5. On-line Content

The promise of online content business has attracted almost all forms of media: newspapers, magazines, broadcasters, cable MSOs, and other media and publishing, to the Internet with unprecedented competition and partnerships as well. Media companies provide online news information, entertainment, and search & directory service. Among those content providers are traditional publishing companies like Time Warner (Pathfinder) and the Wall Street Journal (Wall Street Journal Interactive Edition), new web publishing companies like Hotwired and Yahoo!, broadcast companies like NBC (MSNBC) and CNN (CNN Interactive), and technology companies like Digital Equipment Co. (Alta Vista). Media companies are lured to the Web largely by such Internet-enabled advantages as reduced print and distribution costs, specifically targeted audience, and ability to tap a variety of different revenue sources, including subscriptions, advertising, and transactions. The Web, however, is competing with traditional media as a method of distributing news information and entertainment.

Providing high-quality content free of charge has been a popular business model used by many companies to build market share and brand awareness. One such example is the famous publication Slate magazine before it started to charge subscription fees. Other magazines, such as Wired, make back issues content freely available, but withhold content from the current issue until it is off the newsstand. While Slate can enjoy the financial backing of Microsoft, such support is generally not available to most online companies. In fact, even Slate has now begun to charge for access to its content. As a result, various models have been developed over the past few years to generate revenues from content business. The current revenue models fall into the following categories:

• Subscription

• Advertising
• Combination of the Two

Subscription - The pure subscription model has yet to prove successful. The idea behind the subscription model is that the perceived value of the information is greater than the subscription fee. But it is difficult to convince viewers to pay the charge when so much information on the Web is free already. To do so, a content provider must have a very strong brand name among its target audience. Wall Street Journal is a good illustration of publishers that fit this model. It had 650,000 registered visitors to its site before it started charging a $49 annual fee for non-print subscribers and $29 for print subscribers in September 1996. It now has 140,000 paid subscribers. The jury is still out as to its success.

Advertising - Most content providers adopt the advertising model. The theory is that content providers are able to attract highly targeted consumers who are valuable to advertisers to their web-sites, so advertisers will pay for getting messages to the audience and gateways to their own sites. According to Jupiter Communications, 900 content providers received advertising revenue in 1996 ($301 million in total), with the ten largest getting 57% of the total. Netscape remained the number one site for advertising revenue ($27.7 million), and followed by Yahoo! ($20.6 million), Infoseek ($18.1 million), and Excite ($12.2 million). The largest Web advertisers were Microsoft ($13 million), AT&T ($7.3 million), Excite ($6.9 million) and IBM ($5.9 million).

Combination of the Two Models - Some content providers have sites that employ both the advertising and the subscription models. Subscribers have access to proprietary information that non-subscribers cannot see. ESPN is a good example of this model. It has a lot of sports news that can be accessed by non-subscribers, but it also provides news for subscribers only.

The Internet enables publishers to unbundle content and deliver individual pieces over the Web. For example, with micro-payment schemes, newspapers and magazines can be sold article by article and readers can subscribe to individual articles, columns, features, or sections, instead of an entire publication. As a result, the traditional subscription and advertising revenue models have evolved to include some new features listed below:

New Subscription Model:

• Consumer access can be provided to entire content or only a portion of the content on a subscription basis. Subscription can be based on the month, week, day, hour or minute, with different pricing schemes.
• To capture revenues from readers who do not want to subscribe, content providers can charge for content on a per-use basis, with prices based on the date, length, or topic of the content.
• The reader is allowed to choose either subscription or per-use basis, or combination of the two. For example, a reader may want to subscribe to certain regular content while accessing others on a per-use basis.

• Advertisers can underwrite certain content and give readers who view advertising free access to it.
• Readers have choice of viewing advertising together with content at a lower subscription cost, or reading advertising-free content at a higher subscription cost.
• Readers can get credits by viewing certain advertising and then spend the credits on content.
• Advertisers can use various promotional incentives and advertising rebates and conduct marketing research more easily.

Sports and sex are two kinds of Web content sites that make the most money. While profit figures are closely guarded, the following two high profile examples provide some insights into the sales picture:

• Sports: ESPN Sportszone went online in 1996 and subscribers pay $4.95/month or $39.95/year (30 day free trial) as a entry fee for professional sports box scores and related information. Subscribers pay additional fees for more robust levels of access to sports information. The service is successful because it offers big niches, e.g. baseball, football, basketball, and other sports, plus slices of each niche to people with different sports interests. Each slice can be marketed and priced to fit its niche. The firm is reporting revenues of approximately $4 million in 1996. Initial investment in the firm was $60 million, primarily from Paul Allen, the co-founder of Microsoft. Online sports appear to be on its way to being a big business.

• Sex: According to Forrester Research, adult entertainment on the Internet is the third largest sector of Internet sales after computer products and travel services, accounting for 10 percent of the 1996 estimated revenues of $518 million for online merchandising. It is estimated to be the second most profitable after sports. Early adoption of the Internet for access to sex-related information and merchandise follows similar trends for other technologies such as the video tape player and subscription to cable TV channels. Adult content sites on the Internet have been among the first to use technologies enabling secure transactions with credit cards via computer. An example is Playboy magazine that adopted a two-tier pricing structure. As one of the most visited sites, it offers some free areas, a base fee of $6.95/month, $18/quarter, or $60/year for access to current information, and then higher prices for access to a vast archive of previously published material. The company did not disclose the number of paid subscribers, but it receives several millions of "hits" a year.

While advertising will remain the predominant revenue model for online content business, content providers will increasingly look to subscription fees for new source of revenue streams in order to make profit out of this seemingly attractive market. Thus, a mix of the two - advertising and subscription - seems to be the most appealing revenue model. According to Jupiter Communications, subscription-oriented revenues, now only six percent of all online industry revenues, will grow from $319 million in 1997 to nearly $3.8 billion, or 26 percent of all revenues, in 2000. Despite such robust growth patterns, however, content providers should understand that, by and large, consumers are averse to paying for online content. Therefore, it will continue to be the most daunting task for publishers to convince general consumers of the value of the content they provide if they want to turn the online content business into a profitable one.

Title | Summary | Introduction | Selling | Advertsing | Content | Transaction | Future | Bibliography