Would you pay cash for Web content?
Person on the street
The trend is a risky U-turn for Internet publishers, which years ago decided that customers wouldn't pay to gain access to Web sites. But that hasn't stopped a growing number of sites from dusting off the strategy. Variety.com, Salon.com and Britannica.com are just a few publishers that have recently introduced plans to begin charging for access to content that had been previously available for free.
The experiment serves as a second major test of the viability of online media businesses. If it fails, and the ad market does not rebound, even deep-pocketed online publishers may find themselves with few options other than to fold shop.
"Subscriptions are part of the mix to figure out what the formula is for making money on providing content," said Emily Meehan, senior analyst at The Yankee Group. "In some ways, it's a last-ditch effort to make this business work."
If history is any indicator, the outlook is grim for most publishers seeking to sell content subscriptions online. When the San Jose Mercury News launched online years ago, it tried to get money from visitors but then retreated. Microsoft-backed online magazine Slate started free, then charged, and is now free again.
That picture may be misleading. According to some online publishers making the switch from free to paid content, much of the back-and-forth on subscriptions stems from misconceptions from the early days of the Web, when creating an audience was considered more important than making money.
James Cramer, a director at TheStreet.com and an outspoken proponent of paid content on the Web, says the collapse in the online ad market has justified his company's early subscription efforts.
"We were up against a head wind where our investment bankers were urging us not to charge. Had we listened to them, there would be a dial tone at the other end of this line," he said. "They ain't talking now."
Cramer said that early on, the venture capitalists invented the idea that Web sites would get paid by the number of viewers, or eyeballs, they attracted. "But you don't get paid by eyeballs unless you're an ophthalmologist," he quipped.
Whether Web sites can expect to get paid by subscribers, however, remains largely unproven.
"The cult of the Internet is that information is free," said Paul Grabowicz, director of the New Media Program at the University of California at Berkeley. "People are already paying for access through their ISP, and the idea that they'll have to pay something more is something they're opposed to."
In a recent report from the Consumer Electronics Association, 49 percent of consumers surveyed said they generally oppose paying to download digital content such as pictures, games, e-books, or information and reports. Of those consumers, 76 percent were against paying for information or reports.
Jupiter Media Metrix also reported that 69 percent of consumers are unwilling to pay for content on the Internet. Despite this, by 2003, 78 percent of publishing executives surveyed said they plan to sell some subscription content, vs. the 40 percent that expect to add fee-based content in 2001, Jupiter found.
Competition among publishers is stifling. Free access to news and information is simply a click away. The Los Angeles Times, The New York Times and the Washington Post are just a few of the major newspapers publishing up-to-the-minute news on their Web sites.
Analysts say that subscriptions can work for those with a well-recognized brand, which many Internet-only publications lack.
Steven Vonder Haar, an analyst at The Yankee Group, said that for publishers to succeed at adopting a subscription model, their publications must meet three criteria: They must be upheld as must-have, high-profile brands; offer time-sensitive information that benefits from instant delivery; and help consumers be more productive or make money. Examples that stack up include WSJ.com and Consumer Reports.
Even WSJ.com has publicly stated that it is not yet profitable and has not said when it will be. Neil Budde, the editor of WSJ.com, said that during the last year, the division has invested in marketing, editorial and technical developments to build readership and improve its site. The company's subscriber base was up 54 percent to 535,000 at the end of 2000.
Still, the company announced Thursday that it would lay off some of its staff in an effort to cut costs.
"Unless you have something that's really different, it's going to be really hard to charge," Grabowicz said.
Show me the money
Pure subscriptions aren't the only models that cash-strapped Web publishers are trying out to boost revenues.
Acknowledging the difficulty of converting readers to paid services, some of the latest subscription models focus on giving away some content for free and putting a price on "premium" news.
Salon, for example, is selling an ad-free version of its material for those fed up with online commercials. In a recent filing on its third-quarter revenues in 2000, the company said production, content and product costs represented 110 percent of its revenues.
Many publishers have also turned to syndicating their content as a way to build revenues at little cost. Once the online news is created, distributing electronically to other outlets for a fee is commonly known to bolster revenues and reap marketing benefits cheaply.
Another model that may emerge as popular is charging "micropayments" for content, or roughly an amount of up to $5 charged to the consumer's credit card. Online bookseller Amazon.com has started working with several smaller online publishers in encouraging consumers to donate a few dollars for content that they read. Micropayments have become popular in Europe, analysts say, through mobile devices that charge for convenient access to e-mail or other applications away from the PC.
Analysts also say that consumers might be receptive to subscriptions for multiple publications in one package, similar to a Publisher's Clearinghouse model. AOL Time Warner, for example, could sell Internet access at premium cost for access to several Time Warner publications, analysts predict.
Another attractive model could be selling subscriptions for bundled content available for download or over wireless devices, according to Scott Moore, publisher of Slate.
Some publishers, however, are still banking on marketing as their bread and butter in the long term.
When Slate abandoned its subscription model in January 1999 after less than a year, the site's readership grew tenfold, and advertisers increased six times over, Moore said.
"Advertising is going to be the long-term driver for content and specifically for Slate," said Moore, adding that he was not considering going back to a subscription model. "Anytime you introduce a subscription fee for content, you're absolutely going to radically reduce the number of people who will choose to pay or become readers, and that's what we found at Slate.
People always have substitutes for content, he added. "People aren't going to pay to visit a Web site and read it--with a few exceptions."
It is that perception that may pose the greatest hurdle for online publishers seeking to recreate traditional publishing revenue models online.
Regardless of contrary evidence, publishers making the switch to subscriptions say that readers have grown more experienced with the Web and are ready to pay for valuable content.
Encyclopaedia Britannica, which went with a free model when it launched its Web site in October 1999, said it now believes consumer attitudes are ripe to begin a for-pay service.
"At the time (we launched) people wanted information for free. But things change," said a representative from Britannica.com, which plans to introduce subscription services over the next couple of months. "There's a growing awareness among Net users that not all information is the same. (Some) is worth paying for."
For his part, TheStreet's Cramer contends that every online publisher must charge for content if they want to succeed.
TheStreet charges $199.95 for an annual subscription to premium areas including its RealMoney.com section and reportedly announced plans to charge readers for access to articles from prominent commentators.
Even by its own count, however, TheStreet has been losing readers under its subscription model.
In a recent securities filing, the company said it had about 75,000 paid subscribers as of December 2000 "down from approximately 109,000 when we launched our free site" in June of 2000.
"We're trying to build a mosaic of money; we don't want to depend on one revenue stream," Cramer said. "There's a sign on my desk that says, 'Revenue good, no revenue bad,' and I'm sticking to that."