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Up against the pay wall

Written on
Oct 26, 2009 
Author
Timothy R. Hawthorne  |
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Up against the pay wall

wall_small.jpgADOTAS – Surfing free news and opinion sites is like strolling through public parks in the 60s: Unrestrained commentary and arresting images abound, replete with those killjoys brandishing their crudely-lettered signs: THE END IS NEAR!It’s unnerving to read about the potential demise of free content on free content websites, but when no less than Rupert Murdoch proclaims “content kleptomaniacs” must be shackled and “the Philistine phase of the digital age is almost over,” it doesn’t seem so implausible. Even so, sites that implement “pay walls” — directly charging consumers for content that’s been free for a decade — face a tougher sell than Ollie North t-shirts at a Grateful Dead concert.

It’s dizzying to track the proposed pay-for-web strategies, but most fall into one of four models:

Content Aggregation. When business leaders counsel to learn lots from history, I’m not sure they meant CompuServe and Prodigy: pioneers that designed services to deliver everything you needed online. Aggregation simplifies access — you click to what you’ve paid for from one spot. Better, cable and satellite TV’s success proves that consumers will pay a premium for valued content.

But TV aggregation expands consumer options from seven or eight local stations to 57 (or 257) options not previously available. Web content aggregation will decrease options. With a few specialized exceptions — business news, music, movies and porn — you already can view all the articles and clips that you want. Competing aggregators will feature different site lineups — none of them likely to include all your choices.

Pay-For-Play Micropayments. Paying for actual consumption — each article, each video — seems intuitively fair. You get what you pay for, and pay only for what you get. But the logistics are daunting, and pricing could be murky.

Want to read Acme News? Just authorize a credit card to cover per-article micropayments and click. Unfortunately, to charge for each click discourages the use of hyperlinks — the feature that defines the web as we now know it. And it isn’t hard to imagine statements resembling those infamous 300-page text message bills.

Premium Pricing. The Newport Daily News prices its website access unattractively high — $345 annually — to drive back consumers to media they fled: the printed newspaper. But as any economics text tells you, higher pricing only works in the absence of less pricey substitutes.

Why pay for FoxNews.com if CNN.com gives away comparable content? The only likely beneficiaries here are regional monopolies like local newspapers. If you want to know about Newport — at your own time and convenience — where else can you go but the newspaper’s website?

Separate Site-Based Subscriptions. This option is easiest to implement, and lets publishers maintain complete control over content (as well as the revenue it generates). Better still, there are some examples of pay-walled sites thriving, like The Wall Street Journal and… uh, did I mention the Journal?

To be fair, lots of media sites wall off certain content areas — archives, for instance — and trade intensive sites such as AdAge.com draw reasonable numbers of happy paying customers. But most of us visit 20-30 such sites frequently, and small access fees become big access fees when multiplied two dozen times.

In addition to the challenges unique to each tactic, three additional problems will plague all of them:

Stuffing the genie back into the bottle. Who will buy content that you think of as free or for which you can find free substitutes elsewhere? People buy DVD sets of TV shows they can watch free in reruns, but DVDs add value with commentary, extra features, time-shifting, collectability and the absence of commercials and those ginormous on-screen network ID bugs. All we hear so far about potential website value add-ons is… cost.

Consider a hypothetical: “Tim’s Web 2010 Content Cost Index.” Forget about what you already pay for cell phones, landlines, cable, satellite radio, magazines, Netflix, movie jaunts, DVDs, CDs and newspapers. Just focus on your potential payments for web content — we won’t even add in your monthly ISP fee.

We’ll assume (incorrectly) that a typical family of four will continue to purchase everything they consume online presently. So in addition to what you’re already paying for the WSJ.com, World of Warcraft and Club Penguin, here’s a rough guess at the new monthly fees that separate websites might charge:

~$10/month — The New York Times; The Wall Street Journal; The Washington Post; local daily newspaper; hometown daily paper (about $50 total);

~$5/month — Hulu; Disney; ESPN; YouTube (about $20);

~$3/month — Time; Newsweek; work-related trade publication, partisan politics site (about $12);

~$2/month — CNN; Fox News; CBS; NBC; FOX; ABC; two local TV station sites; secondary video site like DailyMotion or Break; two sports sites among NFL/NBA/MLB/NHL/Nascar/Etc.; Wather.com; virtual world like Second Life or Habbo Hotel; Facebook; photo site like Flickr or Photobucket (about $30).

This far-from-complete list surpasses $100 monthly, a very conservative estimate — meaning millions of consumers will put huge limits on their content consumption. Ironically, such websites’ advertising inventory will become even harder to sell.

A harbinger of ad industry doom. Each paid-content proposal is premised on the assumption that websites’ ad revenue is insufficient to cover costs. Presumably, if web ads worked as well as their agencies claim, advertisers’ sales would soar and they’d buy lots more ads. The fact that this isn’t happening is an implicit challenge to the viability of a critical revenue stream.

What’s in it for consumers? The strangest phenomenon here is that publishers appear to have forgotten that they’re dealing with consumers. Advertising professionals know instinctively to focus relentlessly upon benefits. Pay walls might benefit publishers, but why should consumers cooperate with sites that enforce deprivation?

Of all the supportive pay wall commentary I’ve encountered so far, only one article argues for the need to add value for consumers. Mark Cuban’s suggestions to King Rupert’s acknowledge the need to make monetary outlays seem like big bargains. He recommends that Murdoch bundle several media properties as premiums, layering on goodies like a DirecTV pitchman.

Without such a plan, an honest aggregator pitch would ring hollow: “But wait! There’s less! Fewer websites! Fewer articles! Fewer video streams! And if you act right now, we’ll come right to your front door — and take away everything we sent to you last year absolutely free! Order now!”

Good luck with that.





Reader Comments.

Hi Thimoty,

Thanks for the article. I agree with you for 90%. But the discussion has the wrong starting point. Everybody is starting with the newspaper sector and how they can solve their problems with a paymentsystem.
We should start the discussion with the fact that free doens’t exist. Not in the real world and not on the internet. Somebody somewhere is paying the bills for websites that are now free. You-Tube is a good example. Credit Suisse (business bank) did an canservative estimation on their results. Google invested $ 3.2 bln in You-Tube and recieved revenues from advertising of $ 600 mio. That’s a loss of $ 2.6 bln. And You-tube isn’t the only website that is making losses. So there will come a time when somebody will say “enough is enough” and pulls the plug. The public will then learn (again) that free doens’t exist.
The main problem with internet is the huge amount of information that is available. It’s becoming allmost impossible to make a good distinction between relevant and irrelevant information and between reliable and unreliable information. Paying for information brings a quality label, when something is free it’s probably irrelevant and unreliable. That’s added value and something the public is willing to pay for.
So far we have established that nothing in life is really free and people are willing to pay for relevant and reliable information.
Now the pricing issue becomes rellevant. Every current discussion or article brings in subscriptions to websites. Wrong! People don’t want subscribtions, they want freedom! They are willing to make a one time payment for relevant and reliable information. In the beginning they will not be willing to pay much because in their perception it’s free. So let’s start with micro-payments less then a cent. (I’m assuming offcourse that a paymentsystem that can handle usch small amounts will be / come available.)
There we are, we have relevant and reliable information, the public understands that nothing in life is free, they don’t need to take a subscription and the price is less then they are used to. This will start the transfer from a “free” internet to a mature internet.
An issue that I haven’t brought up here is green internet. The knowledge that websites are polutors is starting to spread, in the near future websites will be forced to act upon this. and this will not be free.

Check http://micropaymentsinternet.blogspot.com/ for more on micro-payments.

Frans

Posted by Frans | 5:04 am on October 27, 2009.

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