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No Free Lunch

8/01/2009 2:00 AM Eastern

The famous quote by author Stewart Brand, “Information wants to be free,” is a rallying cry for those pushing for “free” content. Rarely is the other half noted: “Information also wants to be expensive. … That tension will not go away.”

The rise of “freenomics” is playing havoc with the cable industry's plans to build digital strategies — whether to allow free online viewing of shows, or how much “free” bandwidth should be made available to paying subscribers.

In a new book, Free: The Future of a Radical Price, Wired editor and The Long Tail author Chris Anderson argues that “there's never been a more competitive market than the Internet, and every day the marginal cost of digital information comes closer to nothing.” Later, he proclaims, ”The Web has become the land of the free.”

The intellectual integrity of his argument is lies in the fact that cost of electronic storage, processing and bandwidth have fallen so low that it's nearly zero, and he gives impressive examples of transistors are today priced at fractions of a penny.

Cable executives have seen the illusory force of “free” at work, too, as cable programmers increasingly look to put more of their content online at no charge. Operators fear cable-TV cord-cutting if the trend continues. Programmers want to make their shows available to more eyeballs.

Entire industries (newspapers and music) have been disrupted due to the notion that consumers expect such digital content to be free. True, there will always be infinite amounts of free stuff on the Web, but there is a simpler universal truth in capitalism: quality comes at a price.

And there will be a price reckoning. Most big newspapers, badly battered by the “free” news on the Web, plan to unveil pay models within a year.

Recently, The Walt Disney Co. CEO Bob Iger hinted his company could build its own subscription portal for online TV. YES Network is selling its New York Yankees games online to Cablevision Systems customers for a fee (see page 25). And other programmers maintain they should be paid for online shows.

Cable operators' “TV Everywhere” concept will sustain a healthy business model by offering viewers “free” access to the TV shows they already buy on a monthly basis. But operators will have to deal with a reality that Sanford Bernstein's Craig Moffett identifies in his latest look at various versions of Web-based video: “Free is no longer an option.”

September