[Infowarrior] - Adding Fees and Fences on Media Sites

[Richard Forno]

December 28, 2009
Adding Fees and Fences on Media Sites
By RICHARD PÉREZ-PEÑA and TIM ARANGO
http://www.nytimes.com/2009/12/28/business/media/28paywall.html?hpw=&pagewanted=print
Over more than a decade, consumers became accustomed to the sweet,  
steady flow of free news, pictures, videos and music on the Internet.  
Paying was for suckers and old fogeys. Content, like wild horses,  
wanted to be free.

Now, however, there are growing signs that this free ride is drawing  
to a close.

Newspapers, including this one, are weighing whether to ask online  
readers to pay for at least some of what they offer, as a handful of  
papers, like The Wall Street Journal and The Financial Times, already  
do. Indeed, in the next several weeks, industry executives and  
analysts expect some publications to take the plunge.

Rupert Murdoch, beyond charging for access to The Journal, has talked  
about forming a partnership with a single search engine, which would  
pay him for the rights to scour the news and entertainment programming  
produced by his company, the News Corporation, rather than letting all  
search engines crawl his sites. Also Hulu, which is owned partly by  
Mr. Murdoch’s company, is considering charging viewers to watch some  
of the TV shows it now streams free.

Magazine publishers, meanwhile, have banded together to try to create  
their own version of the iTunes store, aiming for a day when they can  
sell enhanced versions of what they have been giving away. And more  
and more media companies are planning to charge for apps on iPhones  
and other mobile devices, as well as on the Amazon Kindle and other e- 
readers.

Media companies of all stripes built their business models on the  
assumption that advertising would continue to pour into their coffers.  
But with advertising in a tailspin, they now must shrink, shut down or  
find some way to shift more of the cost burden to consumers — the same  
consumers who have so blissfully become accustomed to Web content that  
costs nothing.

So will future consumers look back on 2010 as the year they finally  
had to reach into their own pockets?

Industry experts have their doubts, saying that pay systems might  
work, but in limited ways and only for some sites. Publishers who  
sounded early this year as though they were raring to go have not yet  
taken the leap, and the executives who advocate change tend to range  
from vague to cautious in making any predictions about fundamentally  
changing the finances of their battered businesses.

But one thing clearly has shifted already, in a year rife with  
magazine closures and newspaper bankruptcies: conventional wisdom  
among media companies has swung hard from the belief that pay walls  
would only curb traffic and stifle ad revenue, to the view that media  
businesses need to try something new, because the current path appears  
to lead to extinction.

“Content providers see that the idea that everything has to be free,  
supported by ads, isn’t working well, and they’re trying to put the  
toothpaste back into the tube, but only partially,” said Alan D.  
Mutter, a media consultant and blogger who has been an executive at  
digital media companies.

He went on: “So we’re looking at some sort of an inflection point, at  
least in attitude. But I haven’t seen much realistic, hard-headed  
thinking about how that’s going to happen, so I don’t know how much is  
really going to change.”

Ann S. Moore, the chief executive of Time Inc., the nation’s largest  
magazine publisher, said, “A lot is going to change over the next two  
years.” But she conceded that it was very hard to predict the shape of  
that change, and she said that adding pay walls alone probably would  
not work.

Of course, it is the established media, with their legacy of high  
operating costs and outdated technology, that face this problem.  
Leaner, newer online competitors will continue to be free, avidly  
picking up the users lost by sites that begin to charge.

Arianna Huffington, co-founder and editor in chief of The Huffington  
Post, predicted that much of the talk of media’s mining the Web for  
new revenue would never become reality — and that if it did, free  
sites like hers would benefit. Some of the plans now being laid might  
work, she said, but many of them would just alienate the Internet  
users who click from one site to another, wherever links and their  
curiosity take them.

“I’m not minimizing the fact that there’s a need to experiment with  
multiple new business models,” she said. “I just don’t believe in  
ignoring the current realities.”

For more than a decade, media companies have hoped for a day when they  
could either control access to their products online or at least put a  
price on them that a mass market would bear. But that day has never  
come. What has changed is the level of threat they face, given the  
worst advertising downturn in memory.

Since the infancy of the Web, there have been predictions that by  
making information more plentiful and accessible, prices would be  
steadily driven down, with no bottom in sight. At first, it did not  
seem to matter: Internet advertising grew at a breakneck pace, and  
traditional media thrived even as the assumption of free content took  
root online.

But eventually, the rise of the Internet punished most media, starting  
with the music industry, in the form of file-sharing. That history  
offers an object lesson. Despite the success of iTunes and other pay  
services, illegal downloads remain common.

Print publications are suffering most now, but digital distribution  
has grown in importance for broadcast television. Nearly all of its  
content is now available free online, as broadcast media lose audience  
and advertising. Book publishers are also fighting the tide; Simon &  
Schuster said recently that it would delay the release of e-book  
versions of 35 big titles, like Karl Rove’s memoir and a Don DeLillo  
novel, fearing that the $9.99 digital versions would eat into sales of  
hardcover copies.

Cable television has been an exception, thriving on subscriber fees,  
but even there, executives fret that consumers are disentangling  
themselves from their cable boxes, free to pick and choose individual  
programs online and watch on their TVs. Jeffrey L. Bewkes, the  
chairman and chief executive of Time Warner, has advanced a plan that  
he calls TV Everywhere, which would allow paying cable television  
subscribers to view shows online for no extra charge.

Similarly, Comcast started a service this month that gives subscribers  
to its broadband Internet and digital cable services access to its  
cable programming on the Web.

These efforts are not about wringing extra dollars from the Web but  
about preserving the current economics of the business.

“We’re saying, since those payments you have made have found their way  
to the networks and through distributors that give you the connection,  
that we want to have you be able to watch all those networks on  
broadband,” Mr. Bewkes said recently at an investor conference in New  
York.

A leading evangelist for the coming of a new era is Rupert Murdoch,  
who has said he envisions a not-too-distant day when all of the News  
Corporation’s news properties, including Fox News Channel, The Times  
of London and The New York Post, charge online. He and his executives  
have repeatedly criticized search engines and news aggregators, saying  
it was “theft” to profit from publishers’ work.

The News Corporation has been shopping around an online payment  
software system — so far without much success — in hopes of playing  
pied piper to other publishers, and it is a charter member of the  
group of magazine publishers that have banded together, in a  
consortium announced this month. And there have been talks about the  
possibility of Microsoft paying for the exclusive rights to have its  
Bing search engine direct users to News Corporation sites.

“Quality content is not free,” Mr. Murdoch wrote in The Wall Street  
Journal on Dec. 8, days after delivering a similar message at a  
Federal Trade Commission workshop. “In the future, good journalism  
will depend on the ability of a news organization to attract customers  
by providing news and information they are willing to pay for.”

People who have studied the problem argue that charging online would  
work only if consumers were offered a much-improved product with the  
convenience of access anywhere, on any digital device — the core idea  
behind the magazine consortium and its planned online store.

By that standard, much of the talk of wringing more money from  
Internet users rings hollow, said Jay Rosen, a professor of journalism  
at New York University and a prominent blogger on media subjects.  
“People who really think we have to charge or the industry is sunk  
would be more persuasive if they said at the same time we have to add  
more value than we’ve been adding,” he said.

And, most industry experts agree, entertainment will be easier to  
charge for than news. It may be hard to prevent free distribution of  
an episode of “The Office” or “NCIS,” but the product is unique, with  
no substitute being created by someone else.

A small number of publications already charge for Internet access,  
including The Wall Street Journal, The Financial Times, Newsday,  
Consumer Reports and The Arkansas Democrat-Gazette. But they tend to  
be either specialty products or near-monopolies in local markets, and  
they generally do not charge enough to fundamentally alter their  
profit pictures.

But for most general-interest news, any paid site would be competing  
with alternative versions of the same articles, delivered by multiple  
free news sources.

“One of the problems is newspapers fired so many journalists and  
turned them loose to start so many blogs,” Mr. Mutter said. “They  
should have executed them. They wouldn’t have had competition. But  
they foolishly let them out alive.”