Insight Analysis: Can There Really Be A Free Lunch At The ‘Cyber-Buffet’?
During the last six years or so we have witnessed the very rapid and at times tumultuous birth of a whole new communications medium – the internet. Rapid because it has come to play a role in so many aspects of our personal and business lives in such a short time. Tumultuous because, from a media and advertising point of view, it has been greeted, variously and over time, by industry cyber-fever, cyber-phobia and, most recently, a dawning cyber-pragmatism.
What was staggering about these developments (and this is much easier to say with hindsight, of course) was the rash way in which many media companies invested substantial budgets into taking content online with little, if any, proven knowledge and understanding of how they could recoup a return. In the days of the dotcom bubble, online advertising was a very nascent beast indeed, lacking agreement over standards, metrics and rates. Things are only marginally better now, after development in this area has been scuppered somewhat by the subsequent cyber-phobia.
In addition, content essentially had to be offered free of charge because there was no subscription model in place and consumers were swiftly learning that the web held all the information they could desire and that they did not have to pay for it. How then, could a media owner expect to enter the game with a fee-based service, particularly if its content were aimed at a mass market?
But such was the fever of the times, virtually everyone went wading in up to the neck and many paid the price. What arguably should have been predictable (to some degree, at least) from the start, began to makes itself clear on company balance sheets: putting mass-market, editorial content online for free costs more money than it makes. In fact, you can probably go further than that, to say that putting virtually any content online for free, presently runs at a loss.
At MediaTel‘s 2001 Question Time event, Emily Bell editor-in-chief for Guardian Unlimited and assistant editor at the Guardian, admitted that the group’s substantial web presence was not profitable. As with most online content providers, the business was running at a loss under a subsidy from its rich parent. It would, she speculated, probably have to go subscription at some point.
For some companies this financial sacrifice is clearly deemed acceptable in order to maintain a presence on the web; perhaps it is part of a longer-term plan. For others the cost has been too great and closures and job losses have been rife.
Since January 2000, 51% of consumer-oriented dotcom companies have closed, according to research from Webmergers.com. News emerged only yesterday morning that German media empire, Bertelsmann, is looking at an exit from ecommerce altogether with the sale of its bol.com book service. Whilst Bertelsmann’s web presence is primarily ecommerce rather than content, the proposed move illustrates well the sentiment toward online ventures at present.
It is ironic that only three years ago companies were sprouting online departments and websites left, right and centre in order to appease shareholder and investor thirst for all things online and to pump up their share prices. There is now the situation where corporations are closing online divisions in order to boost ailing stock prices. Those working in the online sector now lament the impatience of investors and venture capitalists that are not willing to wait for internet advertising, online content and ecommerce to find its feet.
The key question, it seems, is what is a feasible model for online content. I, along with most moderately proficient web users, know that with a bit of digging around it is possible to find pretty much anything I want for free, even if the material perhaps originated on a pay site. Distribution, via the web and email, is swift and pervasive.
Consequently, free content will continue to run at a loss until online advertising starts bringing in big money. With confidence in the medium still low and metrics still somewhat disparate, this doesn’t seem imminent. But can media owners get away with slapping a subscription on everything or will consumers refuse to put their hands in their pockets and simply look elsewhere?
The internet is perfect for providing databased, archived and niche information; the kind of information that you might otherwise have to search through library or cabinet of folders for. Users are likely to pay for this kind of information because it is harder to get otherwise. But will they pay for generic, entertainment, news and editorial content such as magazines and newspapers? If not, should media owners continue to subsidise a presence or should they withdraw and cut their losses? After all, being online is nowhere near as cool as it used to be.
Moves are already showing that perhaps the longer-term policy will be toward subscription. The Financial Times and the Times have begun charging for selected content and the Wall Street Journal has been subscription-only for some time now. A report by the World Association of Newspapers claims that most online newspaper operations around the world expect to be charging visitors within the next five years; half expect to be charging within one year.
Not surprisingly, it seems like the freebie days might be coming to end. Inevitable for the media owners, surely, but a bit of a bugger for the users. It seems that the free lunch was a glitchÂ… perhaps there’s no such thing after all.