From AJR, October 1999 issue
Paying for Content on the Web
With fewer Net surfers clicking on ads, will more sites charge for subscriptions?
By David Carlson
David Carlson is a former AJR new-media columnist.
THROUGH EXCRUCIATING mathematical calculation, voodoo and other highly questionable scientific methodology, I've arrived at a formula for determining how many "Internet years" pass during each calendar year. The number is 5.46893.
I'd divulge the formula, which involves dozens of variables including the speed of light, a divining rod and the weight of one meter of fiber-optic cable, but unless you are highly gifted in doing differential equations and in writing haiku, you wouldn't understand anyway. So just trust me while I attempt to get to the point.
Time flies on the Net. Some 164 Internet years have passed since the fledgling Net began operating in 1969, and 27.34465 Internet years have passed since the first media companies started creating Web sites just over five calendar years ago. That's a long-short time, and through all of it, it's been an almost universally accepted fact that consumers will not pay for content online, unless it's pornography.
With few exceptions, online media companies have relied on the same model that radio and, later, television adopted: advertising support. The concept is simple: News will attract eyeballs, and advertisers will pay to reach them.
Now, however, there are data floating around that may call the "content must be free" assumption into question: The number of consumers paying for content is rising, and the number clicking on ads on Web sites is dropping, dramatically.
The advertising statistic is called the "click-through rate," and it is a measure of the number of people who click on Web ads and pass through to the advertiser's information. In early 1998, the click-through rate averaged 1.35 percent, according to NetRatings Inc., a California company that tracks such things. The current rate is estimated at something below 0.5 percent, says Tim Meadows, an analyst at NetRatings.
Whatever the reasons for this startling trend, it could make advertisers begin to question whether it's worth it to support general news Web sites, and that could have major implications for online media. What happens if companies stop advertising on news sites? Will online media move to generate revenue through subscriptions? It would seem logical. It's familiar territory, at least for newspapers and magazines, which already use subscription charges to help pay the freight. And there are some new indicators that might point to a chance for success.
The two largest subscription sites on the Web, Consumer Reports Online and the Wall Street Journal Interactive Edition, report they each have more than 300,000 paid subscribers and are growing. Both sites have charged access fees since their debut. The Journal, launched in April 1996, charges $59 a year for nonprint subscribers, and Consumer Reports, on the Web since November 1997, charges $24.
Consumer Reports Online is attracting 1,000 new subscribers a day, says Nancy Macagno, director of new media for Consumers Union, which publishes Consumer Reports. The Interactive Journal is signing people up at the rate of 2,700 a week, says spokeswoman Denise Collins.
The key to success for a subscription site, experts agree, is to have exclusive, useful and trustworthy content. "You've got to fill a niche market...and have what I call `Net value,' which basically means that the content has to somehow be more valuable when it's presented online than when it's presented elsewhere," says Aram Sinnreich, an analyst with new-media research firm Jupiter Communications.
The Journal online integrates content from all its editions and offers personal investment portfolio tracking. Consumer Reports Online offers dozens of its product test reports and comparisons.
Another positive indicator for pay sites is a new Jupiter survey showing that more consumers are willing to pay for online content. Sinnreich reports that 43 percent of the 1,600 consumers surveyed by Jupiter in 1998 said they would pay for content online. This year, 54 percent said they would pay. "That's a good trend," Sinnreich says. "Nearly 80 percent said they haven't paid for any online content, though, so you have to take it with a grain of salt."
Despite these seemingly positive signs,
Sinnreich doesn't think the future looks rosy. "I really don't think paid content is a very significant revenue stream at this point, and we don't foresee it becoming one in the near future," he says. "For every site like the Wall Street Journal and Consumer Reports, there are 10 sites that have tried paid content and failed."
What it adds up to is there still aren't any easy answers to success online. Advertising support could be in trouble, but it takes very special content to generate subscriptions—content most smaller media outlets can't provide. I guess we'll have to wait at least another 5.46893 Internet years to see how it shakes out.