Fighting way to paid model

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Act now! The Internet's free lunch may soon be over.

As sites explore everything to augment dwindling ad revenue streams, the subscription-revenue model, long ago spurned by consumers, is making a slow, steady comeback.

Following in the footsteps of Salon Media Group, whose Salon.com online magazine started a premium service in April, several new sites are trying out variations on the model. In recent weeks, media site Inside.com, Snowball.com's highschoolalumni.com and game site IGN, Britannica.com, alternative-entertainment site Heavy.com and even the site of the independent Albuquerque Journal have launched or made significant augmentations to their subscription-revenue streams.

Most of the products have gone to market so recently that there is little data to show whether consumers will open their wallets for them. Salon said it's pleased with the 10,000 customers it has so far signed to its ad-free service, for which it charges $30 for one year and $50 for two years. Salon hopes to convert 1% to 2% of its 3.5 million monthly readers to the subscription program by April, generating up to $1.8 million in annual revenue. (Its revenue fell 10% to $7.2 million in the fiscal year ended March 31; almost all revenue came from advertising.)

For other newcomers, the next few months will prove crucial to their new models, and in some cases, their very survival.

From a pure bottom-line perspective, diversifying revenue streams makes sense, as it's clear an advertising revenue stream alone just doesn't cut it. "Necessity is the mother of invention," said Steven Vonder Haar, an analyst with the Yankee Group. "Whether or not the market has embraced subscriptions in the past, these are revenues that content providers need in today's marketplace."

In other words, what makes business sense might not dovetail with what consumers want. The problem isn't the value of content itself, but the culture that developed around the Internet as it grew: People got used to getting content for free.

GETTING INSIDE

That philosophy can't continue, according to Steve Brill, CEO of Brill Media Holdings and one of the most outspoken about the need for online publishers to charge. Mr. Brill, who just completed a major overhaul of Inside.com's subscription service to include a range of reasonably priced products and less free content, said last week that if people aren't willing to pay nominal fees, "Then there's something wrong." (Brill Media Holdings, which is 49%-owned by Primedia, bought Inside.com owner Powerful Media in April.)

So far, Mr. Brill feels, results are encouraging. Across the range of Inside.com programs, which include a $3.95 per month plan or $39 per year or fees as low as 15 cents for some products, visitors bought 1,500 items in the first four to five days.

But the wording of the e-mail sent to Inside.com customers demonstrates the idea of paying for content still requires some cajoling. It says the property has become a premiere source of media-industry news, "But now-to be blunt-we have to make a business of our own business. Which means we have to charge you-albeit just pennies a day-for what we deliver. ..."

There's another model that may represent a baby step in terms of making consumers feel that online content is worth paying for: subscription underwriting. In this plan, consumers get the option of paying for content themselves, or signing up for a service from a marketing partner in exchange for becoming a registered, if non-paying, customer. (The marketing partners pay the subscriber's freight.) Snowball, which has seen its revenue plummet-from $4.6 million during the first quarter of 2000 to $2.5 million in this year's first quarter-employs this with its recently launched subscription services. Registered members can receive everything from long-distance discounts to free membership as long as they sign up for, say, an American Express Blue Card. Alternative entertainment site Heavy.com is also close to a deal that involves subscription underwriting for its premium service.

SURVIVAL OF THE FITTEST

Companies such as Snowball and Heavy are also betting on the dot-com shakeout to ease the subscription transition, since it will make it easier for surviving sites to charge. "There are fewer outlets than there were even a year ago," said Snowball President Rick Boyce.

But it's not inevitable that every site will charge. Martin Nisenholtz, CEO of the New York Times Co.'s New York Times Digital, says it's not subscriptions that are important, but a diversity of revenue. He feels the unit, which last quarter reached profitability with an asterisk (earnings before interest, taxes, depreciation, amortization), can succeed with a mixture of revenue streams that includes pay-per-play archives, but not pure subscriptions. "We're continuing to expand that strategy," Mr. Nisenholtz said.

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