The Pew Research Center’s annual State of the News Media report, issued this week, features survey results showing that only a third of U.S. adult digital news consumers go directly to news Web sites or apps. The rest rely on aggregators and curators: key word search, news organizing sites or apps, or Facebook and Twitter.
What does this mean for news providers who hope to charge for content?
Placing all content under lock and key is a losing strategy. As GigaOM’s Matthew Ingram puts it, news providers must optimize their content for aggregators and curators or risk “missing a larger and larger portion of the audience.”
For news providers who wish to benefit from aggregators and curators, yet still charge for content, here are three factors to consider.
UX Matters
User experience, for news providers, now means more than ever. With so many providers addressing the same topics, presentation can be an effective tool to differentiate and distinguish the source.
Aggregators and curators offer readers the context and convenience of news from multiple sources on one platform. Often the process is automated to publish stories immediately from a vast number of sources, as is the case with Google News and Google Reader. These priorities lead to a design that is efficient but lacking the aesthetic of a handcrafted product.
A superior user experience can help justify charging a fee. The New York Times presents its content in a growing list of innovative interfaces: Times Skimmer, Times Topics, Times Wire, Replica Edition, and beta620.
Metered Wall
Erecting a standard paywall gives paying users full access to premium content. Other than free highlights selected by editors, the huge audience for aggregators and curators is blocked from the publisher’s site.
The alternative is the metered wall, embraced first by the Financial Times, then The New York Times, as well as the many newspaper customers of Press+.
The metered paywall gives free access to infrequent readers and charges the most frequent ones. This approach allows news providers to sell advertising to visitors from aggregators and curators, while generating subscription fees from loyal readers. In fact, The New York Times gives extra access to visitors from search and social sites.
Discovery Continuum
All aggregators and curators aid in discovery. But not all aggregators and curators result in the same level of discovery for news providers.
On one end of the spectrum are news organizing sites and apps like Flipboard, which are platforms for both discovery and consumption.
In the middle are sites like the The Huffington Post, who regularly surface stories first reported elsewhere. Their detailed summaries leave readers little reason to visit the originator’s site for consumption.
Twitter occupies the opposite end of the spectrum. Limited by their 140 characters, Tweets are long enough to promote a story, but link back to the publisher’s site for the story itself.
News providers should pick relationships with aggregators and curators, like Twitter and Facebook, which provide true discovery links.
However, this decision, like most in the aggregator and curator ecosystem, may not be the content provider’s to make.
Content is a great gift. It’s especially true at Christmas time, when books, CDs or DVDs for music or movies, and computer and video games are among the most popular choices for gift givers, according to Deloitte’s 2011 Annual Holiday Survey.
The evolution of content distribution from analog to digital will upend the sizable market for content gift giving. The changes will take place over two phases and will extend across books, music, movies and games.
(Newspaper and magazines are largely immune to these changes as their gift subscriptions operate basically the same in analog and digital forms.)
The first shift in content gift giving will result from the move from analog to digital products. Print books, CDs, DVDs, and video games make for ideal presents. They’re portable, priced in the gift sweet spot of $10 to $50, simple to return, and are easily matched to the recipient’s tastes.
As the format and delivery of these products evolve, gift givers are losing one of their favorite categories. A music CD and hardcover book are no longer ideal gifts for the recipient whose music collection is on iTunes and library is on the Kindle. For this holiday season, researcher NPD noticed a drop in popularity of books and DVDs as gift items.
There’s a reasonable alternative for gift givers who still wish to give the gift of content. While gift cards lack the heft or immediate gratification of a print book, CD, or DVD, gift cards are immensely popular. According to the National Retail Federation, shoppers will spend $28 billion on gift cards this holiday season. In the Deloitte holiday survey, gift cards or certificates rank only behind clothing as items that shoppers are most likely to purchase.
For digital content there are two categories of gift certificates or cards. Shoppers can gift credit with a retailer to spend on any purchase. Or shoppers can gift a specific product. This preserves the personal touch associated with picking out that certain book, CD, or DVD for that certain someone.
The second phase will result from the migration from discrete content purchases to subscription services. Spotify, Rhapsody and other music subscription services give music lovers access to wide and deep catalogs. Over the top providers Netflix and Hulu offer subscription services for filmed entertainment. And MVPDs, in concert with cable channels, provide TV Everywhere services like HBO GO.
There are content gaps in the subscription offerings, especially on the video side. But over time, they should become more comprehensive. As they do, there’ll be no need to gift a particular movie or song when we subscribe to them all.
A walk through a living room ten years ago displayed signage worthy of Times Square. Content brands blasted messages about the consumer’s politics, preferences, and profession: The Wall Street Journals piled in the corner, the latest issue of GQ on the coffee table, the complete collection of Marx Brothers DVDs, Puccini operas on CD, and Ayn Rand titles on the bookshelf.
Those content brands are disappearing from the living room. The content is now housed on iPads, streamed through PlayStations, and stored on Dell PCs.
Content badges are vanishing from public spaces, too. At Starbucks and subway stations smart phones and tablets, like the Kindle Fire Amazon released last week, are replacing newspapers, magazines and books.
Both analog and digital content entertain and inform the consumer. But its only analog content that publicly brands the consumer. Often times the brand affiliation play a part in the purchase decision.
When content is distributed digitally it’s hidden within hardware and part of the value proposition is lost. But there are ways to restore the public branding benefits of digital content.
Content providers can give digital buyers logos to display on their social network profile pages. Subscribers to the print Financial Times tuck the salmon-colored fashion accessories under their arms to display knowledge of world markets. To digital subscribers, the Financial Times can give badges for display on LinkedIn and Facebook profile pages.
Another approach is for content providers to provide buyers with physical artifacts to represent the digital content. UltraViolet gives DVD buyers access to the same content online. This hybrid method, albeit a transitional technology, gives consumers both a case to display and cloud access.
In the same way investment bankers display Lucite deal toys, consumers may wish to show off their connection to content brands. Disney can give Simba figurines to consumers who download the Lion King. Today The New Yorker sells iPad jackets featuring iconic covers.
A recent installment in The New York Times’ “Room for Debate” series asks “Have We Become More Willing to Pay for Content?” Debaters cited the drivers commonly believed to influence content purchases: preference by demographics, quality of content, and ease of access.
This is how the discussion about charging consumers for professionally produced content is typically framed. Consumers, however, also pay for content indirectly. These indirect forms of payment greatly influence consumer perceptions about content value.
Access Subsidy. MVPDs pay $32 billion a year in affiliate fees for programming. This is the portion of your monthly television bill that help funds shows, news, and sports on cable. The affiliate subsidy amounts to around 40% of subscriber fees generated for video services by cable, satellite, and phone companies. Because the content is bundled into a package that includes access, subscribers don’t know what they pay for each channel. It’s probably better this way, given how much money some channels receive in affiliate fees. According to SNL Kagan, each year, the NFL Network receives $6,642 and ESPN Classic receives $3,781 per household viewer.
Device Subsidy. In 2008, Apple surpassed Wal-Mart to become the leading music seller in the nation. But unlike typical retailers, music sales are incidental to Apple’s goals. Amazon’s recently announced Kindle Fire brings into focus the difference. One analyst described the Kindle Fire and iPad as “mirror opposites.”Amazon will sell the Kindle for the low price of $199 (losing $50 on each) to make money on content. Whereas Apple sells hardware at a high-margin (the iPad starts at $499) and “just about breaks even” on content.
Price War Subsidy. In the fall of 2009, Walmart.com and Amazon.com lowered the price of ten leading hardcover books to $8.99 each. The books retailed for $24 and higher and Barnes & Noble and Borders offered the books for $14 and up. Publishers generally charge retailers 50% of the list price, so Wal-Mart and Amazon were losing money on each sale. According to The New Yorker’s James Surowiecki, Wal-Mart and Amazon weren’t interested in selling books, their aim was to steal customers from big booksellers and other retailers and then sell them other products. Because the price war was limited to ten books the impact on revenue was small but the PR benefits were great. “It’s textbook loss-leader economics, ” says Surowiecki.
Popcorn Subsidy. Moviegoers regularly complain about the high cost of popcorn, soda, and candy. According to researchers, movie prices would be far higher without them. Movie theaters generate only about 20% of their revenues from concessions, but they account for 40% of profits. Ticket sales are shared with movie distributors, but theatre owners keep 100% of concessions. In Spring 2008, ethanol subsidies combined with Midwest floods spiked corn prices, resulting in higher popcorn prices.
In the case of each subsidy consumers pay distributors for content and distributors pay content providers. But because there are other factors at work the value of content is disguised. The subsidies have distorted consumer perceptions about content value and should inform content providers’ future efforts to charge.
Two weeks ago Apple released Lion OS X and Ars Technica ran a 27,000-word review. Site visitors can read the story for free, as is common for news and information sites. Or they can purchase a Kindle edition of the same story for $4.99. It’s one of the various experiments publishers are conducting in their ongoing efforts to monetize noteworthy articles.
When newspapers and magazines solely distributed content in print, a blockbuster article was a sure-fire way to increase newsstand sales. Other media outlets picked up the story, lending PR support to the sales effort.
Today most newspapers and magazines place their content online for free. And media outlets that pick up the story include those, like The Huffington Post, that abstract portions sufficient to satisfy at least some readers’ interest.
Rolling Stone offers a textbook example of why not to apply print-promotion strategies to a blockbuster article in a digital world. In June 2010, Rolling Stone published a profile on General Stanley McChrystal that was so significant that it led to his resignation as commander of U.S. and NATO forces in Afghanistan. Rolling Stone distributed copies to news outlets for the purpose of drumming up support of the print publication. Only after Politco posted the entire article, and other sites covered the news, did Rolling Stone publish the article to its Web site. By then it was too late, as Rolling Stone was just one of several sources and lost the viral benefits of being first.
A year later, Fortune published an article about the inner workings of Apple. Typically Fortune would have published the article to its Web site on the same day that it was arriving on newsstands and in mailboxes. Instead Fortune made the article available in digital form solely to iPad magazine subscribers and as a Kindle edition for $.99. Many other sites attracted interested users unwilling to pay. But the Kindle edition hit #9 on the Kindle bestseller list. And over the initial weekend, a Fortune blog post about the story drove 1,400 visits to the magazine subscription page and 1,000 visits to the iTunes subscription page.
Ars Technica also published a noteworthy article as a Kindle edition. Unlike, Fortune’s Apple article, Ars Technica’s Lion OS X article was posted online for free. Nonetheless, in the first 24-hours, Amazon sold 3,000 copies at $4.99. In that same 24-hour period, Ars Technica signed up 150 new subscribers to its Premiere service ($5 per month), which disables advertising and presents articles in single-page and PDF forms.
Fortune and Ars Technica looked to Kindle to directly monetize noteworthy articles. Publishers who put high-profile articles online for free can still capitalize on their popularity. Blockbuster articles attract what usability expert Jakob Nielsen calls “site tourists.” Mallary Jean Tenore, writing for Poynter, gives five tips to convert site tourists, drawn by blockbuster articles, into loyal readers:
- Make it easy for readers to follow your site on Twitter and Facebook.
- Make it easy for people to subscribe to email newsletters and RSS feeds.
- Showcase your mobile offerings.
- Provide readers with unique content they can’t find elsewhere.
- If readers come to your site through search, offer them a different sidebar.
In May, The New Yorker provided one more strategy for using blockbuster articles to convert site tourists into loyal readers. The magazine made a David Foster Wallace story available to visitors who “Like” The New Yorker’s Facebook page. The campaign generated 17,000 new fans.
While the Rolling Stone approach is clearly wrong, there’s not a single right one. The evolving social landscape will drive strategies for converting site tourists to loyal readers. And the business of E-singles is new, but promising for publishers of long-form original articles.
Critics responded to Pandora’s IPO earlier this month with questions about the company’s business model. For free, listeners can use the service for 40 hours per month. They hear and see ads that account for 90% of Pandora sales. Subscribers pay $36 per year for unlimited listening, no advertising, no daily skip limit, and higher audio quality.
Pandora and other sites that charge for advanced functionality or access for otherwise free products have been given the freemium label.
The freemium approach appears to be working for SaaS providers, like Evernote, Dropbox, and Remember the Milk. But the formula of mixing free and paid tiers is unproven for content sites ranging from Pandora to Hulu and The New York Times.
Given that content providers generate advertising revenue from free users, who are just an expense to SaaS providers, freemium would appear to be well suited to content sites.
Key differences explain why these SaaS providers are finding more success with freemium than content providers. These differences also contain lessons for content providers seeking freemium success.
Value Increases Over Time. Users begin to experiment with the free version of Evernote by uploading anything from receipts to recipes. With each addition, users become more invested in the service. Eventually, the $45 annual subscription fee becomes a small price for avid users to access their data with premium features like a higher upload allowance and support of more file types.
The low switching cost is a frequently cited argument against content providers erecting paywalls. Collecting data like Evernote makes user abandonment more difficult. Content sites generally don’t collect user data, but services surrounding content do. Netflix collects user ratings that are the basis for personalized recommendations. Yahoo!’s email users are less likely to migrate to Google. Stock portfolios keep investors returning to AOL DailyFinance. And Pandora becomes more tailored to listeners’ tastes the more songs they rate.
Mix Business And Personal Use. Technology is blurring lines between our business and personal lives. The work-issued Blackberry enables employees to work from home. The Web browser enables employees to buy Christmas presents from work, making Cyber Monday one of the biggest shopping days of the year.
Evernote, Dropbox, and Remember the Milk store data from across our business and personal lives. We often use these services first or foremost for personal purposes. But ultimately we justify the purchase with a business use or fund it with a business account.
The Wall Street Journal, with its successful paid online service, is the best example of a content site that appeals to business and personal interests. The opportunity to attract paid users by mixing business and personal use extends beyond traditional business publications. All local newspapers offer a business section that can be enhanced, creating a more attractive premium product.
While there’s no obvious business use for Pandora, the service’s value increases over time through personalization. Its listeners and shareholders hope freemium is enough for Pandora to keep Rockin’ in the Free World.
Consumers who once purchased highly-branded products with great loyalty are changing habits. In increasing numbers they’re selecting competing products that offer the same general benefits, but without the same brand recognition or premium price. The incumbents are searching for strategies to maintain their market share and pricing power.
These trends are playing out for canned corn, toothpaste, and paper towels, as well as digital news, information, and entertainment. The issue, for digital content, is perhaps best illustrated by the public feud between the editors of The New York Times and The Huffington Post. The Times’ Bill Keller compared aggregators, like the Huffington Post, to pirates. In the latest volley, last week Arianna Huffington poked holes in the Times’ new paywall.
There are key differences between consumer packaged goods and digital content market structures. Stores offer limited shelf space but the number of digital properties is limitless. Retailers offer private label goods but digital competition comes from all directions. Nonetheless, CPG makers offer valuable lessons to The New York Times and all mainstream media companies in search of proven strategies.
A 2010 article in Deloitte Review offers advice to CPG brands in their efforts to compete with private labels. Here’s a look at a few of those principles, as they apply to The New York Times, whose challenges are emblematic of those faced by mainstream media companies.
Shed homogeneity. Deloitte suggests that national brands consider local variations and even bespoke products, such as personalized M&Ms. To The New York Times and leading media brands this means fostering community through personalization and participation. It’s now table stakes for content providers to offer email newsletters, RSS feeds, open APIs, and surround articles with social widgets and discussion boards. The Times also engages readers in more ambitious ways. New York Times Live “brings the pages of The Times to life, featuring thought-provoking and entertaining conversations and one-of-a-kind interactions.” First Look “is a showcase for new features and services that we’re developing” and the associated blog “gives you the opportunity to talk with our editors and developers – and lets them talk to you.” Times Limited, in Groupon fashion, “provides members with exclusive access to unique products and experiences”.
Create audience-specific product portfolios. National CPG brands, according to Deloitte, may wish to develop low, medium, and high-end product versions tailored to audience segments. Likewise, the Times is reconsidering the one-size-fits-all approach. NYT.com readers can select either the U.S. Edition or Global Edition. There are editions for the Bay Area, Chicago, and Texas. Plus, the Times publishes 60 blogs on topics of particular reader interest, providing more content for narrower audience segments.
Make me-too strategies an onerous path for competitors. To defend against copycat private labels, Deloitte advises national CPG brands to invest in product development, refresh packaging frequently, and defend intellectual property. The abstract and link approach, perfected by The Huffington Post, creates challenges for established news brands unlike those ever faced by Colgate or Clorox. The most vocal critic of these practices is the Times. Its investment in product research and development is the most effective strategy to combat the threat, at least until a legal remedy emerges. The Times has developed promising user experiences like Times Reader 2.0, news.me, Times Skimmer, Times Wire as well as praised mobile and tablet app interfaces. Superior packaging and presentation, especially on mobile and tablet devices, could ultimately distinguish the originator from the aggregator.
Stop reckless promotion. Deloitte cautions national CPG brands to avoid the temptation of price promotions. They may lift sales in the short term but will damage brand equity in the long term. The media industry provides an extreme example of this behavior. The Times, like most newspaper and magazine publishers, initially offered its content online for free. Then, in 2005, it launched TimesSelect, putting columnist and other content behind a paywall, and abandoned the program two years later. This past March, the Times reversed course and introduced digital subscriptions. Mobile devices and tablets, especially of the iOS variety, have emerged in the interim. Publishers hope that these platforms provide a mulligan in assigning premium value to their digital content. Consumer spending on apps is a promising sign, but it’s hard to put (Colgate or CVS) toothpaste back in the tube.
Sam’s Choice, Great Value, Equate, and dozens of other store brands appear on Wal-Mart shelves. Yet Coke, Tylenol, and Tide are still family favorites. To maintain their leadership position, mainstream media companies should think of themselves not merely as content providers, but as product producers. In the analog days, media properties had a handful of competitors and content was the key point of differentiation. In today and tomorrow’s digital world, where barriers to entry have been erased, differentiation requires attention to product considerations starting with these few.
Talk about charging consumers for content has focused on the content provider – consumer relationship. After all, digital disintermediation promised to put the content provider in direct contact with the consumer.
But a different relationship is playing a critical role in determining content pricing and packaging. Events of just the last month highlight the evolving relationship between content providers and distributors, especially as it relates to charging consumers for content.
Four themes have emerged that will likely define the content provider – distributor relationship and how consumers ultimately pay.
Lines Blur. No longer satisfied to solely aggregate and disseminate, distributors are entering the content production business. Their motivation may be to boost margin, establish competitive advantage, or enhance negotiating position with traditional content providers. We recently learned that Amazon is moving into book publishing, YouTube is investing as much as $100 million in original programming, and Netflix is producing a 26-episode original series for $100 million. And January brought to a close the ultimate content – distribution deal: Comcast’s acquisition of a controlling stake in NBC Universal.
Rights Questions. Time Warner Cable introduced an iPad app giving customers access to 30 channels at home. Two weeks later Amazon introduced Cloud Drive allowing users to upload music and access it anywhere. Both services received positive reviews and represent the cutting edge of content delivery– TV Everywhere and cloud storage. And yet content suppliers to both Time Warner Cable and Amazon objected. They claim to have not given permission for these distribution methods.
Release Window. To extract maximum revenue from each movie, studios are rethinking windowing and pricing. Over the objection of theater owners, studios are planning to offer $30 video on demand movies just 60 days after they’re released in theaters. The battle extends to the small screen. Hulu’s corporate parents – Disney, News Corp., and NBCU – “have proposed delaying the availability of free episodes” to the service to not interfere with their more lucrative TV franchises.
Customer Ownership. Magazine and newspaper publishers are accustomed to controlling the transaction with subscribers. The customer data inform circulation marketing and advertiser buys. For subscriptions sold on iPods and iPads, Apple requires that its one-click purchase button appear, giving it customer data and 30% of revenue. Publishers initially objected, but many now comply in order to get their sub offers on 160 million iOS devices.
For a couple of the key platforms the distributors appear to have the upper hand in pricing and packaging discussions. Apple dominates the tablet market and MVPDs have a lock on living-room video. However, new tablets are flooding the market and over-the-top set-top boxes are gaining popularity. This new wave of devices embraces more open environments that will give content providers more control and consumers more choice.
Among content providers, Facebook is a well-accepted discovery platform. Will Facebook also become a platform for premium content consumption?
The latest evidence of Facebook’s importance as a discovery platform is the paywall plans The New York Times announced this week.
Visits to nytimes.com from search, blog, and social media sites are not subject to the cap of 20 monthly articles. About the Times’ plans, Tech Crunch observes “The Google Loophole Has Become The Facebook/Twitter Loophole.”
One week earlier, Warner Bros. became the first Hollywood studio to offer movies directly on Facebook. Visitors to the “Dark Knight” Facebook page may rent the movie for 30 Facebook credits or $3 and watch it for 48 hours on that page. More titles and the ability to purchase films will arrive within months.
AdAge and All Things Digital describe the deal as important and inevitable given the size of Facebook’s audience, their high consumption of video, the growing popularity of Facebook’s virtual currency, and the social nature of entertainment.
These characteristics suggest that providers of other content types could also charge Facebook users. Perhaps the best candidate is news.
This week the Pew Research Center’s Project for Excellence in Journalism released the 2011 State of the News Media Report. “In a world where consumers decide what news they want and how they want to get it, the future belongs to those who understand the audience best, and who can leverage that knowledge with advertisers,” said PEJ Director Tom Rosenstiel. “Increasingly that knowledge exists outside of news companies.”
More than any one media property or Web site, Facebook has this knowledge. When combined with the amount of time users spend there and its “news feed” presentation, is a Facebook Newsstand far off?
Content providers seeking to charge consumers are faced with an ever-expanding number of decisions. In addition to deciding whether to charge and how much, content providers now must consider price points across platforms (analog, Web, mobile, and tablet) and even how to measure consumption (pay per view, subscription, metered method).
Is it better for content providers to present consumers with more or less purchase options?
In his 2006 book, The Long Tail: The Future of Business is Selling Less of More, Chris Anderson promotes the “Paradise of Choice.” For Anderson, choice results from the explosion of product offerings from the likes of Amazon, iTunes and Netflix. As a result, the “mass market is turning into a mass of niches.”
Applying this logic, it would seem preferable for content providers to give consumers more purchasing options. Why shouldn’t content providers follow this trend and create product configurations and at price points for each market segment.
Barry Schwartz looked at a similar set of facts, in his 2003 book The Paradox of Choice: Why Less is More, and arrived at the opposite conclusion. He argues that more choice creates paralysis, anticipated regret, escalation of expectations, and opportunity costs. In short, choice makes people miserable.
Prospective purchasers of digital content face the added anxiety of shopping for a product they can’t first try on or out. And when they do make the purchase, what they acquire is represented merely by pixels on a screen.
Fortunately, the same technology that creates these options offers a partial solution. A/B and multivariate testing gives content providers the ability to explore appetites for various product configurations and price points without laying out every option to every prospect.
Despite – or perhaps because of – fast-changing consumption patterns and platforms, for content providers the key to selling more may be offering less.