Chasing the User: The Revenue Streams of 2006

It is now a tradition in the annual EContent 100 issue that we climb way out on a limb and anticipate promising new sources of revenue for the coming year. Even as 2005 closes, it is already clear that boatloads of money are about to start racing online, especially from big media TV and radio brands desperately chasing audiences that are fragmenting into smaller niches of personalized, on-demand media consumption. In past years, advertising drove many of the trends online, but this coming year much of the energy will be coming from the media industry itself as it tries to retool for an on-demand future.

Web radio is getting real, fast. Online audio stream listening has been a quiet giant for a year or two, but it is an emerging trend about to get super-charged by big media investment. Terrestrial radio powerhouse Clear Channel is already logging 800,000 uniques a week to its radio streams, and dwindling offline listeners will drive the company to start significant new initiatives online. Their foes will be Yahoo! and Napster, both of whom now offer subscription-based, personalized streaming audio channels.

The new focus on Web radio is going to help propel podcasting into the mainstream. Clear Channel will be developing podcasting product, as will just about every other online audio provider. Podcasting is no fad; it is the leading edge of user-controlled media. According to the Diffusion Group, about 4.5 million people already use the platform, and that number will more than double this year. But don't be distracted by podcasting's immediate application to MP3 players. There is a longer play here, aimed at cell phones and autos. The end game here is having a home network that can push customized, subscriber-based audio programming to the stereo or to the WiFi-enabled device anywhere. If you are laughing at this idea, then you also laughed at the prospect of DVD players in SUVs. Doh!

Also part of the media fragmentation evolution is mobile content, which everyone already knows is fat with investment and interest. I think the surprising development in 2006 will be the robustness of "off-carrier" WAP content distribution and the ad revenue stream it promises. Carriers in the U.S. are lowering their garden walls and letting content providers sell games, tones, news, and applications directly from the standard Web and from WAP-enabled sites. CondeNet's Epicurious is already sending recipes and shopping lists via WAP to members, courtesy of a six-figure annual sponsorship deal from a wine maker. In less than a year, an ad serving network devoted solely to small banners on WAP pages, Third Screen Media, is already hitting 6 million uniques a month and CTRs that far exceed standard Web averages.

In less than a year, the brilliant BitTorrent protocol has combined with broadband ubiquity to make downloading full-length films and TV episodes viable and fun, even if it is mostly illegal. About 30% of all Internet traffic is now from BT clients. Because it distributes file pieces across thousands of PCs, BT eliminates the prohibitive costs associated with distributing multi-gigabyte media files to millions of users at once, and Hollywood is taking notice. So is Microsoft, which is working on its own variant of BT, code-named Avalanche, and hoping to beat BT to the studios.

BitTorrent will follow a path similar to podcasting and RSS; third-party clients will emerge to make its use seamless and accessible, and publishers of all sorts will quickly recognize the important cost efficiencies in using it as a mode of distributing fee-based rich media downloads for playback on PC, TV, and audio players. The money may not start flowing in 2006, but expect a lot of major deals and models for leveraging the Internet as a direct-to-consumer distribution mechanism for major media to emerge.

Remote and off-desktop digital devices (iPods, phones, TVs, set-top boxes, PSPs) will be the new target for content and revenue models over the next five years as the Internet realizes its promise as a back-end content management hub and distribution pipe. Every one of these devices represents a more comfortable and natural way to receive media than a desktop PC, and people are already used to paying for content on them.

And if you think that average Americans are not really ready for these digital devices and the content-swapping they promise, look no further than the familiar and now ubiquitous digital camera and the content now springing from it. Image-hosting Web site PhotoBucket increased its traffic 696% between January and August 2005 according to NetRatings, and the entire photo-swapping category mushroomed 400%. Yeah, fragmentation and user-driven media programming are here, and content formats and revenue models are now chasing behaviors. .