Pay-Per-View's Payback: Cashing in with Content

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Sidebar: Free Power!

Voices may be loud in claiming that the end of the "all free, all the time" Internet is upon us-but this chorus is not unanimous. Singing a discordant note is Scott Moore, publisher of Microsoft's Slate magazine. "Our history shows that free is the only way for journalism to go on the Internet," says Moore, and his experience holds lessons for all content providers embarking on money drives.

Slate, of course, experimented with subscription fees. In 1998, it imposed a $19.95 annual charge and, while it left some content free, much of the good stuff was reserved for subscribers. Big problem: The free content got 10 to 15 times more viewers than the paid content. Bigger problem: Whispers were everywhere that page views were declining because only the scraps were dangled out for free viewers. The upshot was that, within the year, Slate terminated its subscription policy and reverted to an all-free model.

According to Moore, despite a slowdown in online advertising, that policy is not under review. "The ad slowdown is causing pain for under-capitalized companies. But we believe that free remains the way to go. When we ended our subscription fees, our readership increased ten-fold. Our marginal cost for every new reader is essentially zero, but every new reader also increases what we can expect advertisers to pay."

However, Moore is frank that some kinds of paid online content sites have bright futures. "Probably Consumer Reports," he says, as an example. "They are selling content you cannot readily get elsewhere for free."

But aren't online advertising revenues dwindling as doubts rise about the medium's effectiveness? Not according to Moore. He argues that old-fashioned banners may have hit a wall, but these small, low-res banners aren't the end-all. "What we are seeing is the rapid evolution of advertising techniques on the Internet." Banners probably will get much bigger, filled with much more eye-catching animation. "There is a great deal of creativity happening." And, Moore suggests, results from this new-wave advertising will quell any doubts about the Internet's effectiveness as an online medium. "Advertising can and will support much content on the Internet. This remains a valid business model."

Sidebar: Don't Get Down on Subscriptions

A key driver for subscriptions seems to be that they give the consumer a fixed amount to pay, just as HBO or Showtime come at a set price. But stay tuned because there is also a crucial lesson to learn from successful sellers of subscriptions. Listen up to two very different companies that have arrived at the same conclusions.
"We joke that our site went profitable within four hours of going live," says Gerard van der Leun, vice president of Internet Ventures for General Media, the New York-based owner of Except "it's not really a joke. We have been profitable since we went live in 1995." There's no guessing about why this is so. In its universe, Penthouse is one of the strongest brands, with wide user awareness.

Online, Penthouse sells the usual range of adult content-its material isn't for prudes-but van der Luen readily shares lessons that have been learned as a pioneer content seller. A big lesson: Offer visitors various subscription options. "For the first five years, we offered only a monthly subscription. Now we offer five choices, from a two-day pass ($9.99) to a monthly pass ($24.99) to a one-year subscription ($120). We have found our visitors appreciate having these options. People like choices," says van der Leun, who indicates that "we are having great success with the two-day pass. We see the same customers coming back, time after time, for new two-day passes. This subscription satisfies the impulse buyer."

With this tiered pricing structure in place, business now is so brisk, says van der Leun, that "we are moving more content out of the free section. We envision cutting back on the free content by 95%." He indicates that there will remain some free content-"we will always offer a free portion, for casual visitors"-but "I see us putting more content behind the paid wall. That's only right. Paying customers need to see the value in their purchase."
Penthouse goes into the online marketplace with a well-established brand. Not so with MagWeb, a military history site operated by Stockton, NJ-based Russ Lockwood, a onetime editorial director of AT&T's New Media Services group. This may be a dot com startup but MagWeb is a dot com with a difference: "We are profitable and we are subscription-based," says Lockwood, whose site (founded in 1996) offers up to 21,000 articles drawn from 86 magazines. Most are obscure titles, at least to the mass market, but to avid followers of military history, this is a trove. Represented are Age of Napoleon, Battlefields, Conflict, the Rebel Yell, the Art of War, and still more esoteric titles.

Access to a free, trial library is designed to entice visitors into buying one of four subscription plans: one month ($19.95); three months ($34.95); six months ($49.95); and one year ($59.95). How did Lockwood arrive at his pricing tiers? "I did market research. I asked potential customers and these choices are designed to meet varying needs."

Some people, he adds, just don't like commitment: "We have one reader who has had three-month subscriptions for the last three years!"

In Lockwood's case, he also has to secure rights from the magazines' publishers to put their material online. But he says that is easy. "None of these publications would otherwise be online. We do the work for them and we share our revenues with them. We are broadening their exposure and paying them, too," says Lockwood.

URLs of Companies Mentioned in This Article

Apogee Networks
Lyra Research

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