Paying For Content and Making Content Pay: Online Micropayment Strategies and Solutions

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Whether online or off, content providers adore the subscription model… and for good reason.

Getting a user to commit to content at a bundled price, usually paid up front, is about as sweet a transaction as one can imagine. But it may not be the model users really want online. According to the Online Publishers Association's recent report (in partnership with comScore), single-purchase content sales grew faster than any other category of fee-based content in 2002. Spending on piecemeal content in the third quarter 2002 was $56 million, up 132% over the same period in 2001. In fact, in the "micropayment" area (defined by OPA as purchases below $5), sales increased tenfold in the third quarter of 2002, to $3 million.

While subscriptions continue to bring in the overwhelming majority of econtent dollars, a growing body of publishers, consultants and transaction services providers are starting to contemplate a digital world where users snip their content piece by piece rather than buy it in the big packages publishers like best. For instance, Forbes. com switched its online archives to a $2.95 pay per view system last year and, without any serious promotion, the company started seeing about $2,000 to $5,000 in monthly sales, according to CEO Jim Spanfeller. "I don't think it's going to be a big revenue driver," he admits. Otherwise, Forbes.com is free to users, but Spanfeller says "as you drill into specific areas of interest where there is a high value for the end-user," you can start monetizing even content that once was free.

The American Institute of Physics' Online Journal Publishing Service, which carries 110 academic serial titles, ordinarily offers research libraries subscriptions at $300 to $5,000 a journal. When it became the first major academic publisher to offer single article sales ($10-$25) in 1998, the company immediately discovered "there are a lot more markets out there than we thought we had," according to Tim Ingoldsby, director of business development.

Monetizing eyeballs and expanding to new markets are just a couple of reasons evermore publishers are looking into the idea of taking content out of its larger packages and offering it as smaller pieces. "It's not keeping the lights running at any given publisher," says Jonathan Lewin, CTO and founder of eMeta, a transaction processing and digital rights management supplier that works with NYTimes. com, FT.com, and SmartMoney.com. But, he says, "In the last year we have seen a lot more interest in the pay-per-view model." And you ain't seen nothing yet, says consultant Vin Crosby, managing partner of Digital Deliverance, who argues that the Web naturally "de-packages" and suppresses the value of content, while publishers shortsightedly cling to an outmoded subscription model. The technology empowers users to cut, bookmark, swap, and ultimately click away from a publisher. "A lot of publishers are talking about controlling the channels of distribution," says Crosby. "But that is impossible so they will have to radically change their ways of doing business."

Your Card, Ma'am?
The problem with ever-shrinking content packages is that the transactional infrastructure needed to manage them be- comes very messy, very fast, and many publishers continue to wait for a universally accepted and cost-effective way to handle micropayments. A small content transaction involves not only a payment system, but digital rights management for giving access to the purchased content, refund policies, charge-backs from refused credit card charges, and in some cases, sharing revenues among several content vendors. "There isn't a lot of micropayment taking place today because there isn't a purchase structure to support it," says Joe Lynam, CEO of PaymentOne. "You can't make it economically feasible for the merchant for under a buck or five bucks." Lynam's company helps publishers move incremental content charges to a local phone bill, but a host of other companies, including eMeta, Javien, Qpass, and Peppercoin are trying to service the microcontent sale in a host of ways, none of which has yet emerged as the likely winner.

Publishers like NYTimes.com and Forbes. com continue to rely on credit card payment systems for incremental sales. Typically, credit card fees carry a fixed transaction cost of 25 to 35 cents per purchase, plus 3% to 7% of the purchase price, according to some vendors. Smaller companies often pay higher fees while larger ones can negotiate smaller ones. According to Lewin, credit card overhead is not as oppressive as some contend because many large publishers can get bulk flat-rate plans for something like $1,000 a month for unlimited charges.

Still, at low price points, "you don't want to lose sight of the economics of this," says Stephen Newman, deputy general manager, NYTimes.com, which sells a substantial number of one-off archive articles as well as crossword puzzles. "You want a system that on the one hand is flexible to meet your business model and not too big an investment." After partnering years ago with Qpass, which aggregated small content buys within a network of other providers, NYTimes. com brought the system in-house so that "we can make sure we tailor the experience to our needs," he says. Now he uses eMeta's software to manage digital rights to purchased content and charges directly to the credit card companies via an Internet gateway. But the Times has a pre-existing relationship with the card com- panies for other parts of the business, so it negotiates more favorable transaction fees.

Still, making users pull out a credit card for every minor online purchase is a substantial hurdle, another bit of consumer "friction" or "pain," as the marketers say, that undermines a micropayment market. Spanfeller will soon start managing this credit card overhead and hassle problem on archive sales via Javien's debit account system. Once registered in the Javien system, users charge their credit card only occasionally to put modest amounts on account, an account which gets debited for every article purchase at Forbes. Debit systems like this encourage users to buy multiple pieces, which publishers like, and they lower the hassle factor somewhat for consumers. While it may seem like low margins, Spanfeller says he sees "at least half" of his asking price on articles after the transaction and processing fees. For him this is fine, because, like other major media brands, recycling content means: "there's basically no cost to us." In other words, for a lot of the big media brands, getting "at least half" of a purchase price is fine because it's all gravy.

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