Free at last: the next web revolution
Edie G. Lush explains why we're rarely asked to pay for online news and entertainment these days Amid the shockwaves caused by Rupert Murdoch's acquisition of Dow Jones, publisher of the Wall Street Journal, one significant policy shift attracted relatively little attention. When the ink finally dries on the deal, one of Murdoch's first moves will be to remove the 'pay wall' from the Journal's website. The news that WSJ.com will henceforth be free may come as a pleasant surprise to its many loyal users, but it isn't so great for other entrepreneurs who are trying to make money via online subscriptions.
Whether web-based or not, businesses like subscription models because they know what revenues they're going to get, and can match costs against them. They can bundle low-value content with high-value content, and rely on consumer apathy to increase profit margins: we're too idle to cancel the subscriptions we rarely use, as many a gym member will confess.
But getting people to subscribe to any service in the first place isn't easy. There are some services people expect to pay for: we're used to paying for multi-channel television and club memberships, and high-value content such as Bloomberg financial information. But enter the online world and it's a different game. Since the internet started as a place where users paid for access but rarely paid for content once they got there, it was always going to be difficult to convince them to pay for things they had once received for nothing. So if a business decides to put up a pay barrier on the web, it has to have a significant expectation that potential users will consider its content valuable and scarce enough to pay for.
Take financial services: market and company news analysis has a short shelf-life and, at least until now, people have been willing to pay to receive it in fast, accurate and clever formats. The WSJ has a trusted offline brand, and used this to build up a lucrative online subscription model as well. WSJ.com currently earns £25 million in subscription revenue from a million monthly readers.
So why is Murdoch ditching it? In short, even the draw of knowing what your revenues are going to be from subscriptions doesn't stand up against the lure of what you can make by attracting more internet advertising to your site. In 2006 companies spent £150 per household on television advertising, and the same again advertising to internetconnected households. By 2010 companies are forecast to keep television ad spend at £150 per home but, according to media analysts Opera, online ad spend will reach £4.7 billion, which equates to £220 per web-surfing home. By making the Journal's site free, Murdoch reckons he can increase the number of 'unique monthly users' to ten to 15 million people. And the simple rule of the game is that the more readers you have for your site, the more ad revenue you attract.
The other part of this story — also related to advertising — is the endless rise of Google. Readers increasingly find news articles through search engines, and if your site requires a subscription, you don't get the 'drive-by' business that you would have if your article was available gratis. The advent of the blog also means that free content is more likely to be distributed virally — a blogger is more likely to cite this article and include a link to The Spectator website if the article is free once the reader clicks through. And again, the higher number of page views you get, the more advertisers are going to pay you to stick their ads on your site.
Rupert Murdoch isn't the first to abandon the paid-for-content model. In September the New York Times ended its subscription model and allowed readers access to its archives and current content for free. The Financial Times also recently made changes to its website — allowing users 30 free articles a month before they have to stump up any cash. The Economist offers readers free access to articles under a year old. And of course you can catch up on any Spectator gems you missed in print by visiting our elegant website, also now free.
This isn't to say that all content is about to become free on the internet. There are online subscription-based business models which do work — in areas where many people wouldn't think twice about spending money offline, such as children's games and sport.
Club Penguin, which was bought by Disney in August for $350 million, offers online games for kids and an extremely controlled level of social networking. You create and name your web-penguin, and with paid membership can dress up your bird and decorate its igloo. By the summer of 2007 there were 12 million registered users. The number of paid subscribers is around 700,000. This business model works because it offers something parents are prepared to pay for — a site where their children can safely play online.
Another subscription model that works online is 'fantasy sports'. Every day millions of men in their twenties and thirties log on to create fantasy teams with real world players from baseball, football and basketball teams. Their teams then compete against other users' fantasy teams, the results being based on the players' real-world performance. Yahoo Sports is the biggest player in fantasy American Football — it now has more than 4.3 million customers. There is a free version, but the premium version will cost you $124.99. In Britain a site called myfootballclub.co.uk has bought a controlling stake in Ebbsfleet United, which plays in the Blue Square Premier league: 20,000 paying subscribers will now vote on team selection, decide which players to buy and sell and — according to the website — 'guide the club up the leagues'.
But for every subscription success story, there are many that don't work. Piracy is a massive problem for subscriptionbased businesses offering music and video. Online music subscription services do exist — Napster currently claims 830,000 paid subscribers — but according to the international music industry lobby group IFPI, 40 songs are downloaded illegally for every one that is actually paid for.
Movies and television programmes are still a nascent business on the web, and the jury is out on whether they can make money by subscription. The Motion Picture Association of America has estimated that the illegal downloading of copyright movies costs the six largest US studios more than $2 billion annually. When asked, most consumers say they'd rather watch a movie for free with a few ads at the beginning (known as 'pre-rolls') than pay to watch it without advertisements.
So the power of advertising is leading the demise of paid-for content across the spectrum of what the internet has to offer. For those of you who spend your lives trying to avoid clicking on the banner ads when you are entering items into the search box of your favourite news site, or trying to ignore the video playing in the middle of the information you're trying to read, the fact that advertising is set to rise and rise on the web may come as depressing news. Ah well, at least — if you've found this article on the internet — you're reading it for free.
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