giovonni
05-18-2009, 05:55 PM
Media’s want to break free
By Andrew Edgecliffe-Johnson
Published: May 17 2009 18:57 | Last updated: May 17 2009 18:57
How much would you pay to read this page? At about 2,000 of the 50,000 or so words in the printed version of the Financial Times, it should in theory be worth about 4 per cent of the newspaper’s cover price – 10 US cents, 17½ euro cents or 8p.
To readers particularly interested in the subject, perhaps, it may be worth more. To others, though no journalist would like to admit as much, it will be worth nothing.
Similar questions are being asked with growing urgency in boardrooms across the news industry and the wider media sector, as stalling economies challenge the foundation on which most content owners’ digital strategies have been built.
For well over a decade, the prevailing orthodoxy of the internet has been that information wants to be free. Publishers, broadcasters and games developers alike are beginning to discover, however, that advertising alone is not providing the sustainable digital business model they expected for their expensively produced content.
The result is that consumers, used to having a free ride on the information superhighway, are about to be confronted by many more tollbooths.
Rupert Murdoch, chairman of News Corporation, this month summed up the shift in thinking. “We are in the midst of an epochal debate over the value of content, and it is clear to many newspapers the current model is malfunctioning,” he said, announcing plans to start charging for online content from general interest newspapers such as The Times of London.
The Wall Street Journal, the News Corp title that like the Financial Times is among a few business-focused papers already charging for online access, announced soon afterwards that it would introduce additional premium tiers to its subscription model and a micropayments system to bill occasional visitors for individual articles.
Newspaper owners from the UK’s Guardian Media Group to the New York Times are also looking at online charges for some specialist content, but the debate is spreading beyond the hard-hit print sector. Jeff Bewkes, Time Warner’s chief executive, is trying to rally industry support for a “TV Everywhere” system that would make cable network programming available online for free only to customers who have paid for cable subscriptions. Walt Disney, the first broadcast network owner to make shows available for free online, is also researching subscription-based digital services.
The music industry, having clawed back only a fraction of the money lost to online piracy through legal services such as Apple’s iTunes, is trying to develop a premium model for music video. Universal Music has begun work with YouTube on a professional music content site, Vevo. It plans to launch as an advertising-supported service, but Edgar Bronfman, Warner Music chief executive, warned this month that any such site would need “serious monetisation opportunities above and beyond advertising” to be effective.
Digital delivery encouraged the unbundling of the album, allowing consumers to buy only their favourite music tracks. Now other media owners face the threat that customers will want to pay for just the online equivalent of the sports section or their prime-time hits, leaving them struggling to sell less valued parts of the paper or broadcast schedule.
Micropayments will be only a small part of the solution, but the fact that such ideas are being pursued demonstrates the extent to which online advertising, media owners’ current dominant business model, is failing to live up to its promise.
Advertisers’ reallocation of budgets to an online environment promising better targeting of consumers persuaded media owners to make content available online with no charge, even though they depend on both advertising and fees in their traditional businesses such as newspapers, magazines and cable channels.
Heady growth in online advertising encouraged countless start-ups and traditional media businesses to chase the same business model. But the belief that online advertising would grow fast enough to fulfil all the business plans riding on it was “almost a collective psychosis”, says Rob Grimshaw, managing director of FT.com.
Instead, he says, supply now exceeds demand in news, where vast amounts of poorly differentiated inventory is driving down the amounts advertisers will pay. “A large chunk of the publishing community must move away from free,” because “the numbers on the advertising side don’t stack up”, he says. FT.com’s hybrid model, allowing a certain number of free visits to the site before requiring registration and then a subscription, is being studied by some other publishers but has not yet been replicated.
Compound annual growth in global online advertising spending averaged 32 per cent between 2003 and 2008, according to Zenith Optimedia, but will slow to 19 per cent between 2008 and 2011. In more mature markets such as the US and UK, growth in online advertising ground to a halt at the end of last year and could decline this year. Even Hulu, the fast-growing online television and film site, has struggled to sell all its advertising space this year.
Advertising remains a cyclical business, and traditional media owners believe further growth is likely online when the economic outlook improves. But they have put more resources than before into experiments with additional digital models. The attempt to diversify is logical, says John Chachas, co-head of the media practice at Lazard. The newspaper industry, he says, “needs to change its revenue model as well as its cost model, and charging for content is one piece of that”.
However, sustaining parallel business models will be challenging, warns John Kennedy, chairman and chief executive of the IFPI, the music industry association. Record labels learnt from their battles over illegal file sharing that “you can’t sell content at the front door if it’s being given away free at the back door”, he says. “You need a number of new business models, but at the end of the day you do need to address ‘free’.”
Lauren Rich Fine, a former Merrill Lynch analyst now at ContentNext Media, says she would like to believe content charges will succeed but doubts they will “because of the perception that there’s so much available out there for free”.
David Lancefield, author of a recent PwC report on the sector, says media owners’ thinking about digital models is changing in part because of the damage being wreaked on their core businesses by the advertising downturn.
Many companies justified their free online strategies with the thinking that the cost would be subsidised by the offline business, or could be written off as a loyalty-building marketing expense, Mr Lancefield says. “It’s quite a change in culture to becoming a business in its own right.”
T he biggest uncertainty holding back media owners remains the worry that customers have been schooled not to pay for content online.
Such a migration from free to fee has worked before, when cable operators introduced a subscription model to television. But pay-television took off because it offered a dramatic expansion of the content on offer, from Hollywood films to live sports. Consumers are now overwhelmed by choice on multiple media.
The problem is particularly acute for general-interest newspapers. A New Media Age survey found this month that 77 per cent of UK regular online readers were not prepared to pay for access to news websites. A separate PwC report with the World Association of Newspapers found that consumers were more willing to pay for financial or sports coverage, but would choose free content over subscription sites “when the quality was comparable or sufficient for their purpose”.
Charging for consumer media content “may work for specific niches of content and consumers”, Mr Lancefield argues, “but it can’t be just repackaged and repurposed. To tip people into the fee-paying world, it will have to be distinctive and new”. Yet making more distinctive content will be hard for companies simultaneously cutting costs in reaction to plunging revenues.
The early success of applications for Apple’s iPhone mobile device and readers such as Amazon’s Kindle suggest that some consumers see more value in digital content when it is married with appealing technology.
Technological challenges are among the biggest hurdles facing those seeking new paid models online, however, according to Mr Grimshaw. When FT.com introduced subscriptions to what was then a free site in 2002, “it wasn’t easy”, he recalls, partly because of the technical complexities of paid sites, such as processing payments. Another problem is that subscription content is often excluded from search engines such as Google. Introducing a pay barrier can be akin to taking your newspaper off a newsstand.
Digital newsstands are already under attack from content owners seeking deeper-pocketed revenue sources than their customers. Content creators’ intellectual property rights were violated as badly by US internet companies as by Chinese pirates, Mr Murdoch complained this month. The Associated Press consortium has warned it would take “all actions necessary” to pursue sites using member newspapers’ content without paying.
“It makes sense for newspapers, which are burdened with fixed cost structures, to get meaningful compensation from the host of people who are grabbing pieces of their stories to drive traffic to their own businesses or websites,” Mr Chachas says.
For now, content owners’ main leverage over the aggregators is their scale. Moving to a paid model will almost certainly diminish that by cutting traffic to their sites from occasional customers and aggregators alike.
“There is no doubt that we could convert NYTimes.com to a paid content site, and there is likewise no doubt that it would be greatly diminished as an advertising venue,” Scott Heekin-Canedy, New York Times general manager, told online readers last month.
Handled clumsily, then, attempts to move from free to pay could backfire by diminishing revenues.
Content owners are battling what Chris Anderson, author of The Long Tail, calls “a revolutionary price” in his next book, Free; and many things – from search to user-generated content – will remain free online. Professionally produced content, however, is likely to become much scarcer for those unwilling to pay for it.
“Who started this rumour that information had to be free and why didn’t we challenge this when it first came out?”, Time Inc’s Ann Moore asked this year.
According to Mr Grimshaw, the answer is that a “free evangelist movement [convinced] everybody that the internet was somehow different and any attempt to impose a business model was an imposition on people’s human rights”. Changing that perception will mean nothing less than challenging the culture of the internet as we currently understand it.
Copyright The Financial Times Limited 2009
original story from ft.com
http://www.ft.com/cms/s/0/d0960f18-4303-11de-b793-00144feabdc0.html
By Andrew Edgecliffe-Johnson
Published: May 17 2009 18:57 | Last updated: May 17 2009 18:57
How much would you pay to read this page? At about 2,000 of the 50,000 or so words in the printed version of the Financial Times, it should in theory be worth about 4 per cent of the newspaper’s cover price – 10 US cents, 17½ euro cents or 8p.
To readers particularly interested in the subject, perhaps, it may be worth more. To others, though no journalist would like to admit as much, it will be worth nothing.
Similar questions are being asked with growing urgency in boardrooms across the news industry and the wider media sector, as stalling economies challenge the foundation on which most content owners’ digital strategies have been built.
For well over a decade, the prevailing orthodoxy of the internet has been that information wants to be free. Publishers, broadcasters and games developers alike are beginning to discover, however, that advertising alone is not providing the sustainable digital business model they expected for their expensively produced content.
The result is that consumers, used to having a free ride on the information superhighway, are about to be confronted by many more tollbooths.
Rupert Murdoch, chairman of News Corporation, this month summed up the shift in thinking. “We are in the midst of an epochal debate over the value of content, and it is clear to many newspapers the current model is malfunctioning,” he said, announcing plans to start charging for online content from general interest newspapers such as The Times of London.
The Wall Street Journal, the News Corp title that like the Financial Times is among a few business-focused papers already charging for online access, announced soon afterwards that it would introduce additional premium tiers to its subscription model and a micropayments system to bill occasional visitors for individual articles.
Newspaper owners from the UK’s Guardian Media Group to the New York Times are also looking at online charges for some specialist content, but the debate is spreading beyond the hard-hit print sector. Jeff Bewkes, Time Warner’s chief executive, is trying to rally industry support for a “TV Everywhere” system that would make cable network programming available online for free only to customers who have paid for cable subscriptions. Walt Disney, the first broadcast network owner to make shows available for free online, is also researching subscription-based digital services.
The music industry, having clawed back only a fraction of the money lost to online piracy through legal services such as Apple’s iTunes, is trying to develop a premium model for music video. Universal Music has begun work with YouTube on a professional music content site, Vevo. It plans to launch as an advertising-supported service, but Edgar Bronfman, Warner Music chief executive, warned this month that any such site would need “serious monetisation opportunities above and beyond advertising” to be effective.
Digital delivery encouraged the unbundling of the album, allowing consumers to buy only their favourite music tracks. Now other media owners face the threat that customers will want to pay for just the online equivalent of the sports section or their prime-time hits, leaving them struggling to sell less valued parts of the paper or broadcast schedule.
Micropayments will be only a small part of the solution, but the fact that such ideas are being pursued demonstrates the extent to which online advertising, media owners’ current dominant business model, is failing to live up to its promise.
Advertisers’ reallocation of budgets to an online environment promising better targeting of consumers persuaded media owners to make content available online with no charge, even though they depend on both advertising and fees in their traditional businesses such as newspapers, magazines and cable channels.
Heady growth in online advertising encouraged countless start-ups and traditional media businesses to chase the same business model. But the belief that online advertising would grow fast enough to fulfil all the business plans riding on it was “almost a collective psychosis”, says Rob Grimshaw, managing director of FT.com.
Instead, he says, supply now exceeds demand in news, where vast amounts of poorly differentiated inventory is driving down the amounts advertisers will pay. “A large chunk of the publishing community must move away from free,” because “the numbers on the advertising side don’t stack up”, he says. FT.com’s hybrid model, allowing a certain number of free visits to the site before requiring registration and then a subscription, is being studied by some other publishers but has not yet been replicated.
Compound annual growth in global online advertising spending averaged 32 per cent between 2003 and 2008, according to Zenith Optimedia, but will slow to 19 per cent between 2008 and 2011. In more mature markets such as the US and UK, growth in online advertising ground to a halt at the end of last year and could decline this year. Even Hulu, the fast-growing online television and film site, has struggled to sell all its advertising space this year.
Advertising remains a cyclical business, and traditional media owners believe further growth is likely online when the economic outlook improves. But they have put more resources than before into experiments with additional digital models. The attempt to diversify is logical, says John Chachas, co-head of the media practice at Lazard. The newspaper industry, he says, “needs to change its revenue model as well as its cost model, and charging for content is one piece of that”.
However, sustaining parallel business models will be challenging, warns John Kennedy, chairman and chief executive of the IFPI, the music industry association. Record labels learnt from their battles over illegal file sharing that “you can’t sell content at the front door if it’s being given away free at the back door”, he says. “You need a number of new business models, but at the end of the day you do need to address ‘free’.”
Lauren Rich Fine, a former Merrill Lynch analyst now at ContentNext Media, says she would like to believe content charges will succeed but doubts they will “because of the perception that there’s so much available out there for free”.
David Lancefield, author of a recent PwC report on the sector, says media owners’ thinking about digital models is changing in part because of the damage being wreaked on their core businesses by the advertising downturn.
Many companies justified their free online strategies with the thinking that the cost would be subsidised by the offline business, or could be written off as a loyalty-building marketing expense, Mr Lancefield says. “It’s quite a change in culture to becoming a business in its own right.”
T he biggest uncertainty holding back media owners remains the worry that customers have been schooled not to pay for content online.
Such a migration from free to fee has worked before, when cable operators introduced a subscription model to television. But pay-television took off because it offered a dramatic expansion of the content on offer, from Hollywood films to live sports. Consumers are now overwhelmed by choice on multiple media.
The problem is particularly acute for general-interest newspapers. A New Media Age survey found this month that 77 per cent of UK regular online readers were not prepared to pay for access to news websites. A separate PwC report with the World Association of Newspapers found that consumers were more willing to pay for financial or sports coverage, but would choose free content over subscription sites “when the quality was comparable or sufficient for their purpose”.
Charging for consumer media content “may work for specific niches of content and consumers”, Mr Lancefield argues, “but it can’t be just repackaged and repurposed. To tip people into the fee-paying world, it will have to be distinctive and new”. Yet making more distinctive content will be hard for companies simultaneously cutting costs in reaction to plunging revenues.
The early success of applications for Apple’s iPhone mobile device and readers such as Amazon’s Kindle suggest that some consumers see more value in digital content when it is married with appealing technology.
Technological challenges are among the biggest hurdles facing those seeking new paid models online, however, according to Mr Grimshaw. When FT.com introduced subscriptions to what was then a free site in 2002, “it wasn’t easy”, he recalls, partly because of the technical complexities of paid sites, such as processing payments. Another problem is that subscription content is often excluded from search engines such as Google. Introducing a pay barrier can be akin to taking your newspaper off a newsstand.
Digital newsstands are already under attack from content owners seeking deeper-pocketed revenue sources than their customers. Content creators’ intellectual property rights were violated as badly by US internet companies as by Chinese pirates, Mr Murdoch complained this month. The Associated Press consortium has warned it would take “all actions necessary” to pursue sites using member newspapers’ content without paying.
“It makes sense for newspapers, which are burdened with fixed cost structures, to get meaningful compensation from the host of people who are grabbing pieces of their stories to drive traffic to their own businesses or websites,” Mr Chachas says.
For now, content owners’ main leverage over the aggregators is their scale. Moving to a paid model will almost certainly diminish that by cutting traffic to their sites from occasional customers and aggregators alike.
“There is no doubt that we could convert NYTimes.com to a paid content site, and there is likewise no doubt that it would be greatly diminished as an advertising venue,” Scott Heekin-Canedy, New York Times general manager, told online readers last month.
Handled clumsily, then, attempts to move from free to pay could backfire by diminishing revenues.
Content owners are battling what Chris Anderson, author of The Long Tail, calls “a revolutionary price” in his next book, Free; and many things – from search to user-generated content – will remain free online. Professionally produced content, however, is likely to become much scarcer for those unwilling to pay for it.
“Who started this rumour that information had to be free and why didn’t we challenge this when it first came out?”, Time Inc’s Ann Moore asked this year.
According to Mr Grimshaw, the answer is that a “free evangelist movement [convinced] everybody that the internet was somehow different and any attempt to impose a business model was an imposition on people’s human rights”. Changing that perception will mean nothing less than challenging the culture of the internet as we currently understand it.
Copyright The Financial Times Limited 2009
original story from ft.com
http://www.ft.com/cms/s/0/d0960f18-4303-11de-b793-00144feabdc0.html