Advertisements demolish the paywalls
By Kate Bulkley
Thursday July 26, 2007
More publishers are raising money via advertising, but many are also hoping to sell premium services to users of the free online products
Traditional media companies face a very modern dilemma: should their websites be free or paid-for? The trend recently has been to plump for the free model and bring in revenue via advertising. This has meant that websites that have in the past been subscription-funded have started to move to the ad-supported model: big media groups such as CNN, The Economist and even The Wall Street Journal have all started to pull down the subscription "paywalls" on their websites.
CNN.com is the latest to abandon the paid-for model and go free. Last month both The Economist and the Wall Street Journal did the same thing, with the WSJ's website launching a much-expanded free home page aimed at new customers that sits alongside its original and robust paid-for site.
This move by media groups reflects the way online communities are maturing as well as a growing understanding by publishers and broadcasters about how the web works. Online and print customers consume the products differently. Ben Edwards, publisher of Economist.com, says his print subscribers treat print version of The Economist in very different ways from online users: "Offline is a luxury good; people use the magazine as a ritual pleasure - reading it at the weekend and spending over an hour doing it - but the online product is used at work and, instead of browsing, users are very task-orientated, researching a trip or helping put together a presentation. They stay six minutes and then leave."
According to a recent survey by Accenture, media executives increasingly believe that free sites with ads providing the bulk of the revenue will be the most prevalent business model online. Last year, 38% of the top men and women in media, from WPP's Sir Martin Sorrell to CBS's Leslie Moonves, said that ad-supported sites were the best revenue model, but this figure leapt to 50% in this year's survey.
The maturing of the online world is helping convince everyone that subscriptions are old hat. Millions more broadband connections are driving websites towards making money from advertisers rather than users. In the UK, which boasts one of the most active online ad markets, the internet's share of all advertising revenues was 11.4% last year- equivalent to about £2bn, according to the Internet Advertising Bureau. And the growth curve is steep: UK online advertising revenues grew 41% from 2005 to 2006, says Guy Phillipson of the bureau. Accenture predicts that globally, the online ad market will reach $30bn (£14.5bn) in the next 12 months.
"When AOL decided to open up its site [in August last year], that created a tipping point in the advertising industry," says Gavin Mann, part of the digital media team at Accenture. "It has a very large consumer base and it creates a change in consumers' minds but also in advertisers' minds."
For CNN (also a part of the Time Warner family that includes AOL), the move to converge its TV and online efforts took 15 months. During that time, the free CNN.com site - which offered free downloadable video - existed alongside a now-defunct paid-for site called CNN Pipeline which offered streaming video.
"We know that online consumers do not want to pay for content, but the cost of serving up live video was too big a cheque to write," explains Susan Grant, executive vice-president of CNN News Services, which oversees CNN's online and digital businesses.
CNN has had a web presence since 1995 but in late 2005 it launched the paid-for CNN Pipeline, which cost $2.95 a month. CNN has never revealed what the take-up was for this site, but observers say it was quite low. Grant insists that she never saw Pipeline as the correct consumer approach, only as a test of the technology and programming abilities of CNN online. However, CNN has now embraced the ad-supported model. Says Grant: "The market changes and that has helped us get to where we hoped to get."
While an all-subscription model is looking a bit like old-style media, the hybrid model seems to be the way forward for many. "We are doing more about how we offer our free content but we also surface contextually relevant paid content next to it to pull users in," says Daniel Bernard, general manager of wsj.com.
For the Wall Street Journal, converting users of the free site into paid subscribers is a big focus. The Dow Jones-owned newspaper has an enviable position as the most successful paid-for financial news site, with 931,000 paying online subs, 33% of whom also subscribe to the newspaper.
If Rupert Murdoch's $5bn bid to buy Dow Jones is successful, the WSJ's paid-for strategy will surely come under review as Murdoch has already stated a preference for free, ad-supported sites in an interview with Time magazine in June (time.com).
But Bernard is already looking to the future: "We work hand in hand with the newspaper and we want to grow both," he says. "But we want to be positioned for the future as well. As fewer people maybe read the paper, we want to make sure we provide our content in a relevant manner as they go online."
Just like the Wall Street Journal, the Economist is using its free model to entice new online readers and hope that they can then either upgrade people to a print subscription or, alternatively, sell premium products to web visitors. Edwards believes that he can ask his users for a fee to access online forums with the economist.com community around particular topics. The Economist is also piloting paid-for podcasts of the magazine for $6 - equal to the cover price of the magazine.
"I don't feel religious about a free online site at all," Edwards says. "I would love to charge for the website, but it depends what value we manage to create for our audience. I can imagine charging for certain portions in the future, but it may not be for content. It might be for access to a community or to an interactive service."
Edwards says that media information companies are still learning about the benefits of free websites because of the push towards interactivity. "News websites are increasingly interactive and the larger the audience you have the more participation you get and the more value is created through that," he says.
Creating paid-for services on top of free, ad-supported websites is the focus at Emap where Paul Keenan, who is in charge of the company's 70-title magazine division, believes that brands such as Motorcycle News, FHM, Today's Golfer and even Practical Fishkeeping can all attract payments for targeted services online.
To that end the Today's Golfer website (todaysgolfer.co.uk) offers a tee-time booking service for UK courses, with Emap sharing the revenue with the participating clubs. Emap's celebrity magazine Closer launched an online diet planning service last summer. It now has 11,500 subscribers who each pay £10 a month.
"Publishers have a deep and rich history creating content that people are willing to pay for," Kennan says. "We shouldn't abandon that online. We need to look for services, experiences and applications that our audiences will pay for."
What Keenan hopes to do is replicate the dual-revenue model of offline publications (advertising and subscription/ newsstand sales) online. "My idea is to generate as much online advertising as we can by establishing a good price for it and good sites for it and to also experiment with paid-for content," Kennan says.
And the cost of all this is negligible when compared to the kind of money spent on a new magazine launch. Kennan will roll out better search technology and premium services online across 10 specialist magazine titles over the next nine months for less than £5m. By way of comparison, the launch of Grazia magazine cost Emap £16m. "We think that really cool websites do things for you," says Keenan. "These things like offering tee times gets us beyond media and gets brands like ours into services as well."