Telecom, Media and Technology October, 2010

Internet monetization for traditional media Point of View
Remco Groeneveld and Gagandeep Sethi

listening to the radio and playing games. Subscriber Magnets have customers willing to pay to pay for content due to higher relevance. many traditional media companies are struggling to monetize their assets. Four categories of companies emerge. Even The New York Times. Ad Magnets. with low ad revenues due to insufficient traffic and relatively few customers willing to pay for their content. It famously attempted to charge its readers for online content only to revert to free access. Figure 1: Categorization of content companies Understanding your position Consider the figure above where we use those two revenue factors to set up a 2 x 2 matrix. most have found neither2. The advertisement model.The situation Media consumption is booming. however. Example of Strugglers are mid-sized newspapers whose content is not distinguished enough to entice people to pay subscription fees3 and whose (classified) ad income has come under pressure from the internet. they became unwilling to pay for it. media companies have often attempted hybrid business models. the two most important factors that have to be considered are the consumers‟ willingness to pay for content and the opportunity to attract advertising income. looking for both advertiser revenues and subscriber fees. one of the most well known newspaper brands. has been unable to break even from advertising alone and has wrestled with ways to make its non-subscribers pay for its online content4. This means current online models require very high traffic in order to return a positive return on investment. To succeed. Once users got used to getting content for free. As a result. Strugglers have limited (or fast decreasing) opportunities to generate advertising income and attract customers who are unwilling to pay for the content. But. free content supported by ads. To a large extent. most media companies put their assets online without developing a proper business model. Subscriber Magnets and Blockbusters. has also tended to struggle online as online ad rates have been and still are considerably lower than print ad rates1. namely Strugglers. However. The hypothesis There is no “one size fits all” solution to the monetization of traditional media assets online. often simultaneously. Starting with the dotcom boom. Most were happy to chase eyeballs and valuations in the hope that revenues would follow. inadequate strategic thinking on the part of media groups is to blame. It has now decided to have a metered system for usage by non-subscribers starting in 20115. People spend hours every day surfing the Internet. Despite this surge in demand for media products. but relatively limited advertising opportunities due to lack of customer acceptance or because of . companies must focus their efforts on increasing their performance on either or both of these parameters. watching (digital) television.

com is also adsupported. customers are unwilling to pay for entertainment and Perez Hilton) have been able to attract strong advertising based on their robust readership and “ad-friendly” environment6. There are over a million paid subscribers for the Wall Street Journal8.000 online subscribers paying £3. This would depend on factors such as the nature of the content. dependent as they are on advertising. Lastly. This is also the quadrant where most free newspapers in Europe. Ad Magnets are attractive to advertisers. but this content lends itself less to advertising. such as the Wall Street Journal (WSJ) and the Financial Times (FT). For Blockbusters the question is how to stay where they are and maintain both willingness to pay and advertising appeal. Figure 2: Generic strategies for content companies . high relevance and reach. blockbusters boast high willingness to pay as well as significant advertisement opportunities. Ad Magnets will have a tougher time becoming Blockbusters compared with Subscription Magnets. For example. Strugglers face more difficult choices. For example. This is because consumers are generally unwilling to pay for something that they have got used to receiving for free. The information is used professionally by a relatively small audience who do not want to be distracted by ads. the Financial Times has seen subscriber revenues (for the group) exceed advertising revenues10. but entertainment blogs (such as TMZ. For the successful companies the way forward is fairly clear. for example by increasing access to high value content. For Subscription Magnets. but do not have many customers willing to pay for their content. there is high willingness to pay for financial data (such as Reuters and Bloomberg data services).000 views of a story9. FT. competitive environment. would like to be. and the site charges an estimated £35 to £40 in fees from advertisers for every 1. strength of the brand. the question is how to maintain consistently high ratings and reach.their limited reach. Can they increase their advertising appeal or should they focus on enticing paying subscribers? The decision on which avenue to focus on will depend on their current position relative to these axes within the quadrant. while increasing ad revenues in a manner that does not turn away current customers. Sports programming falls into this desirable quadrant7. The success of Financial Times pay wall initiatives has meant that for the first time. These are relevant to a very specific and affluent reader category and have the luxury of being ad-friendly as well as having consumers willing to pay. existing billing relationships. Making a choice Success at internet monetization hinges on developing products that are successful along the two axes identified. The Financial Times has 126. current subscriber base. access to key demographics etc. In most cases. the question is how to maintain customer willingness to pay through maintaining relevance. For publications with a lower cost base (such as entertainment blogs) advertising alone is enough to make their business model viable. but also financial newspapers. For the Ad Magnets.29 per week and two million readers registering with basic information for ten stories a month.

For instance.Increasing willingness to pay Consumers today are accustomed to getting most of their content for free. While revenue share for Google‟s AdSense is 68:32 in the favor of the publishers.50. Revenue is then accrued on a per click basis. through a service called Hulu. Demand for time-shifted and OTT TV has been increasing and to address this market cable companies in the United States (notably Comcast and Time Warner) have come up with an online television proposition called Fancast and TV Everywhere 11. Advertisers are willing to pay extra for key demographics and psychographics.g. ranging from a few cents to several dollars per redirected visitor. The value of the product to the customer is dependent on the situation. Take for example the US online television market. 77% of US news users ignore ads12). location. Consider „over the top‟ television (OTT TV). interests or needs. is it possible to raise prices outside such an environment? Also. These programs deliver targeted and contextual ads to visitors of those sites improving conversion rates and therefore revenue. your company‟s website needs to attract 1. Resulting traffic can then be monetized through advertising. Since most web-users have learned to ignore flashing banner-like items (e. with nearly 44 million monthly viewers15.5% and average revenue of €1. Increasing revenue from advertising Basic online advertising used to mean banners placed on websites.5 million page views a day13. Next. suppose you want to earn €1 million a month by placing AdSense generated ads on your website.. . Existing subscribers (with a billing relationship) get access to TV programming online as well as eventually on mobile devices at no extra charge using a special subscriber identification. high fashion in a fashion blog) can command a premium. Plagued by piracy and file-sharing. Increasing willingness to pay is also easier for companies that have pre-existing billing relationships. It is funded through advertisements. per-click rates are generally low (a few cents to a few dollars per visitor) and few traditional media companies can make enough money through this. For instance. based on common characteristics. Assuming an average click through rate of 1. and the strategy of media companies (like newspapers and magazines) which gave away their content for free through their website to everyone including non-subscribers. and are also often willing to pay additional fees for unique distribution channels. a more targeted approach to online advertising is allowed by programs such as AdSense.000 to place an ad in Time Magazine‟s iPad application14 .The question therefore arises. traditional segmentation is still relevant to most advertisers. major TV networks decided to take matters into their own hand by offering their content online for free. The few successful models of paying for music and books online have been centered on flat fixed prices. Unilever was reported to have paid $200. For example. Some companies are increasingly thinking of their consumers as „tribes or communities‟. Another approach is for players to pool content and ensure a single website controlled by them is the place to go for the content they specialize in. as well as research into historical elasticities. advertisements that are uniquely embedded within relevant content or which tie in with the brand (e. The key to increasing ad friendliness is understanding the customer.. Also. in a unique environment (consider the iTunes and the Kindle). what is the impact of product innovation and new devices on consumer attitudes towards payment? If customers do agree to pay. which allows people to watch television shows streamed over the internet on their PCs and laptops (and increasingly on their home TV sets). the first step to increase willingness to pay for a product is to understand the customer and understand what the product is worth to the customer. With their existing billing relationship and higher customer lock-in due to the multiple services these cable companies provide they have a considerable chance of success in the future. and has been profitable for the last two quarters. However. completion as well as the customer‟s state of mind. what is the price they are willing to accept? How will that vary for existing subscribers? How viable is a pay-per view (micro-payments) model? How feasible is a metered payment system? Is a flat fee possible? Will promotion of online cannibalize the traditional revenues (swapping physical world pounds for online pennies)? Sophisticated consumer pricing methodologies can help answer most of these questions. There is notable difference in this approach of the cable companies.g. The service was a huge hit. methodologies for pricing consumer products can be adapted for pricing media content. Clicksor or AdBright. Obviously. for example with tools such as conjoint analysis and price experiments. the thinking is to increase the price for their entire package down the line. which limit access to subscribers.

Figure 4: Impact of tablets on traditional media companies Magazines and newspapers developed for the tablet are likely to contain greater amounts of richer media while their websites are likely to restrict and reduce the free content available. Further. Most recently. there is an opportunity to sustain prices by creating a unique content proposition for such devices. as well as by creating innovative advertising opportunities. For books. The Wall Street Journal and Time Magazine iPad application price is higher than both the newsstand and website price. there will be nearly 100 million tablet computers in the market. Ads can be time bound. . often more willing to pay. including interactive features in books may also increase the willingness to pay. These interactive ads can be well combined with eCommerce. tablet computers may allow for advertising. with over 60 million sold in that year alone17. and the networks keep the rest. it launched a paid-premium subscription service16.Content owners get 50 to 70 percent of the revenue. Early evidence has shown that advertisers have been willing to pay a higher rate for the iPad compared with traditional websites. Tablet computers like the iPad are designed for content consumption and provide opportunities for creation of innovative content propositions as well as new exciting opportunities for advertisers. This may lead to new business models in the future such as books subsidized by advertising. While these initiatives have been directed at early adopters. so that they do not run out of vogue as the eBook ages. Figure 3: Increasing willingness to pay or advertising effectiveness Impact of new devices like tablets In 2013. More interactive features allow for a more compelling immersive ad experience.

and push content companies towards developing new business models for it. Still. companies must first understand the reason behind their long term presence. Already. Companies must understand where they want to be in five years time. In order to build a sustainable business model. to get consumers to pay for a product. Will their online presence totally replace the physical production of (proprietary) content? If yes. Merely having a website and a certain revenue model behind this website is not enough. repurposing current content for tablets through a host of already available low cost tools is not challenging for content companies. how soon? Their actions must flow from the long term outlook but cannot be started without a thorough understanding of their product‟s current position. Hulu is offering a paid service for iPad users. Also. Conclusion As eyeballs move online and revenues do not follow as quickly. there are substantial savings with regards to distribution and printing costs.Similarly. the challenge for most media companies is to protect the bottom line in the short term and build a sustainable business model in the long term. . for television content devices like the tablets are likely to give impetus to mobile television consumption. at least when going for a basic experience. As most content is created digitally. it has to be truly differentiated and this will require investments in design and development.

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