Can Content be Freed from Being Free?
Back in 1893, magazines earned most of their profits from subscriptions or newsstand sales and they didn’t carry much advertising. Then a clever magazine mogul by the name of Charles McClure slashed his subscription fees, exploded his readership, and made a fortune from selling advertising. Others soon followed suit and the modern era of advertising-supported magazines started. His competitors didn’t have much choice. He had undercut their prices and since consumers didn’t mind the advertising other magazines couldn’t survive unless they adopted the same model. Magazines are now trying to play this movie in reverse in Sunday’s New York Times. Other media may try to do the same which is the subject of Papers Try to Get Out of a Box on the same page of the New York Times on Sunday. Associated Press says it is going to start tracking down users of its content and charge them for it.
Can we unwind the free business model?
To answer that, it helps to start by understanding the source of the problem. A lot of commentators say the current predicament is because the web gives away so much free content. But the web hardly invented this model. Consumers have been getting content for free or at prices that didn’t cover the cost of providing it to them for the better part of this century. Physical print media generally charges enough to cover their print and distribution costs but don’t make any profits on top of that. That isn’t really any different that the web where the print and distribution cost happens to be zero. Radio and most television content has been free as well.
Two things make the web different and the source of the problem. The first is that it is a vehicle for ripping off a lot of content that other people create. Websites take the stuff and recycle it among themselves but don’t give anything back to the original publishers of that content. The second and probably the more important is that it is really cheap and easy to start a web-based publishing entity and that means that web-based businesses can charge very low prices for their advertising inventory. The first problem results in the web diverting eyeballs and the second problem results in the web depressing advertising prices.
If content on the web continues to be available for free and continues to attract eyeballs away from the physical world there’s no going back. Newspapers and magazines will lose a lot of readers when they raise prices and my guess is, the one they’ll keep is the older generation that remains devoted to print media. That can’t be a viable model for the long run.
I think there are two principle reasons though to believe that the web will move to paid content and/or the migration of eyeballs will slow down. First, online media is facing the same problem as offline in finding a sustainable business model. Advertising prices are so low that web properties have to attract a massive number of eyeballs to make much money. More web properties are going to start thinking about charging for content and, more importantly, entrepreneurs are going to be developing businesses that create enough value-added for the content that people will pay for it. Second, if I’m wrong about that, the content that web properties can afford to present to users will decline both because these properties can’t pay for it and because the content providers they’ve been ripping off won’t be around anymore. As free content deteriorates on the web more eyeballs will move to paid content on the web and off the web.
We’re currently moving through a period of disequilibrium. The prevailing price structures and ways of doing things are unlikely to be viable in the long term. As more eyeballs move to internet connected devices, the supply of advertising inventory is going to grow explosively and it is going to become cheaper and cheaper for advertisers to reach massive audiences or just the right audiences. But as advertising fees decline, web publishers are going to have to find other revenue streams to survive. When we come out of this period of disequilibrium, my guess is we’ll end up in a mixed world where there is still free content supported by advertising, there’s much paid content, but the content creates enough value that people are willing to pay for it. Content will evolve and improve. Face it, a lot of free content is crap because it doesn’t have to be very good to get people to consume it just for enduring some advertising.
Pricing and business models can and do change with the times. The commercial web is only about 14 years old and advertising-supported web content really only took off, along with what we now call Web 2.0, five years ago. We’ll see lots of adjustments in the coming years as all this gets sorted out.
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Digital Media, Ad-Supported, Newspaper Publishing, New Business Models, consumers, Economics, Newspapers, Web 2.0, Internet, advertising, two-sided market
Dave,
Thank you for posting more thoughts around this issue. While I do agree that the availability of content on the web puts companies looking to advertise in the driver seat, you have to remember that they are trying to find a specialized audience with the cosign of a trusted authority (blogger or content production team). Not every Tom, Dick and Jane with a website can create those things - those two qualities still require creativity, hard work and knowledge of the space. Those two things are still staples of any marginally profitable news source, online or offline. The newspaper activity has to become more specialized for the customer because the consumer is coming online with less and less time to find the relevant news and the spray method used right now only gives noise.COMPELLING News and Opinions in a specialized channel add more value than the spray method. But even more so, ease of interaction around the content is where value is truly derived. Web content has been charged for since before 2000 as smart marketers pooled their at-the-time asymmetric information into membership sites. What has now been happening is that as that content becomes more obsolete/widespread, the development of the web community has taken its place. The thought is this: I can be ahead of the curve for only so long with the report/book/interview. If I want to maintain a leadership position in this field, I will need to attract the very best thinkers in this field that are not so much interested in monetization as there in discussing and debating the emerging trends in this field. After creating a buzz around this talent, I put myself out as the timely Gatekeeper with keys in hand for a nice “donation”. Sometimes, they even offer free subscriptions and gifts to these leaders just to build that “exclusivity” factor. Novices and Companies would both pay for access and association. It is tricky business model as it cannot be monetized to the detriment of the interaction(in the eyes of the leaders - remember, they hold the cards). But if the mix is done right, you would have corporate advertisers begging for endorsements/advertising space and become a leader in the space by not entirely being the “true” leader of that space. When one of the leaders’ smartens and goes to market with his own community, free or paid, you’re totally taken out of market share and the other “staples” will notice as well. Only if their personal affiliation with the site is beyond the money and actually gives them value by being a part of the community will the website continue to succeed.
In addition, I believe that the media has generalized the Gen Y generation as one of laptop-tied, Starbucks drinkers who can look to their Blackberry or computer screen regarding riots in Thailand. Many of my peers mix both sources, print and online, for consumption depending on their needs of efficiency and content sharing. If they want to quickly share an article with their close friends before listening to a lecture, that Share option online would be really great in accomplishing that. However, if they are doing deep research into a particular industry, printing off a copy for citation and thesis building would be best. Simply, the tools of web content consumption have not developed in ease and functionality comparable to that of a pen and highlighter. There are experiments and attempts but they are only that at this time. And, hypothetically, when they are developed, what will be the game-changing implication for Binc? Web tools would only offer omni-access to cited content. Semantic analysis of cited content is almost too complex for the average user and only the true tech community would jump in. The full-size touch-screen at the TED conference a couple of years ago? The promise there is that users will be able to interact with content in a more intuitive way and give them a stronger feeling of control. Definitely two decades from success (introduction will be in the next decade) as it would have to move beyond the “just cool” category into functionality and another communication language will have to be taught quickly to billions of people. Remember: Gates wants you to touch a screen and with the creativity of a child, interact with your word documents, pictures, calendars and excel sheets. I don’t know if the Baby Boomer generation might be so on board with this concept (Generation Y may not be as privy as well even if we are first users most of the time - remember, we like functionality and actual value from our tools). Overall, web tools in 2100 will be able to accomplish a LOT more than the pen and highlighter of the 1900s.
Maybe that might be the next gold rush opp - training industry for full touch-screen computers that not only teaches the standard commands but the required mindset to customize your interaction technique with the software. Far out stuff indeed. I’ll start on that business plan. Stat.
Sorry for the digression - I’ll try to be more on-topic the next time.
Lyndon
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