Before You Base Your Business Plan on Paid Content, Read This

Not Everyone Will Enjoy the Spoils of Murdoch's Favorite Online Revenue Model

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NEW YORK (AdAge.com) -- For a moment last week, it seemed like paid content was really on the march. Rupert Murdoch announced his intention to charge for every News Corp. news site. DirecTV, the second-largest pay-TV provider, was found in talks to launch a web-video service -- for its paying subscribers. And a comprehensive new forecast reported that consumers were spending less time with media that's heavily subsidized by advertising -- and more with media they pay for.

John Suhler, president and general partner at Veronis Suhler Stevenson
John Suhler, president and general partner at Veronis Suhler Stevenson
"No longer are newspaper- and magazine-subscription purchases and network prime-time viewing the norm," said John Suhler, president and general partner at Veronis Suhler Stevenson, the private-equity firm that authored the forecast. "Instead they are declining and consumers are spending more time with media which they support and pay for, as opposed to ad-supported media. This development is a culmination of two decades of this secular shift towards consumer-controlled media and shows no signs of slowing."

Newspapers' print circulation is expected to fall from about $10 billion this year to something more than $8 billion in 2013. Consumer magazines, which typically offer readers cheap subscriptions and rely on advertisers for most of their profitable revenue, got about $9.8 billion in circulation revenue last year, Veronis Suhler said. That figure will be $9.7 billion in 2013. Meanwhile, subscribers spent about $55 billion on basic pay TV last year, but will be paying $72 billion by 2013. And video games and internet access will continue to grow as well.

But while it's clear that paid content's campaign will advance, it's also apparent it will not deliver spoils for everyone.

For one thing, Veronis Suhler considers every website that you call free -- The New York Times, People.com or TMZ for example -- to be paid media. That's because Veronis Suhler looks at what people pay to access a particular medium, not where those dollars actually go. Web-access revenue may climb from $17 billion last year to $21 billion in 2013, as Veronis Suhler forecasts, but that money isn't reaching The Times, People or TMZ.

Ad dependence
"In the cable TV model, the money you pay to Comcast trickles up to the content providers, so you are paying for your content as well as your access," said Chris Anderson, editor in chief of Wired and author of the new book "Free," an examination of modern pricing opportunities and threats. "In the internet model, you are not. It's closer to the telephone model: You pay for your line but not the information you receive over it."

So cable and the web are thriving because they offer specialized content for which people will pay -- but in the case of the web, content providers still overwhelmingly depend on advertisers for revenue.

For another thing, Mr. Murdoch may be overstating his plans -- or over-estimating the demand for some of his sites. News Corp. is going to have a hard time charging for, say, the New York Post's site, whose content competes with free offerings from Gawker, Gothamist, the New York Daily News and plenty of others.

Maybe Mr. Murdoch has a clever plan that gets around that. Until we see one, however, it looks like specialized professional content, like his Wall Street Journal model online, will remain the chief winning front for paid content.

Taunton Press, for example, says it has more than 80,000 people paying for memberships on sites from Fine Cooking, Fine Homebuilding or Fine Woodworking.

'Freemium'
The sites use a "freemium" model: There's some free content, but you have to pay for access to, for example, intricate long-form video on specific projects, most magazine articles, or experts who will answer members' questions. "Anything that's not a commodity," said Jason Revzon, VP-interactive at Taunton Press. Prices vary, but people who aren't subscribing to the print edition of Fine Cooking, for example, pay $29.95 for annual subscriptions to the site.

Specialized content that's disappearing under the old models, in particular, can find new individual buyers, said Tyler Brûlé, founder of global-news magazine Monocle. Subscribers get 10 issues for a hefty 75 pounds, or $125 at today's exchange rate.

"Without us even having to articulate it on the page, people have said, 'I'm paying a premium for Monocle because news gathering in the old sense is an expensive business.'"

Again, this isn't necessarily a portrait of paid content taking over the world. Monocle says it has about 11,000 subscribers.

Media brands need to be subtle about paid content and its limits, as well as its opportunities, said Josh Macht, group publisher at the Harvard Business Review, which offers material outside its online pay wall and lots more behind it. "If we don't want to be only ad-supported and we really want to find our way to a paid model, I don't think the question is, 'Would you pay $5 for this?' The question is, 'What do you need us for and what are we best at?'"

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