning out the basement of the house where I was raised, I came across a stash of Playboy magazines dating from the early 1960s and Life magazines from the same era. My first reaction was to check on their value with some used magazine and book stores around. They, of course, would have bought them below the market rate so they could retail them for a profit. But I stumbled across this new eBay thing, listed them and sold them myself at “retail,” bypassing the intermediary. Moreover, I was able to reach a national (at the time) audience, while the local retailer had to base its price on a smaller, local market.

With its original direct to consumer business model, Dell disintermediated computer retailers. Paradoxically, HP has helped rejuvenate that channel and Dell has just this week acknowledged that it will sell through retailers. As I keep reminding my marketing students, the word “some” is a big word. Some people may like going direct, but some people still like to call a broker, go to Blockbuster, buy from Wal-Mart. For now, disintermediation is not an absolute—it’s an alternative.

The process continues. Netflix started the disintermediation of video rental stores—and will itself be bypassed by downloaded videos unless it is successful in becoming “one of them.” Much software is downloaded, not packaged, hence stores like Egghead and CompUSA have died or had to retrench.

Which bring us to the media world. The first high profile threat was Napster, which was the ultimate in disintermediation by allowing individuals to trade music with each other. After some fumbling, the recorded music industry has reached a degree of accommodation with the technology through iTunes and its competitors. Bye-bye Virgin Music Superstores, Tower Records and a host of others.

Newspapers have seen a portion of their high margin classified ads disintermediated by Craigslist and Monster.com. Why pay those high per word rates when you can reach more people, in a searchable format, than in the shrinking newspaper. Advertisers have learned about disintermediation as well. While banner ads have a third party middleman, Google’s AdSense or AdWords is far more efficient: pay only when used.

The legacy television networks are scrambling to prevent disintermediation. Postings of network shows on YouTube and the like were a threat to the networks and their local affiliates and had to be stopped. To one degree or another ABC, Fox NBC and CBS have elected to disintermediate their own local affiliates by allowing viewers to access many network shows online directly from their own Web site. Meanwhile, NBC has engaged in deals to distrubute its programming via numerous Web sites, as has CBS.

Disintermediation is not necessarily a losing proposition for the media industry. It’s just a matter of learning how to use it to its advantage. For example, last week the season finale of the popular TV series Grey’s Anatomy featured a soundtrack
by singer Ingrid Michaelson. Never heard of her? Not surprising, as she does not have a recording contract. She was found on MySpace by a firm that specializes in locating undiscovered talent (of which there is much) and using their works on TV shows and commercials for far less than it cost to license the music of established artists from a record label.

Because she does not have a record company contract, when one of her songs gets downloaded from iTunes, she pockets $.63 of the $.99 charge, compared to the 10 to 15 cents a major label artist gets sent. That amounts to $37,800 from the 60,000 times her songs have been downloaded. Ms. Michaelson has a gig she would likely have never had before MySpace, income in excess of what she would likely have earned from her music before iTunes. And ABC bolsters its profitability by a few dollars.

That’s the kind of creativity the newspaper industry needs as well. Disintermediation will ebb and flow. But the net will be more flow than ebb.

WSJ.com managing editor Bill Grueskin seems to feel the same way, and has kindly sent me a list of things that today's editors in digital media must keep in their head, along with all the usual editorial duties.

In no particular order here they are. My additions in parens:

- Differentials in online/print ad rates

- Paid vs. free models (ie, subscription or micropayment vs. ad-supported)

- Role of search engines in driving traffic and revenue (SEO /SEM)

- (Corollary of above:) Tailoring content to appeal to search and other third party sites

- Tailoring content to maximize page views and thus ad impressions

Sree Sreenivasan of Columbia U frequently points out that journalists at The New York Times compete to get on the Most Read/Most Emailed/Most Blogged page, which also shows the most common search terms on the NYTimes.com site.

I say the NYTimes.com (and any) editors should also be aware of what the most-searched terms are on Google and Yahoo, and what those searches show on those sites, and what pages people land on after doing those searches and clicking through on the results.

From there they can get into funnel- and path-analysis, and more deep metrics. It becomes an organizational issue of who delves how much, into what; the bigger shops, like the journal, have the luxury of having someone(s) who does nothing but Web analytics – often a marketing team function, sometimes part of the technology department.

But today's top editor needs to know at least the basic, global issues Bill, Sree and I have stated just as much as a newspaper managing editor had better know the details of the print run.

In 30 years working in news media, I've never encountered a more beneficial cause than the Media Loan Development Fund. So, I've been volunteering some of my consulrting time to it.

The idea behind the MDLF arose during the late 1980s when Yugoslavian broadcaster Sasa Vucinic watched freedom of the press almost evaporate in his country. He worked for B92, which was the independent radio station in Serbia and a thorn in the side of dictator Slobodan Milošević's regime. Unable to find a legal pretext to silence B92, the regime began threatening the radio station's advertisers. B92 began running out of money and Vucinic was unable to find any bank, inside or outside of Serbia, that was willing to loan B92 money to keep operating.

Vucinic never forgot that experience (he gave an videotaped talk about it at the 2005 TED conference). In 1995, he approached billionaire George Soros, who himself grew up under a Communist regime in Hungary, about the idea of creating a foundation to loan money to independent media in countries that have repressive regimes. Soros agreed to setup the Media Development Loan Fund, which is based in Prague.

Vucinic's first MDLF project was a newspaper that during the late 1990s was being forced by the Slovakian government to travel 400 kilometres to print the paper. The newspaper wanted to purchase a printing press, so MDLF loaned it the money. MDLF has since financed 135 projects for 58 independent media companies in 18 countries. When MDLF began, Soros didn't think the foundation would ever see its loans repaid, but 97 percent of the 58 projects have repaid their loans on time.

In 1998, MDLF established the Center for Advanced Media-Prague (CAMP) in 1998 to introduce new-media concepts and solutions to independent media in the post-communist and developing countries. Earlier this year, Patrice Schneider, MDLF's director of development and formerly the Managing Director of Netscape Europe and Deputy Managing Director of Hachette Filipacchi Media, asked several other international new media experts and I to advise MDLF and CAMP about coming changes in new media and new media technologies..

If you have a chance to help MDLF's worthwhile cause, please do so.