Paid Content on the Net? Not if the Content's News

CNN, Economist Take Down Walls Online; WSJ and NYT Could Be Next

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NEW YORK (AdAge.com) -- The experiment in paid content is over. No sale.

Charging for web content looked pretty promising back in 1996, when the pioneering new web magazine Slate was gearing up to try just that. "Our belief is that the medium will prove itself over time and people will pay for it," said John Williams, the founding publisher.
Chris Neimeth, senior VP-publisher at Salon
Chris Neimeth, senior VP-publisher at Salon

He never got a chance to test that proposition; he quit for Starbucks two months after launch. Then Slate made its move -- but lasted only a year before going free again in February 1999. Now there's a crescendo of similar falling walls at serious news sites -- including The Economist and CNN -- and the likelihood that the websites of both The New York Times and The Wall Street Journal will soon be free.

Advantage of free
Even those that still plan to charge for content recognize that the free model has its benefits. This March, Slate rival Salon hiked prices on both its paid-subscription plans, but not because it saw paid content as the way forward. It raised rates the most for its ad-free subscription and raised them less for a subscription tier that includes some ads.

"That was in recognition of the fact that there was more money to be made by reducing barriers to usage and selling advertising against that increased usage," said Chris Neimeth, senior VP-publisher at Salon.

Most visitors still surf Salon free after watching a short welcome-screen ad of the day. "We knew we wanted people to use the ad-supported site, and we were making more money from them," Mr. Neimeth said. "The people who were using the ads were actually subsidizing the ones who were not."

Two days after Salon's move, The Economist outright demolished a decade-old pay wall around much of the content on Economist.com. The paid-content plan had been intended to protect the print edition, but its pricing system was too complicated for consumers and, more important, it restricted traffic and time spent on the site. In June, after dropping the fees, unique visitors to Economist.com beat the previous June by 12%, the magazine said.

'Reaching true scale'
Then last month, CNN.com replaced its pay-to-play Pipeline video-news service with a free, ad-supported video player. "As popular as the service was," a CNN blog post explained, "it became clear to us that reaching true scale was gong to be impossible if the product remained as a pay service."

"Everyone started out thinking, 'OK, we'll sell some subscriptions and sell some advertising,'" said Ken Doctor, president of the Content Bridges media consultancy and a former VP for content services at Knight Ridder Digital. "Now the content world is becoming almost entirely ad-monetized."

The extent of the paradigm shift became really clear this June, when Rupert Murdoch fantasized to Time magazine, even before Dow Jones had accepted his $5 billion bid to buy it, about ending The Wall Street Journal's print edition and opening the gates to its online edition. During a News Corp. conference call with analysts last week, Mr. Murdoch reiterated that going free is very much on the table.

"It would be a very ... expensive thing to do in the short term," Mr. Murdoch said. "In the long term it may be a wonderful thing to do, but we're looking at it closely."

High subscriber base
That's a pretty striking idea, given that the Journal's site counts 850,000 online-only and corporate subscribers -- 983,000 if you include people who bought the print edition and online access as a bundle. The online-only subscription costs $79 a year; the print-and-online bundle costs $99.
Rafat Ali, publisher and editor of PaidContent.org
Rafat Ali, publisher and editor of PaidContent.org

Then there's TimesSelect, the nearly two-year-old attempt by The New York Times to simultaneously monetize online readership and prop up print circulation. Its middling results, neither validation nor failure, strongly suggest that very few content publishers should even consider playing in the pay arena. And when the New York Post reported last week that the Times itself had decided to ax its tollbooth, the paper wasn't exactly quick to shoot down the story. "We continue to evaluate the best approach for NYTimes.com," a spokeswoman said, declining to say anything further.

"When the first bubble burst in 2001, 2002, the people who said that free access wouldn't work said, 'Ha, we told you,'" said Rafat Ali, publisher and editor of PaidContent.org. "Then the advertising market came back. And you know where the industry is right now."

The appeal of charging for online content is understandable -- doing so helps fight cannibalization of print editions and supplements online-ad sales that can't match the rates achieved in print. It's also nice for advertisers to know that a consumer loves a publisher's site enough to pay for it (opening the gates, on the other hand, lets in some riffraff who may not be so desirable to advertisers).

The more, the better
None of that is compelling enough to support paid content in most situations, said Jeff Marshall, senior VP-digital managing director at Starcom/Pixel. "From a marketer perspective, the big reason for moving something like TimesSelect or Dow Jones is you potentially create greater scale for advertisers, and they want as much scale as possible," he said. "Fortune 1000 companies want to move a lot of products, and the more people you can reach in desirable audiences, the better."

Free sites will probably even have audiences similar to their old paid iterations, Mr. Marshall said. "You gain scale while you might water down -- how much is anyone's guess -- the audience composition," he said. "It's a trade-off. Most marketers will want scale with a connection to that brand."
Ken Doctor, president of the Content Bridges media consultancy
Ken Doctor, president of the Content Bridges media consultancy

As it turns out, buying online news is certifiably low among consumers' priorities. In a 2007 study by Frank N. Magid Associates, only 4% of surveyed adults 18 to 64 said they had paid a separate fee to read news online, on par with paying for sports information and online genealogy services. Fantasy sports ranked a little better, but at only 7%. Entertainment content performed fairly well, with 16% of respondents saying they'd paid something extra to get it. But even that area got fewer buyers than background and credit checks; dating services; adult entertainment; technical support such as spam filters; and games, the No. 1 category where people will pay to play.

Web publishers are also getting a handle on the math. Online ad spending in the U.S. grew from $6 billion in 2002 to an estimated $16.8 billion last year -- and is likely to top $35 billion by 2011 even as its rate of growth slows, according to PricewaterhouseCoopers. By comparison, ad spending in U.S. consumer magazines grew from nearly $11 billion in 2002 to an estimated $13.4 billion in 2006 -- with a projected 2011 haul of $16 billion.

Holdouts
Of course, niche sites with unduplicated or especially, er, compelling content will always be able to charge something for content. In addition to the free photos and articles Playboy posts online, it sells three tiers of paid access -- with an impressive top price of $24.95 per month. A few big players can keep charging too if they want; the Journal could easily continue charging for access to web stories because they are essentially must-reads for anyone in business.

When it comes to growing, however, the ad model has proved tough to beat. Subscriptions can be a good business, but an ad model can be great because it's more scalable, said Jaff Lanctot, senior VP-global media at Avenue A/ Razorfish. "As demand grows, your prices can rise more quickly," he said. "In a subscription business, your pricing is pretty stable."

Maybe now it's time to explore the next generation of digital-content models. BrightSpot Media is a new venture betting that consumers will trade their time -- to watch a video ad on BrightSpot.TV and answer up to five questions from an advertiser -- for 50ยข in an account that they can apply toward the subscription fees of other sites. Participating content providers so far include Major League Baseball's MLB.TV and the Napster to Go music-download service.

"Advertising can help fuel a lot of the technology and content development we see out there today," said Aaron Martens, CEO of BrightSpot Media. "We just need to figure out the right way to do that."
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