Today the debate about payments for news content online tends to reduce to two simplistic arguments. Team Online begins with the belief that "content online should be free". Team Content argues that this is the only option to save the news business. Neither argument is especially compelling and neither includes much fact-based business reasoning.
Over the last several years, I have had the privilege to work with two of Asia's largest paid content sites – The South China Morning Post and MalaysiaKini – and worked with the U.S.-based Knight Ridder newspaper chain to implement site registration and evaluate online subscription opportunities.
Charging for content is a business tactic and the mechanics of deciding whether to charge, what to charge for, and how to execute is not your average circulation arithmetic. If you are considering developing an ad-supported paid content business, then start by being painfully candid about the situation. The old rules of content and circulation no longer apply!
The first fact of digital content distribution is that most types of content can be easily copied and redistributed. Publishers who make the "pay" decision then enter a "trust but verify" world. The publisher trusts that his paying audience respects the access and will not indiscriminately re-distribute the content. The publisher will also create some cost-effective verification process to identify cheaters. Many will argue that pilferage, to borrow a term from the retail trade, will undermine the entire system. I have not seen any data on unauthorized access to online content. The fact that there are some recognised successes, like the Wall Street Journal and the Financial Times, suggests that pilferage is a relatively small issue and cost effective systems can thwart any offenders.
When a publisher decides to evaluate an online paid content offering, there are a few considerations and analyses that should follow:
Advertising: What is the impact on online advertising revenue?
Audience: Who is your audience? Who are your best users? Who will you have to sacrifice?
Content and brand: What are the qualities of the product to be sold – cost of creation, uniqueness, brand value?
Traditional publishers will consider these three items the same ones that go into any media decision. Precisely. But the inputs are more complicated. If a newspaper or magazine media decision is arithmetic, then the online decision is calculus.
Advertising: The first consideration if your content site is ad-supported, is estimating the impact of pay mechanisms on advertising. In print media, publishers tightly manage the supply of advertising inventory to match the demand for advertising. But online ad inventory almost always exceeds supply. In news media, a news event can cause the oversupply to be substantial – see my last post. Traditional sales teams package exposure by selling blocks of ad impressions at a certain price. But even in media organisations where forecasting is a fine science, the traditional sales approach rarely exhausts all inventory available. In online advertising, we talk about inventory sell-through, but rarely inventory sell-out.
One illustration of this effect is a histogram of ad volume by price over a particular period. If you were to do this, you will get a graph that looks something like this:
Each rectangle represents the total advertising revenue at a particular price for that period. Once you have fulfilled all sold CPM ad units, the continuing revenue opportunity is usually from ad networks like Google AdSense and AdBrite, performance-based units. The revenue on these ads is the marginal revenue for the incremental page view. Typically, the volume of these ad units is much larger than shown on this chart, large volume and very low prices. When you evaluate advertising loss, work backwards from the last unit served, losing the performance-based units first and then backing into the remainder of sold units. Applying your effective CPM will overstate the potential loss from narrowing your audience through a paid content program.
Audience: What is the value of different segments of the audience to your advertisers?
The first metric to examine is source. This involves two types of source – geographic and online source. Thomas Friedman notwithstanding, globalisation doesn't yet apply to ad markets. The amount of transnational advertising is still relatively limited and often restricted to the main global portals. Most advertising is fundamentally national, even local. When an advertising manager for a Singapore bank places a campaign online, they are only rewarded for the impact in Singapore. The "spill-over" effect that is so common online doesn't deliver their local goals and they generally discount the audience for that spill-over effect.
Online source involves looking closely at the inbound audience from search engines. It is easy to discount all of the inbound search engine traffic. But on closer examination, many users use search engines as a default bookmark list. At every online news site I have worked with the most frequent keyword searched by inbound audience was the name of the site or some variation on the name. These users fall into a marketing and planning grey area that the implementation plan will need to address explicitly. The most important part of this implementation will be in choosing a paid content mechanism that works with search engines as opposed to choosing a mechanism that just shuts them out.
From audience data, you can create a segmentation driven by the relative value of each segment to advertising. The segmentation must include the intensity of site usage – how much advertising inventory will the user generate?
Content and brand: What are the product attributes you are trying to sell? Are they unique? Are there cheaper, or free substitutes? Does the brand have any special pricing or loyalty premium?
Analysts have written a lot about underwhelming results from paid content models online. Paidcontent.org has done a summary of the U.S. implementations and their results. The most difficult aspect of the analysis for many content producers is the factual evaluation of their product – the content that they produce. Is it truly unique or will the same story be heard for free on the evening radio? Given its unique attributes – speed of delivery, uniqueness, depth of analysis – is the cost of creation justified? Does the brand reflect an institution that the audience trusts and supports? Without candid answers to these questions and plans to address shortcomings, your pay platform will fail. No publisher ever successfully built a business, selling commodity content, produced at high cost through a commoditised channel.
Now you have the framework to plan a paid content implementation – the supply and demand curves for content and advertising; the market attributes of the content. The first question to answer is does it make sense at all? If you make the decision to go forward with an implementation, planning will touch every part of the business.
In the next few posts, I will try to outline some of the specific plans that a paid online content publisher will need to develop.
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Ross Settles is an International Committee for Journalists Knight Fellow. He currently works with the leading Malaysian news site, MalaysiaKini, to develop sustainable models for online journalism in Southeast Asia. Most recently, Settles managed online business operations for Hong Kong's South China Morning Post. Prior to SCMP, he directed marketing and business development efforts for Knight Ridder Digital, the online subsidiary of what was once the second largest U.S. newspaper publisher. During his tenure at Knight Ridder, Settles led efforts to invest in and implement strategies using new online technologies: social networking (Tribe Networks), vertical search (ShopLocal), news search and aggregation (Topix). Settles worked closely with local news and business operations to develop new business and distribution models for these new investments. He also held leadership positions at technology media company Red Herring Communications, The Baltimore Sun, and the Open Society Institute-funded Open Media Research Institute in Prague. Settles has spent a decade in China and East Asia. He speaks, reads and writes Mandarin Chinese. Settles holds an MBA from the University of Chicago and a BA in East Asian studies from Princeton University.
March 19, 2014