Who Gets the Online Revenue?

The biggest problem facing online publishers and online broadcasters has nothing to do with Web 2.0, ad serving, SEO (define), Flash video, or audience fragmentation. This problem isn’t new — it’s been around since the mid-1990s when the Internet eclipsed proprietary services, such as Prodigy, CompuServe, and AOL, as what most people use online.

The single biggest problem facing online publishing/broadcasting: who gets paid the bulk of the money that consumers pay for online content.

Yes, consumers pay for online content, and they pay a considerable amount. Though most publishers and broadcasters lament that consumers don’t or won’t pay for online content, that lament is nonsense. Consumers simply don’t pay them. Nearly 60 million American households pay more than $400 each per year.

The problem is these households pay the companies that give them access to those content providers. The average monthly cost of an American household to access online content is approximately $35 per month, or $420 per year.

Am I splitting hairs here? Sure, the money they pay is really for online access. But do you think 215 million Americans in 60 million households would pay $420 per year if there weren’t content there? Few people pay airlines just for the pleasure of flying (a pleasure that disappeared years ago); they pay to reach a destination (for which the airlines pay landing fees to the destination).

True, the average American household pays part of that $420 for access to e-mail, social media, and other nontraditional content sites. Nevertheless, it’s a safe bet that some, maybe even a majority, of the money that the average American household pays for online access can be attributable to reading, listening, or viewing what traditionally would be called content.

Fifteen or more years ago, those households might have spent similar amounts of money on subscriptions to a daily newspaper and many magazines. Almost all that money went directly to the content providers, who also delivered the content. But fewer American households subscribe to newspapers, and most subscribe to fewer magazines than they did years ago. Two years ago, the total number of American households subscribing to broadband Internet access surpassed the total number of American people buying or subscribing to newspapers each day — 54.6 million versus 53.2 million.

Overall, American households are still paying for access to content, but they’re paying the pipeline providers rather than the content providers. The recipient has shifted almost entirely. The content providers have been cut out (unless they’re Time Warner, Cox, or another content provider who also provides consumers with Internet access).

I don’t advocate that content providers force ISPs to share their revenues. That window of opportunity closed a decade ago. The problem might never have existed if, in the very early years of public Internet use (1992-1996), commercial content providers worked together to develop a common system for accounting consumers’ traffic to commercial content Web sites, a system that could then allocated revenues, then forced the few early ISPs to use that system (or block the ISPs from the content providers’ Web sites). Unfortunately, content providers weren’t that foresighted.

The idea that content providers could have forced ISPs to begin handing over revenues might seem absurd now that the horse has left the barn, but it was viable back then. The idea is still viable in some smaller countries. For example, if the 18 daily newspapers, the magazines, and the broadcasters in Estonia forced the ISPs to do it, they probably would succeed. Where else will Estonians get traditional content online in their language? However, it’s too late for sites that use the world’s major languages.

Moreover, the idea that such a system could be built might seem absurd, but it’s really not. All that’s needed is a central usage accounting system. Potentially the best I’ve seen over the years is the Digital Object Identifier (DOI) System, which would act in parallel and similar to the Internet’s existing DNS (define). The DOI tracks who has access to which online page or document, from which gateway or ISP, who owns that page or document, and what rights might be involved accessing that page or document.

Yet it’s too late. The momentum of the status quo, of content providers hooked to an open online platform (the Internet) that was never designed to recompense them, is too great to change. We’re in a brave new world in which they’ll have to be compensated by advertising revenues, by providing customized or individuated content to consumers, or by some new, as yet undiscovered business model. Or else those content providers will go out of business.

I’m seeing that last option happen with the regional daily newspapers in America. Soon it’ll happen to many other types of content providers. It’s not a pretty thing to see.

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