Don't put in the order for the Ferrari just yet, and hold off breaking ground on the 10,000 square-foot McMansion. But we just might…just might, mind you…be turning the corner on the fee-based content model.
The Online Publishers Association (www.online-publishers.org) issued a rosy portrait of the Web content market late last year in its "Online Paid Content: U.S. Market Spending Report." In partnership with measurement service comScore Networks, the OPA says that the spending on Web content in the U.S. climbed a remarkable 105% between the third quarter of 2001 and the third quarter of 2002, with a 14% rise just between Q2 and Q3.
That number alone is impressive, but even more promising to the industry is that the raw number of Americans buying content online also nearly doubled in that period, from 7.9 million in Q3 2001 to 14.8 million in Q3 2002. With an online population of 138 million, that means that about 10% of U.S. users paid for content in the third quarter. Americans are starting to take to a fee-based online model, but not because Web publishers somehow succeeded in "retraining" users to "pay up," nor because viable free alternatives dried up in the great Web crash of 2000.
"It's value, convenience, exclusivity, and price," says Michael Zimbalist, executive director, OPA. Consumers are starting to buy content because the providers are offering genuinely compelling packages that contain one or more elements of that formula.
In several columns over the past year, I have argued that the Web's real killer app is people, not content. Whether the dating services of Match.com and Nerve Personals, connecting with old school chums at Classmates.com, or just sending creative messages to a loved one via AmericanGreetings.com, people are willing to pay online to connect with one another. Not surprisingly, in 2002, the Personals/Dating content category came out of nowhere to eclipse the perennial fee-based leader, business and finance, with $87 million in revenues (up 387%) in Q3.
Pricing has substantially impacted Web content sales, according to the OPA numbers, because many content buyers want to start small. Single-purchase sales of under $5 grew tenfold over last year. "Most evidence about online shopping behavior is that confidence comes with experience," says Zimbalist. "There are more companies experimenting with paid content and to the extent that it can be parceled out they are pricing it down in the lower price points."
Another figure suggests that one-off content sales can be a great merchandising tool for convincing people to invest in a subscription. The general news category saw an overall rise in content sales in 2002, but a substantial drop in micropayment buys, from 72% of total buys to 57%. This suggests that users were buying into larger packages after trying a sample size.
While these positive numbers are encouraging to the fee-based model, they also underscore a couple of important points about the limitations of selling content on the Web. First, as Zimbalist says, few publishers in his association plan to pay the rent with direct sales. "The business will always be ad-driven with support from subscriptions. Most of the publishers in our group see this as only one leg on the stool that is going to support the business."
Before we get too excited about the prospect of users paying to play, let's remember that compared to the Asian market, where 41% of Japanese users and 73% of Korean users pay for content (Digital Content Association of Japan), Americans remain Web deadbeats. The legacy of a free Web is so ingrained in American digital habits that some analysts see cell phones as the likely place for publishers to make money on premium content sales and service.
The ironic subtext of the OPA study, however, is that content is not enough. The fastest-growing categories of fee-based content—personals/dating and entertainment/lifestyle—offer users more than simple words or images. Zimbalist calls it "value," and I call it "service," packaging or complementing content in a way that saves someone time, overcomes a common obstacle or frustration, or helps perform a task. For instance, spending growth on business and investment information is leveling, from $50 million in Q1 2001 to about $70 million in Q3 2002, while spending on entertainment content (digital music, video, etc.) grew from about $12 million to about $60 million in the same span. Digital music, which Zimbalist thinks is about to explode as a fee-based sector, is a great example of content as a service. The compelling value of the emerging music subscription services over pirate systems such as Kazaa, is the way they offer a ready, full selection of tracks with consistently good recording quality.
Look at the numbers, and the trends of where people are paying for content are obvious (go to the OPA site for the full report). "With the exception of some very high value articles, the service component is going to become increasingly important," says Zimbalist. Con- tent is everywhere online, but convenience and service are not.