It’s been a busy week for us in the online content space. Most of our research time was spent in the music space to support our work on Pandora which intends to do an IPO soon. (For more on Pandora see our Pandora Pre-IPO Preview over at IPO Candy. For more on the online music space see our Thought Leader Interview with Jeffrey Epstein and our recent update from DMFE.)
So while we were already in middle of the whole music business model debate along comes the New York Times content paywall. This has led to a spasm of posts about free versus paid content, speculation about how The Daily is doing, iTunes as a “gatekeeper” and all that. One thing the NYT has done is make it very complicated to understand what is free, what is paid and what the pricing is. It turns out it varies by device, type of access, whether you will accept having a pile of dried paper pulp sent to your door and which sections of the paper you want. (I’m not consumer marketing expert but I think major complexity regarding a news subscription is a bad starting point!)
Who cares? This payment mess is mostly a product of existing companies trying to apply old models to the new online medium. Nearly always a recipe for failure and future obscurity. What the exact slope of suffering is for the NYT is hard to predict but it certainly clears the way for new providers. The reason is the answer to our main question.
No money, no pay. Whether it’s news, music, healthcare or research the first test regarding qualified payments is ability to pay. Young teenagers and those without financial resources are not going to be paying – no matter what you do. They don’t have the money or the credit. So that means only people with money will be paying. Seems obvious but if that’s a small portion of your target market you have a problem. (Hello music industry!)
People who care deeply about content and/or convenience will pay. So there’s an audience, call it a niche, that will certainly pay because the product or service is so important or enjoyable for them. These are the opposite of casual users, these folks are eager paying consumers. Even if content is available for free with advertising included they are often willing to purchase the content to avoid the advertisements. Apple has done well in cultivating this market segment.
Businesses and companies pay. Although many have gotten quite stingy over the last decade. You probably can still get some publications and services reimbursed. Often companies manage these subscriptions via a service provider like Prenax. This doesn’t help the music or news folks much but it does in other areas.
Advertisers pay. Search engines can be included here too. The fact that the music and news organizations haven’t really figured out how to leverage advertising and other services to provide ongoing free access to their content is surprising. There’s a debate about whether “Internet radio” will be a service that could be entirely supported by advertising but it’s too early to know if it will work out. Pandora is leading the charge there.
Why the fight over “freemium?”
Everyone likes to make fun of the music and news industry. They deserve it in part by fighting against the “freemium” model as if it should somehow not apply to them. But it applies to everything because every product or service has a different level of utility with every consumer and every consumer has a different level of financial resources. Even companies at the very highest end of this market offer consumers these options. I can go into a Louis Vuitton store and enjoy their products as much as I like in the store. Of course if I want to enjoy one of my own I have to pay a hefty price. But now there are even companies that specialize in renting these high cost items for a day, a week or a month. So consumers are accustomed to having it their way. They are not going to be “retrained to pay” as the record companies like to say.
Of course established companies rarely see the obvious as well-documented by works like The Innovator’s Dilemma. If they did what would it look like? First of all music and news would be free, as long as you consume it on the terms provided and with advertising if appropriate. If you want that same content under your control (play a song whenever I want, see a news story without ads or embed it in my content) then the paid model comes into play.) Seems simple. You can enjoy the content at my site or by my rules and if you want it on your own you pay. (Rights holder still get paid but the number of executives, middle managers and offices might have to shrink quite a bit.)
How can you argue over this? People without money or ability will not pay. People who don’t care a good deal won’t pay. So pay only = niche.
Sized down – This matters to research.
As a research provider we’re often asked “what’s your business model?” Six years into it we still don’t have a pat reply. But we are still here so that tells us something. The arguments above apply to research too. Just because someone likes your research and is “interested” in it doesn’t mean they will or even should pay. So the first test is always who cares? In some cases it’s an institutional investor that is very active in the space you cover and uses your research to make better decisions. That means there is real ROI from your work. That’s one.
Sometimes firms with large platforms are willing to pay for high quality research content and this provides a form of channel revenue. One has to be careful here because many are looking for relatively low cost “filler” content which won’t pay well and will dilute your research brand. But when there is a good fit and the relationship will keep your research output in balance and not “trap” too much content outside of your platform, these can be good deals. That’s two.
Investment banks and public companies probably have the most acute need for investment research and are happy to pay for it. Investor clients often grumble about a the potential “conflict of interest” but there is nothing inherent in the model that prevents the production of independent research with a rigorous fact-based process at it’s foundation. In the end it serves all parties involved for this to be the case. That’s three.
I’m not sure advertising has a role in research business models although very popular analysts have been able to generate large amounts of traffic and use advertising and sponsorship as a business model. The deeper the research the fewer the updates so the high volume model won’t apply to most of us.
So in conclusion – Lots of people can’t or won’t pay, give them what you can for free or with advertising support. Then find those who will get the most value from the work and have the resources to pay something for it and focus on them. Finally give the crowd that is only casually interested now a way to convert easily to a paid relationship their interests in your work and offerings intensifies. Those percentages and pricing dictate your business model, make sure you’re right!
Sized up – This matters to healthcare and the US economy.
Forking into a discussion of the US healthcare system and the economy is tough to do on a Friday. But it’s related. They dysfunctional structure of the US system has made the cost too high for most people to pay and a burden for those companies that do pay for it. However it’s not a discretionary item. Without lowering costs the “market” for healthcare will get smaller and smaller. Can the US allow healthcare to be come a “niche” for only those able to pay for it? What’s the alternative?