Fee or Free? Maximizing Content Site Revenue

Fee versus free is an issue many content site executives have wrestled with since the early days of the Internet. Some hard-nosed business types argue if readers aren’t willing to pay for content, they don’t deserve it. Other Web gurus insist Internet content inevitably must be free. Recently, some major online publishers paid plenty of money for high-profile free content sites. This again raises the question of which revenue model will survive.

To compel readers to pay, online content must be unique and compelling. Improved presentation, usability, features, and brand can add to perceived value. The problem is few content sites, outside of dating, investment, and sexually-oriented ones, have been able to amass sizable paid subscriber bases. This often translates into low traffic.

Free content must generate revenue through advertising or related product and service sales. To improve revenue opportunities, free sites often require registration. A registration database can be used to price and increase the value of your advertising, or to merchandise your products and services. Additionally, it can facilitate your online community. The downside is registration may reduce page views. It places a barrier between readers and content.

Some business-to-consumer (B2C) publishers believe “paid” translates as “ad free.” Despite reader complaints, an ad-free environment alone usually isn’t sufficiently compelling to get most consumers to pay. As consumers pay for content combined with advertising offline, making paid content sites ad-free is counterintuitive. Remember, users do consider real estate, help wanted, and car ads to be content.

When considering ad-free content, test carefully. Set pricing to ensure fees more than cover projected advertising revenue, as you may find fewer purchasers than predicted.

Making online content either subscription-only or free behind a firewall has its costs. The most obvious is the impact on search engine results. One e-tailer I know found its firewall prevented potential users from sampling its wares. Since posting content online was a sunk cost, using it to attract new customers with special offers or collect email addresses would be an effective “free” promotion.

MarketingSherpa eliminated third-party advertising in its free newsletters. Despite selling its ad inventory at $50 CPM (define), publisher Anne Holland said, “I had a gut [feeling] that a stronger brand would translate to greater reader loyalty and, ultimately, purchases.” Revenue rose significantly in the following 12 months.

Similarly, MarketingExperiments.com is moving from a paid to free model. Director Flint McGlaughlin noted, “We performed tests that indicated for every $1 in paid subscription revenue we could earn, we could earn $400 in other types of revenue.”

Revenue Options

Publishers must balance fee and free content. Eliminating too much free content reduces the potential subscriber base. Giving away too much free content doesn’t maximize subscription revenue. The key to online content success is testing.

“Once you’ve found your site’s optimal free-paid content mix,” said Josef Mandelbaum, AmericanGreetings.com’s CEO, “make that your control and keep testing.” AmericanGreetings.com uses free content supported by advertising and sponsors to drive potential new subscribers. Sponsors also post AmericanGreetings.com’s e-cards on their own sites, adding to the promotion’s results and viral quality.

Echoing this sentiment, Paul Pellman, Hoover’s EVP of marketing, said, “Subscription and advertising models are synergistic, sustainable business models that can coexist.” Hoover’s advertiser-sponsored “free” content days require registration and generate subscription leads.

Online content can create new revenue models. One interesting example involves a sponsored section dedicated to soccer games where parents upload photos. Bill Blevins, Internet operations VP for Community Newspaper Holdings Inc., owner of roughly 180 community newspapers, believes a newspaper’s online companion should be an “information utility” to extend the brand online, not replicate the offline publication.

Another example is REMODLING Online, which according to Mitch Rouda, president of parent corporation Hanley-Wood Interactive, created a $37.50 online “cost versus value” database that is the only way to get the detailed seminal homeowner- and Realtor-based research.

The question of how to maximize free versus paid content centers on content and your site’s ability to continue engaging users. As Robin Johnson, Financial Times‘ president of the Americas, said, “Ultimately, it’s the time spent with the content that generates subscribers and advertisers. This is particularly important as your cohort gets younger and spends more time online.”

Analysis

  • Evaluate your online content’s business priorities and constraints, such as produce revenue, generate leads, or extend the brand. Consider how your different revenue streams may interact with each other. Remember to project long-term outcomes.

  • Forecast revenue streams by type. When assessing advertising, calculate yield per page as well as overall blended CPM. For example, a page with too many advertising units may not yield optimal value since visitors don’t click on them. Offering fewer advertising units integrated with your content generates better response. Analyze and test advertising formats to determine which works best for both readers and advertisers to increase revenue per page.
  • Calculate fully loaded costs, including content creation, delivery, and measurement, as well as allocated overhead. Consider how your online product compares to or interacts with your offline offering, if you have one. I’ve seen senior online media executives underrate their product’s value simply because it didn’t have a direct cost to them.
  • Analyze the market when pricing content. This can be your most critical decision, influencing profitability and long-term viability. Where possible, test! Watch conversion and retention over time. According to McGlaughlin, “Start with a lower price, move it up to the threshold, and then lower it back. If you haven’t charged too much at least once, you’re probably not charging enough!”
  • Business and Legal Reports EVP John Brady said, “Due to our inability to A/B-test a projectable sample, we decided to increase the price without testing and just watch what happened. The results: we successfully moved the annual price of one product from $199 to $495 per year.”

As a publisher, your revenue options fall into three major categories: subscriptions or pay per view, advertising, and ancillary income (such as product sales). As Online Publishers Association (OPA) president Michael Zimbalist said, “Successful Web publishers recognize that a combination of free and paid services lead to the type of diversified revenue streams characteristic of any healthy business.” Like most firms, you’ll probably find that a combination of fee and free approaches maximize revenues. Free content should be used to drive subscription and other revenue. Additionally, try to encourage readers to register. The database will create another asset that you can grow and promote other products with.

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