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Paying for Content: A New Context for Online Ads?

  |  April 12, 2002   |  Comments

When site users become paying customers, will the rules change for advertising?

It's pretty much a given that the Web will stop resembling an all-you-can-eat Vegas buffet in the near future. When, how, who, and how much are subjects of endless and plentiful speculation. Odds are, one day soon a site you frequent will shut you out if you don't pay up.

While paid and subscription sites are hardly a new idea, they achieved topic du jour status recently, what with a Jupiter report on the subject and a flurry of sites announcing they'll begin charging for proprietary content -- mail, online storage, gaming, and streaming media (Yahoo); greeting cards; audio broadcasts of sport events; and, increasingly, news and financial information. The Online Publishers Association last month announced it would begin to monitor paid content on the Web, and we here at ClickZ just launched a new column on the subject.

What I'm wondering about is the next step. When users pay, they cease being simply users. They're customers. Will that new relationship change the rules of engagement and recontextualize Internet advertising?

Traditionally, consumers have paid for ad-supported media and not bemoaned ads coming with the deal. All media (other than broadcast television) have two revenue streams: ads and user fees. The Web's different. Internet users have bees in their bonnets about intrusiveness, pop-ups and -unders, flashing banners, privacy -- you name it. If they're this hot and bothered about ads served up with free content, what happens when they pay? What formats will they accept, and what kind of volume? How much advertising is appropriate on a paid site?

Publishers, meanwhile, will see reach drop precipitously when sites become members-only. They'll need to convince advertisers their significantly fewer -- but more qualified -- users possess more valuable eyeballs. They'll need to persuade freeloading users to pay for their proprietary news/games/sports/information, not the competition's. What will inventory cost on this new playing field?

News is just one of many types of information publishers are charging for, but it's a good place to look for answers. The Wall Street Journal Online, which has had a subscription model from day one, is the granddaddy of Internet paid content (not counting porn). Publisher Neil Budde receives dozens of emails every month that begin, "You're the only thing I pay for on the Internet."

"The good news is that as a subscription site not all, but some, advertisers value you more because they know your audience is very committed and interested. As people move to subscriptions, advertisers will realize there's an attachment level to this kind of content," Neil told me. "In our environment, people are intensely interested in the content. It's good for ads to be next to and closely integrated with that content."

WSJ.com's pages are populated by fewer but larger ads than most news sites, which experts I spoke with agree will become the norm on paid sites. WSJ.com proscribes uninitiated audio and has a rigidly restrictive pop-up policy. "Our readers' mindset is, 'I'm paying for it. I shouldn't have to tolerate the worst abuses of advertising,'" said Neil. When a mouse-over activated audio in an ad on the site, complaints rolled in. The ad was pulled and a policy created. Customer feedback, Neil cautions, might prove the unanticipated stumbling block for sites making the free-to-fee leap.

"You never know what customer-service-oriented issues will arise. If they're paying, you raise the bar. Our customer emails always begin, 'I'm paying for this, therefore...'" WSJ.com has a substantial staff handling customer issues ranging from account inquiries to inexperienced users' requests for help with basic site navigation. That's a big investment. Neil thinks publishers could look at CRM costs and decide it might not be worth charging after all.

That's why DoubleClick's Jeff Silverman, vice president and general manager of North American media, believes paid models are viable only for strong brands with heavy leverage and customer support in place. He cautions that publishers may need to weather a short-term drop in advertising pricing (in what's already a buyer's market) before user quality and quantity rise and rates are better qualified. How long it will take consumers and advertisers to adapt to these changes is anyone's guess. Expect another advertising shakeout as publishers compete for a premium audience and then prove its value to advertisers.

One nice thing about paying customers is that you get a much better idea of who they are. Closer customer relationships means better customer data. Interactive Advertising Bureau chief Greg Stuart thinks the rise in user registration is a positive development, because it will improve the unique metric and result in better reach/frequency curves. It certainly can -- if publishers carefully tailor login procedures for subscribers, taking into account the fact that households still share browsers and ISP accounts among multiple users. There's also a small, but real, possibility that savvy consumers will realize their registration data can and will be used for marketing purposes. Will they demand more privacy and reveal less personal data in return for their lucre?

With over half a million subscribers and a possible hike in subscription rates looming this year, Neil Budde is in no hurry for other news and financial sites to jump on the subscription bandwagon. Get ready for the battle of the titans, as huge media and entertainment companies duke it out to woo subscribers. In the fierce competition that ensues, they'll strive to undercut each other's offers and pricing -- the long distance wars on steroids.

"Special introductory prices" will help the publishers provide demos to attract advertisers. The next shakeout? Renewals.

How very much like other media!

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Rebecca Lieb

Rebecca was previously VP, U.S. operations of Econsultancy, an independent source of advice and insight on digital marketing and e-commerce. Earlier, she held executive marketing and communications positions at strategic e-services companies, including Siegel & Gale, and has worked in the same capacity for global entertainment and media companies, including Universal Television & Networks Group (formerly USA Networks International) and Bertelsmann's RTL Television. As a journalist, she's written on media for numerous publications, including "The New York Times" and "The Wall Street Journal." Rebecca spent five years as Variety's Berlin-based German/Eastern European bureau chief. Rebecca also taught at New York University's Center for Publishing, where she also served on the Electronic Publishing Advisory Group. Rebecca, author of "The Truth About Search Engine Optimization," was ClickZ's editor-in-chief for over seven years.

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