2005 Annual Report - Online Economics

One important question, over time, is whether consumer attitudes toward paid content and toward advertising online will change. AOL's announcement in December 2004 that much of its content would become free has only intensified the discussion. And then in January 2005, Business Week published an article speculating on whether The New York Times online would follow the lead of The Wall Street Journal and begin charging subscription fees.³⁹

There was a time, two generations earlier, when Americans were aghast at the idea of what was then called pay TV. The airwaves were public, and no one should have to pay for television, the argument went. In the 1960s, a ballot measure to explore pay TV failed in California.

In time, with the emergence of cable, an economic model developed that has proven in many ways more durable than broadcast. Cable is bundled by companies that charge consumers a subscription fee, which is passed along to the companies that produce the content. Thus companies like CNN, Fox or Discovery get revenue both from advertising, like broadcasters, and from subscriptions, passed on by the cable companies as fees for their content. At the same time, satellite radio offers another variation - monthly payment, with few ads - though it has yet to turn a profit.

Is some model involving more subscription possible online? Would consumers in time be willing to pay in some form for access to content? People currently pay for online service, much as they do for cable. Most consumers are probably unaware that in one case they are paying just for access and in the other they are also paying also for content.

If the pay-for-content model evolves sufficiently, it could revolutionize the economics of the Web.

Online visitors spent $853 million on paid content during the first two quarters of 2004, an increase of 14% from the same period in 2003 ($748 million), according to the Online Publishers Association. The increase is largely attributed to an increase in music downloads.⁴⁰

Some financial news sites have been successful in attracting paying subscribers, particularly The Wall Street Journal Online, which reported in October 2004 an increase of over 2% in online subscriptions in that third quarter.⁴¹

Major League Baseball has also had success in getting people to pay for subscriptions to receive streaming broadcasts of games.

But even with the surge in dollars spent on paid content, many in the industry are ambivalent about moving from a largely free model. The skeptics feel they can forgo the revenue from subscriptions and reach a larger audience with free content that can create revenue through advertising. Charlie Tillinghast, general manager/publisher of MSNBC.com, a free news site, told CBS Market Watch.com in November 2004, "There's been less pressure to develop a paid model. [But] even if there were, we're not sure that as a general news site, what subscribers would pay for." ⁴²

Indeed, many industry experts think there is a future for broad paid content only if it is deemed "must have" information - The New York Times for the country's intelligentsia and political leaders, for example, or The Wall Street Journal for the business world. So-called-niche media providing information specific to an industry or interest, such as Broadcasting and Cable.com, are also considered viable.