From free to fee
“If only the Internet had been invented by a businessman.” That`s a common lament of Internet publishers buckling under the financial strain of running unprofitable websites.They are the web publishers who somehow managed to survive the dot com crash by the silicon of their circuit boards, but have struggled to find solid business models – despite bringing in huge audiences that often eclipse those of profitable, advertising-rich print publications. The big question for online publishers remains: how to make money out of the huge readerships?Content websites are mainly free – free for all and a complete free-for-all. There is no cover price, as with magazines or newspapers; and no price is put on interactivity, unlike with cell phones, a medium that must have been designed by a businessman because consumers are forced to cough up for interacting with content. In most cases, a reader visits a website, takes in the content, clicks here, clicks there, clicks everywhere, and pays zip.The situation is hurting web publishers so badly that many are taking the brave and generally unpopular step of forcing readers to pay to get at the content on their sites. The fur is flyingThe trend is billed as the next big step in the evolution of publishing on the Internet and there is a hot debate about whether it works or not. It`s a debate causing bloody boardroom battles and raising the ire of many early Internet pioneers who feel it breaks with the medium`s celebrated anarchic tradition of being a free, pervasive tangle of information accessible to all.Online publishers in the US are already well into the payment strategy. And restricting access to websites and making users pay to get in is taking many where they`ve never been before – into profit.A March 2003 report from the authoritative US-based Online Publishers Association found that consumer spending on online content, fuelled to an extent by the introduction of broadband web access in the US, totalled $1.3 billion in 2002 – an increase of 95 percent over the previous year. The study also indicated that the number of US consumers paying for online content rose from 10 million in the fourth quarter (Q4) of 2001 to 14.3 million in Q4 2002.The personals/dating category surpassed both business/investments and entertainment/lifestyles to become the largest paid content category in 2002 with $302 million in revenue. The general news category brought in $70 million, while sport generated $30 million. (Download and read the full report at http://www.online-publishers.org)And it gets better. Jupiter Research forecasts that the US paid content market will grow at an annual rate of more than 20 percent until 2007 when it will be worth a massive $5.4 billion.Quality news site salon.com, Hong Kong`s South China Morning Post, FT.com and the Wall Street Journal, to name a few, have all closed their doors and are insisting visitors pay to read. The Wall Street Journal, in particular, has been the shining success, with about 600 000 paying subscribers. But there have also been US websites that have struggled to implement the strategy with success.South African publishers, with a few notable exceptions, have yet to start playing the paying game in a major way. But the local web publishing landscape is sure to change soon and consumers, used to free content online, are going to have to dig deep into their pockets. In the not-too-distant future, when you point your browser to News24, IOL, Mail&Guardian Online, M-Web and others, you may be required to submit credit card details and buy a subscription of some kind before being allowed in. Taking some stickSouth Africa`s earliest pay-per-view pioneers, Financial Mail and M-Web, ran into fierce resistance and criticism.When Financial Mail editor Caroline Southey restricted access to the magazine`s website in early 2001, soon after joining the title, she came in for quite a bit of stick. It was a move she admits may have been “too brutal” and sudden. But the prevailing logic was: “Why should we give the same content away for free on the web that our magazine charges for offline?”“I still think there is no justification for offering your entire title free on the web, so I don`t regret the decision at all. There seemed to be an illogicality in all of this: if readers want to read all content from the magazine then they should pay for it. I was potentially damaging the print product`s subscriber base because people wouldn`t bother to subscribe if they could get it for free,” says Southey.It`s a quandary in which most print publishers have found themselves. In the dot com heyday, the theory was that it didn`t matter if print publications lost readers to their online cousins because advertising revenue would follow readers to the Internet. Pundits pointed to projected online advertising billions and the graphs all pointed skyward. But, of course, it didn`t happen that way and the lion`s share of advertising money has largely stayed with print, television and radio.Publishers found they were potentially losing their audiences to a content medium that did not have a sound business model. They bunkered down, retreating to tried-and-trusted operations in print and other more established media.Online advertising accounts for less than half a percent of the South African advertising market, which is below international averages. Although that figure is growing and is showing signs of improvement, it`s still hardly enough to sustain big web operations like News24 and Independent Online (IOL).“Nobody has worked out a revenue model through putting information on the `Net and this is the underlying problem with all of this,” says Southey. “No publisher has come up with a model that generates money. Besides the retail websites, the `Net is not generating revenue. It`s a huge headache; it`s an intractable problem – and for dailies it`s worse. You can get a huge amount of traffic to your site but it doesn`t generate revenue. There isn`t a business model out there.”Surprisingly, Southey says there has been no major shift in magazine subscriber or reader patterns since she restricted the Financial Mail website. The site did experience an initial dramatic drop in readership but she claims it has now recovered to levels reached before the blocking. Most importantly, however, Southey says the site is not losing money and is even generating some revenue via online advertising, albeit off a small cost base. The big teaseShe says the most sensible system is to make a website a lot more integrated with its print product and use it as a marketing tool to bring readers to you. “You tease them, but if they want it they will have to pay.”Similarly, Independent Newspaper`s IOL started a tentative lockout of its content in early 2003, based on newspaper subscriptions for the company`s branded newspaper sites, such as The Star, The Cape Times and The Mercury. While most of IOL and its archives remain open and free, selected areas of these newspaper sites are only accessible to readers who have subscriptions to the print titles. The idea here is that if you want the content, you buy a newspaper subscription.Says IOL MD Howard Plaatjes: “Currently we are not trying to attract online-only subscribers but rather subscribers to our print products. The titles will be looking to lock down their archives in the future. I am in favour of it, but each publisher needs to structure their own destiny.”Media24 says it is looking at a similar model with its Afrikaans newspaper titles, and the group has begun a registration drive across these sites as a precursor.But the burning question is: how do you get users to pay for something they once had for free? M-Web Studios general manager and South Africa`s Online Publishers Association (OPA) chairperson Russel Yeo believes publishers will eventually succeed in overcoming the resistance consumers have to paying for content on the Internet.“There is a strong belief that the ‘spirit of the Internet` is a religious right to get things free. Look at the impact that has had on the music industry,” says Yeo.He says the charging model is “the only way” the general Internet publishing business can be made to work and points to the US where it has “succeeded very strongly”, citing the example of Yahoo!, where subscription revenues are becoming a key growth area. The TV examplePayment will be made, says Yeo, because, “Consumers aren`t stupid. They know, in the end, they must pay for quality. It`s no different from the emergence of pay TV. People were just as sceptical then; but today pay TV dominates, and free TV has found its niche, which requires audiences in the hundred millions, or very local catchments.”Like Financial Mail, M-Web was an early adopter of the paid-content model when it controversially closed its site partially in February 2001, blocking all dial-up users except M-Web subscribers. Sites behind this subscription zone included SuperSport Zone, News24 and the Mail &Guardian Online, which is 65 percent owned by M-Web.Indicating just how sensitive the issue is for some, the move caused a well-documented spat between the Mail&Guardian Online and M-Web, even prompting staff walkouts.Then, office LAN users and overseas users still had free access to M-Web and the block only applied to competing ISPs. But now M-Web is looking at a more aggressive strategy that aims to charge all users.It is overseas readers, in particular, on which News24 has its sights. News24 publisher Cobus Heyl, who recently attended a digital news management conference in Washington, says the site plans to make pound- and dollar-rich South African readers pay their way. It`s an audience that makes up a surprisingly large 30 percent – once reaching 40 percent – of the website`s claimed 975 000 readers.“There are several reasons for targeting the international market: obviously there is a huge cost associated with bandwidth from international visitors and the ability to ‘monetise` that international audience through advertising is limited. Your South African-based advertiser does not necessarily want to target the international market because it is of little value to them,” says Heyl. The foreign legionPublishers in South Africa are desperate to rein in their international readers who create backbreaking bandwidth costs. It`s one of the biggest, if not the biggest, cost for Naspers`s news portal says Heyl. He adds there are no immediate plans to charge local users.It seems to make sense to target the pockets of international readers because, for many of them, the Internet is their sole link to news from South Africa. Heyl is banking on the fact that, with few alternatives available, international users will have little choice but to pay up. And News24 believes its Afrikaans-language content is an ace up the sleeve, a unique selling point that will tempt expatriates to part with hard currency.Sceptics have dubbed the pay-to-enter strategy the “one percent solution” – referring to the approximate percentage of readers that online publishers around the world have so far converted from “free to fee”. That single percentage point may be miniscule, but it shows just how determined online publishers are to start making money, going ahead even if it means alienating the other 99 percent of their audience who refuse to pay.Supporters of the strategy simply point to healthier ledgers.“You are going to lose readers and you are going to lose loads of them,” says Heyl. “We accept that. We took a very conservative line, and that is one percent. And, besides, if you cannot monetise that audience they do not do your bottom line any good. So, with restriction of access, the challenge is to retain readers that are valuable to you,” says Heyl.Internet sites that have raked in huge readerships over the past few years now find themselves in a strange predicament of actually not wanting any more readers. IOL recently claimed to have broken through the landmark one million reader threshold – but is that a real bonus?Says Yeo: “For general publishing, more users are just more cost. The more you have, the more money you lose. The same is often true, for example, of niche magazines; but on the free Internet you can`t limit the number of users. Also, a flood of users degrades the experience of the average user.”Heyl is quick to point out that charging for content alone won`t sustain a business and that there is still something to be said for online advertising as part of the business model.“You cannot proclaim the advertising model dead, because there are encouraging signs. We have seen good year-on-year growth, albeit in a flat market and off a low base. News websites are the number one medium to reach users at work. Online advertising is about 4.9 percent of all advertising in the US. Ours is about 0.5 percent. The UK`s online advertising share sits at about 1.5 percent,” explains Heyl.“Even though advertising would remain one of the main revenue streams for news websites, it is not enough to sustain them. You have to look at all your revenue streams and pay-for-content is one of these multiple revenue streams; but not the only one.”Heyl`s statement is backed up by Jupiter Research which forecasts that, despite massive growth in online paid content, Internet advertising in the US will continue to be the main money spinner for online media outlets. The phone connectionMindful of the M-Web model, Heyl says that a good way to charge consumers may be for major local web publishers to form a network and together insist on payment, as a united front. Users would pay once and get access to a bouquet of content websites, in a way not dissimilar to satellite television.Readers may be more willing to pay for a service like this because of the value they would be getting. The model would also limit the available free alternatives readers could switch to when their favourite websites start charging.Initially, publishers will no doubt price pay-for-content services cheaply to draw users in and test the waters. ISPs like M-Web which already have a billing system in place are well placed to charge users by adding small amounts to their monthly dial-up bills should they wish to buy content. One solution publishers could look at is harnessing the power of the cell phone, with users gaining access to particular articles after sending an SMS request or making a call. The consumer would then be billed via the cell phone service provider.Heyl thinks the jury is still out on charging for content. “I think there is a lot of debate around on whether it is feasible or not. The models that are starting to develop have free components as well as paid-for components. I don`t think anyone has completely got the model right yet.”
