Kate Bulkley, Media Analyst.

Media money: Why is ITV changing the Friends Reunited business model?

By Kate Bulkley

Broadcast News

For Broadcast May 28, 2008

There is an old saying in business: if it ain't broke, don't fix it.

According to ITV, Friends Reunited has trebled its profits to £15m since its £175m acquisition. So if FR and its pay model are doing so well, why is it being ditched in favour of a free, advertising supported model?

The answer is in the detail: ITV has seen the rocketing growth of free, ad-supported sites on the internet. Pay walls everywhere online seem to be coming down.

Second, social networking sites such as Facebook and Bebo have struck a successful chord with users. ITV thinks it is better to "go free" now than wait for a very probable fall-off in subscription revenues.

But there is also another calculus at work: FR is going free but its sister sites are not - Genes Reunited and Friends Reunited Dating are keeping their pay subscriptions very much intact. Some 60% of the profit for the FR group comes from the genes and dating franchises. So the gamble for ITV is pretty limited: can the main site - FR - generate £6m more in advertising (40% of £15m) to make up for the loss of subscription income?

ITV and new FR managing director Andy Baker thinks attracting £6m in ads is achievable because in the month since the pay wall came down, the number of unique users to the site is up quite dramatically (although ITV won't say by exactly how much).

ITV is betting it can make up the lost subscription revenue more easily than other sites because FR's target demographic is 35-plus, an age group relatively untapped by social networking sites (research says that only 15% of Facebook users are over 35).

So, the bet will either make ITV look a genius or it will fall short. By my calculations, FR will have to increase visits to the site fourfold to replace the £6m of subscription revenue. A rather large FR marketing and promotion campaign may be Baker's first order of business.

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