eMarketer editor (and reader of this column) David Berkowitz kindly provided an advance copy of his company’s Online Content Report, which examines emerging trends in online paid content and services.
I like it, because eMarketer used not only its own data and analyses but also input from comScore, IDC, Jupiter Research (a unit of ClickZ’s parent corporation), Pew Internet & American Life Project, and other research firms. It shows the consensus of online paid content and services analysis in both business-to-consumer (B2C) and business-to-business (B2B) markets.
Senior analyst Ben Macklin, who authored the report, avoids the extremes that tempt many analysts when writing about charging for content online:
The Web, once the domain for limitless amounts of free content, is evolving. In the wake of the dot-com bubble-burst and the downturn in online advertising, what was once free for consumers now costs. This does not signal the end of all free content online, or the end of the banner and pop-up ads that supports content sites. It is a sign of the emergence of more realistic and robust business models that combine advertising, subscriptions and pay-per-view fees.
I don’t intend to give the report away, but I do have permission to share some excerpts:
- IDC found a clear spending distinction between the B2C and B2B markets. Its research shows while over 62 percent of all online content buyers worldwide are consumers, those individuals’ spending composed only 8 percent of total online content expenditures. IDC reports 92 percent of all worldwide online content spending was by organizations. However, IDC found that consumers’ own spending was a bit higher (13.6 percent) in the U.S., where the market is more mature.
- eMarketer estimates three-quarters of all U.S. consumer online content spending is on adult and gambling sites. Perhaps contrary to popular belief, more is spent on online gambling ($2.5 billion) than on adult content ($400 million).
- A comScore study identified 85 percent of consumer spending on online content was by subscription, rather than single purchases. Of those subscriptions, 57 percent were annual, 36 percent monthly.
- An Intermarket Group survey of 246 online content and service sites (by 121 publishers) found the average annual B2C content subscription rate is $52.47; the average monthly rate $9.95. For B2B content, the average annual subscription rate is $159; the monthly rate $25. Sites with a mixed B2C and B2B audience charge an average $99.95 annually; $13.45 monthly.
- eMarketer estimates approximately 14.6 million online content subscribers within the top 35 U.S. content Web sites, as of September 30, 2002, or about 10 percent of U.S. Internet users. At current growth rates, eMarketer forecasts the number will rise to 15.7 million by the end of 2002 and reach nearly 21 million by 2003, or 13 percent of U.S. Internet users.
Are consumers more willing to pay for online content now than in the past? “The short answer is, probably not,” writes Macklin. For example:
- Despite more publishers launching paid access services, Jupiter reports slightly fewer people expect to pay for online content in 2002 (42 percent) than in 2000 (45 percent).
- In 2001, the Pew Internet & American Life Project conducted a survey showing if U.S. Internet users were asked to pay for access to a site that was previously free, only 12 percent would pay, 50 percent would find a free alternative, and 36 percent would simply stop getting that information or service anywhere online!
Indeed, the only real change that occurred in 2002 is consumers now find fewer free alternatives. They increasingly must choose whether to pay for online content or give it up completely.
“The question of whether consumers are more willing to pay for online content now than in the past has become largely irrelevant. Let’s face it; people would rather not pay for anything if they had a free alternative,” Macklin writes. “What is a more appropriate question now is not whether consumers are more willing to pay for online content and services, but whether businesses are more willing to offer it for free. And the answer increasingly seems to be no.”
Many publishers pin their hopes to broadband, believing as broadband access becomes more prevalent, consumers will become more willing to pay.
Broadband access is one of three traits Forrester Research uses to predict consumers’ willingness to pay for online content (the other two are number of years the consumer has been online and whether the consumer has wireless data services).
eMarketer studied South Korea, where 90 percent of all Internet connections of any kind (office or home) are broadband, and 50 percent of all homes have broadband access. The Online Content Report and another eMarketer study found broadband access does change how consumers use the Internet, but it does not dispose them to pay for online content.
What changes with broadband, according to the study, is consumers begin using the Internet outside of the Web. Streaming media, audio-visual applications, game applications, IP telephony, P2P file transfers, and messaging — all applications accessed outside the browser — are very popular among Korean broadband Internet users.
Macklin makes a cogent point about how future predictions of how U.S. consumers will use broadband might mistakenly be based on an overlooked fact about Americans who currently have broadband access:
Broadband users are a distinctive demographic segment who, in general, are wealthier, better educated and have been online for longer than the average Internet user. This demographic segment may be more receptive to paying for online content, no matter how fast their Internet connection is. One shouldn’t confuse the broadband connection with the current broadband user. If indeed it is the case that broadband users are more likely to pay for online content, as Forrester’s data suggests, then can we assume the next wave of broadband users will behave the same way?
The report is interesting reading for anyone seriously interested in paid online content.