Enough Already About Charging For Content: How To Make The Free Model Work
James A. Pitaro is the vice president of media at Yahoo! (NSDQ: YHOO) He has worked at the company since 2001.
With advertising and media leaders from around the globe descending on New York for the annual Advertising Week conference, one topic will be hotly and obsessively debated in conference halls, panels and interviews this week: Is the future of content online paid or free?
Today, we see traditional media businesses struggling to adapt to the changing business realities fueled by the internet and the macroeconomic environment. Many companies are trying to protect their bottom lines by putting up pay walls. However, this plan ignores two simple facts: (1) consumers are also struggling during these tough economic times; and (2) no matter how many businesses charge for online content, there are always going to be free competitors that will attract those same users.
Publishers of mostly free content like Yahoo! stand to benefit when media companies flip the pay switch. But the reality is that the paid model simply won’t work for many of the media businesses now seriously considering it because their users not only want the content to be free — they expect it to be free. Look no farther than the music industry for an example of what happens when content owners discount the behaviors and expectations of their most valuable users.
Yahoo! has been moving farther into free territory, most recently making its real-time Fantasy Football scoring free. (It used to be $9.99 per season.) To help other businesses give more consideration to the free alternative, here are some recommendations for how to make that model successful, whether you serve one million people or five hundred million.
To be clear, in some instances where there is strong brand equity, category-specific expertise or a niche audience need, a paid model will work. But those cases will be the exception rather than the rule. The only times that the paid model makes sense are if a company owns a category expertise that truly differentiates its business– or, as an absolute last resort. Here’s the blueprint for making free work effectively:
The Content: Consumers who have grown up with the internet are sophisticated and demand quality. Citizen journalism and user-generated content are important to the health of the web and culture at large, but in order to thrive, sites need to balance that content with professionally or semi-professionally written and produced content. Without that, publishers will continue to struggle to achieve category credibility and attract core advertisers.
The User Experience: At a time when online licensed content is ubiquitous, a differentiated experience requires both context and quality. Win by focusing on the experience around the content. Stock quotes, for example, are available on every major portal and financial site. What text, data, tools and original content can you surround stock quotes with to build your own voice and brand?
Conduct research to understand your users and the competition
James, this is easy for you to say. Contrary to what you say, Yahoo does not create a majority of it's content, they aggregate it from partner sites (including mine, Digitaltrends.com).
Yahoo reaps the benefits of massive reach as a result, while publishers that are creating the content at expensive costs (it costs a considerable amount for researching, producing, and hiring these journalists etc.) are often passed over by media planners due to their small reach, or are asked to compete on CPM rates that simply are not high enough to pay for the content they are producing.
If putting up a pay wall is the wrong way to go about it, how come blogs and portals (who rely on the original content), are the only ones complaining about it?
Actually, I agree with both James and Ian .. and the business model at http://www.hometowntimes.com validates both. With our content and ad management solution, and our local site owners/franchisees, Hometowntime.com delivers original local content, partnerships with other local and affiliate media outlets, AND aggregate readership across a national network of locally franchised community news, information, and advertising sites to share national ad revenue that supplements local advertising dollars. A true win-win for the community, the local publisher, partners, and the advertisers.
With all respect, subscription content historically has been driven not by companies but users. Users are willing to pay. So you're suggesting to skip that they may and go with offering everything for free. I can't think of any reason why someone would suggest this idea.
Kind of not a surprise then to see how things are playing out for Yahoo if this is its mindset.
I am very curious as to exactly how Yahoo! would benefit if "companies flip the pay switch" – portals/aggregators like Yahoo! benefit the most from free content (not that content publishers don't appreciate the exposure). The Fantasy Football argument doesn't hold much water on its own as it is more of a service (with a splash of content) than "content" alone. That said however, and correct me if I'm wrong, it sounds like what you (James) are advocating is a hybrid (free with an opportunity for paid) publishing model. I believe that to be true as well – it works for me and other premium publishers (like the WSJ) and scales nicely for niche publishers as well.
There's no silver bullet here – each company needs to size up its position in the competitive landscape and determine if people are willing to pay for its digital content.
Some models work best on a totally free content basis, others don't and never will, and some, as suggested above, fall in between and use a hybrid model.
The bottom line is that digital content is an economic play, and the economies in a digital world don't look anything like what most companies are used to.
People pay for scarcity (whether it's a service or a product), and if the content isn't scarce, well, then, it's a long, hard road to finding people willing to pay for the premium of enjoying something that can be easily copied, distributed, and consumed (and almost for free, via the global distribution platform that is the Internet).
And success in the digital world won't happen through legislated subsidization, either. The music industry is proof of that.
When I was CEO of Morpheus, the file sharing company, we managed to turn a profit with our freemium business modelâeven after shelling out millions in legal costs. It was unfortunate that the music industry refused to implement any of the revenue sharing models we suggested and that the money went to the attorneys and not the copyright holders and artists.
However, what amazed me the most was the willingness of a portion of our users to pay for our premium product. There was great potential there, however we would have never gotten to that point without the popularity of our free ad-sponsored client. And, for the most part, our advertisers were very happy with the results they got from advertising to our millions of users.
I do agree with your statement on partnership early on in the creative stage. The issue is both the publisher and the advertiser has to be involved and have a shared interest to providing the end user quality content. The "banner ad" or "contextual guesses" approach is too clumsy for niche publishers.
So to reiterate Mike Weiss, it sounds like a hybrid model does make sense. Offer the baseline for free – content that is being recirculated etc, but offer a premium service for in-depth articles, and original content.
I could see this working.
That's the thing that kills me. Everybody in media, etc. THINKS nobody will pay for content — but they will. Honestly, so many models work already on the web. Trialware (which is the "freemium" model and has been around forever in software) is an option but why make it the must unless your reader/audience/user base demand so? Nonsensical.
I'm willing to buy tons of content — free content is typically poor quality compared to paid stuff. if I'm willing to pay XYZ online or offline, why try to make me not?
The entire argument for paying for content always seems so much like wishful thinking and people convincing themselves of what they want to believe.
I am sure that anything that is hard to find content, in-depth financial or business info, etc. of course will be able to charge because the info is hard to get.
What does a paper really have today that is hard to get? Headlines? Sports scores? Weather? Crossword puzzle?
I'm not intending to be demeaning to these enterprises, only to point out that much of what they feel they produce is actually a commodity. The lock they used to have was on delivery, not superiority of material in most cases.
No doubt this is an extremely difficult problem to deal with as it is unlikely that the old cost structures will ever be able to be maintained again. The industry needs a Dell, a firm that figures out how to produce quality at an efficient cost. No one is going to suggest that publishing in general doesn't have a lot of waste and excess in operating costs.
It doesn't matter if it is fair, it just is. A lot of these companies are going to drive away most of their online audiences as they pursue the holy grail of the small percentage of viewers who will pay. This will destroy the traffic to support advertising revenue just as the continued deterioration of print products drives more traditional newspaper advertising online.