This is a follow-up article from our Paywall Strategies conference coverage.

Let’s plough on with more thoughts from the conference, this time using noteworthy points from a few digital media companies and what they shared about freemium models.

The Spectator

The political magazine Spectator put up its content onto a website in 2007; it proved to be not as successful as hoped as magazine traffic and revenue plummeted dramatically. Four months later the Spectator opened up a free-to-air online blog called the Coffee House, and as a result, consumers tripled, and revenue multiplied six fold. Despite the financial pressure that persisted in the Lehman Brothers aftermath, the Spectator managed to open other channels, their book and wine clubs in particular doing very well, (the former has 150,000 users and the latter has over a million).

Speaker Ben Greenish of the Spectator pointed out the lessons the magazine learnt:

• they underestimated the power of their own brand, when it came to the risk of moving content between online and print, before consolidating both. As a result, they’ve had 25,000 digital sales of their content, and 60% of all event attendees arose from online advertising.
• flexibility needed to be implemented by straying away from a 183-year old history by charging for content alone.

Stategy Eye

Strategy Eye touches on similar points that FT group speaker Mary Beth Christie made in her own talk at the conference (see part I of our coverage), about the importance of gathering consumer knowledge.

It is always beneficial to know what the consumer wants? Usually, putting yourself in their shoes will indicate that ‘I want everything in one place, ordered the way I want it’. According to cofounder and Strategy Eye COO Jeremy Philips, people are less prepared to pay for basic news than they are focused news, i.e. your industry’s specialty. People are also more willing to shell out for original commentary, hard data, and deep analysis with the right structure and functionality, (i.e. they want to pick up how to do so easily and often).

Philips also established three stages that can categorize profitability of any organization working with content:

• Stage 1-You are one source in a number of sources. You make ————-> £0.00
• Stage 2-You are somebody’s preferred source. You make ——————-> £100.00s
• Stage 3-You are able to influence people to make decisions. You make —> £1000.00s

Clearly, to get from stages 1 to 3, there is a hefty amount of input you as a company or individual will have to contribute to the quality and quantity of content. You need to step up to stand out.

This is a follow-up article from our Paywall Strategies conference coverage.

As expected, catchphrases seemed to guide the day’s discussions, from the success rate of ‘freemium’ business models, to the benefits of ‘monetizing the audience’. But this wasn’t so much a brainstorming session to figure out an all-encompassing solution to the paywall question; it was a series of panels with recognizable businesses and the compelling case-studies they had to bring to the table. While we won’t go into a break-down of each talk, it was very interesting to find out how companies have been applying different methods in their experiments with paywall or no paywall, and some of them are worth rehashing.

For example, Aftonbladet’s Elsa Falk brought a great case study of how one of Sweden’s largest newspapers has tried to nest itself in both online and print platforms. Although it has maintained a paid-for, albeit non-subscription daily paper that is still its largest means of income, its (mostly) free online ventures have been popular too, with over 5,400,000 visits on the website and 700,000 on mobile. Falk revealed that 70% of Swedish readers are prepared to buy web content, and following up on this Aftonbladet initiated a few requirements to attract more readers and keep old ones, via ‘simple offers, cross-sales, good customer service’ for starters. Cross-sales alone seems to have taken a life of itself, and could be something other companies could emulate more; while some strategies have been unsuccessful, (a ‘micro-payment’ system where individual pieces/articles are bought), it has crossed over into genres like travel and pay-per-view TV documentaries that have proven more popular with subscribers.

On the other hand, the Financial Times are clearly loyal to a no-holds barred subscription model, and have been since 2001, with their latest numbers coming to 206,000 subscriptions by 2011. Not a bad figure, but for a news organisation that has its own team of data analysts, who ‘make propensity models of subscriber trends’, it is necessary to keep growing that number. Still, speaker Mary Beth Christie does have a point that every digital content company will speculate about (and the polar opposite to the work ethic of Aftonbladet): the benefits of specialisation. Sure, this probably won’t apply to every content manufacturer but even for, say, a travel magazine company–offering specialist, processed data could garner more costs but also more faithful subscribers. In FT’s case, their horde of fans can look to them for in-depth news and reports on finance, and, like Christie says, they’re just ‘really good at what they cover’; certainly for any company this would be an ideal trait, paywall or no paywall.

On the other side of the spectrum, we have Conor Dignam, Director of Media and Group Editor at Emap Inform, a specialist company in magazine and online resources. Interestingly, all of Emap’s content was free-to-air, (meaning simply ‘free’) until recently, when the global recession kicked paywalls back online as digital ad revenues didn’t work out as well as hoped, and payments for print versions were trickling out. While it’s impressive that their subscription rate jumped by 25% from an all-round free platform to paywall, the important lesson here is that Emap created multiple advertising placements through Google First Click, registered newsletters, RSS feeds and content rich homepages.

What is clear from these three companies alone is that yes, freebie content will almost always get attention, but despite criticism, paywalls have clearly been implemented and can work.
Dignam’s pyramid had a ‘free’ base, then ‘registration’, (requiring sign-ups), followed by ‘brand subscription’, (indicating greater commitment from a paying user), then the pro-package almighty ‘premium’ apex. This is to exemplify increase in value in that 1) premium products are key to strategy, 2) deeper engagement and higher value spell out actionable content, and 3) data needs to be used in more intelligent ways than before.

Other key points from other speakers include:
-Matt McAlistair, from Guardian Media Group
McAlistair discussed free ad-supported and ‘mutualization’ models, like the ones above, and the concept of utility market creation. How can we measure if things are going well? One way is to see if you are ‘making things quickly and cheaply’. Is it being used by people and shared? Is it being used by people and shared a lot? A great initiative that GMG have undergone is throwing back content to initiate more interaction and user involvement, as they did when they asked Guardian readers to help sift through declassified government spending files. This kind of initiative is key to move from ‘building things’ to ‘empowering people’.

-Paul Lomax, Dennis Publishing, on making advertising work online
While Dennis Publishing sells advertising solutions and affirms that key websites can simultaneously be platforms for advertising and user-friendly, Lomax offered guidance on how exactly to do that, such as offering micro sites with creative solutions, balanced targeting that doesn’t override technical capacities with forecasted expectations, competitive pricing, switching off adverts in traffic where it is unnecessary, and, controversially, to stop competing solely on audience demographics.

-Mike Soutar, Shortlist Media Ltd.
Soutar revealed that amongst all its publications, monthlies mags are a better hit than weeklies, and doesn’t shy away from the fact that theirs is an agency that chases after the young and affluent. His most noteworthy points would have to be affirming something that most people in the industry would hesitate to believe; that the advertising world would not collapse that easily, but an inherent ‘ebb and flow’ exists. Soutar predicts that ‘when times get tough, as they will this year, there will be some advertisers who will step out more boldly than others [in seeking out or creating opportunities]’.

This small breakdown doesn’t speak for all the viewpoints of the day, but it is indicative of the variety of thoughts and strategies that are being put into place all over the digital content landscape. As someone at the conference said, quite fittingly, ‘it is all part of a journey, a long travel’.

The line-up and delegate list are absolutely superb, so do go ahead and register if you haven’t already (tickets will sell out).

It will be key for anyone involved in strategy, technical or implementation roles within newspapers, consumer or business media world including:

• Board Members
• Heads of digital innovation & strategy
• Online marketers
• Publishing directors
• Private equity and media investment bankers
• Web and systems executives within media businesses
• Technology companies
• Subscription bureaux and outsourcers

A variety of speakers will examine the various tactics that media owners are using to monetise their online content. You should come away from the event with a clear understanding of:

• The current online content landscape and opportunities for your company
• A clear view of how the market is developing
• A pocket full of business cards from those in your peer group who are facing the same challenges as your business

Early bookers qualify for a discount and a copy of Briefing Media’s 75-page paywalls intelligence report, worth £895. A full money-back guarantee is offered for anyone who finds they are unhappy with the content of the event.

The Paywall Strategies 2011 will be held in Central London at The King’s Fund, 11-13 Cavendish Square, W1G 0AN.

See here for the full agenda of the day!

The problem is that although people might pay to see the first few issues of one of these products, I am yet to be convinced that people will pay time and time again for a digital product that they can access in a simpler form by just using their iPad’s browser. These products are consumable but not tangible. There is little “collect and keep” value.

“They’re bloated, user-unfriendly and map to a tired pattern of mass media brands trying vainly to establish beachheads on new platforms without really understanding the platforms at all.” – Vinh

“Interactivity”

Most of these apps boast of “interactivity”, and in terms of the basic definition, they deliver. But every digital medium provides an experience where the interaction between the machine and the human is involved in shaping the content delivery. In today’s world, interaction means the ability to talk back, slice off, share, add to, mash up.

When I swipe and image and it spins to give a 3D view, its cool. When I hover over an image thumbnail and it starts playing as a video, its pretty much expected. When an infographic changes based on my selections, its useful. But if I want to bookmark a certain useful piece of content, or share it with my friends, I hit the brick wall. It is a static and separate piece of content, not dynamic and shareable like most digital content.

When coming to write this post I had a search around and found several others saying the same. As Vinh, the ex-Design Director for the NYT describes the New Yorker app: “I couldn’t email, blog, tweet or quote from the app, to say nothing of linking away to other sources — for magazine apps like these, the world outside is just a rumor to be denied.”

At the end of 2010 are we really at a point where a publisher thinks they can deliver a definitive viewpoint, without linking to external sources for further reading? Or where we can deliver static broadcast material to everyone, without allowing any peer-to-peer connections to emerge in the community of readers?

Heavy

The second issue I have is that they are pretty bloated and therefore slow to download. This seems to be partly because of a very cumbersome system that Adobe is using in conjunction with publishers, and partly because many of the pages are designed using the print workflow, and carry that design weight onto the iPad even if it isn’t used. This post has a more in-depth look, but basically there is no HTML in these apps, just a large series of huge images to make up every page and animation!

This leads to some apps taking hours to download over anything but a fast wifi connection. The Wired app is 500 megabytes! It’s almost more cumbersome than carrying the print mag everywhere with you…

“my gut feeling is that there is a massive opportunity to reinvent the concept of a magazine – yet we end up with something akin to what the web was like in the mid to late 90′s” – Interface Labs

Anyone remember magazines on CD-ROMs…

It’s a while back, but some of these apps really do seem similar to the range of publications that were available on CD-ROM back in the 90s: lots of video and audio to spice up the text content; a linear reading process; no awareness of the context of the web or links out; a large file size.

The digital publishing world has fundamentally changed, and it seems odd to still be publishing digital products that are so separate from all of a reader’s other content consumption and experience. Although there are some very poor “augmented digital-replicas” around as iPad apps, other publishers are doing some great work. Recently I’ve used Gourmet Live and Knot Magazine and both allow much more relevant forms of interaction. And of course, Flipboard is probably the most visible example of effectively mixing a great, glossy interface with dynamic and user-selected content.

I love the first play with most magazine apps; a lot of money has been spent on making them look and feel awesome. But when I can take an iPad everywhere  - from the boardroom to the bathroom – it seems incongruous that I can’t share content immediately with the person sitting next to me. And these interactions are now a vital part of my content consumption.

Case in point: on the list of content formats for which people do pay are iPhone apps. The success of these apps have clearly not gone unnoticed by businesses, who hustle to the Apple platform to create a direct bridge between the consumer and their product/content/information or whatever they’re peddling. There’s also the concept of the ‘new content experience’, referring to anything from recommended stories to self-bookmarks of content you like. Again, providers of access points will have to prove more versatile as they cater to a (paying) audience that not only wants more content, more quickly, but also wants more ‘self-service’ and sharing attributes.

In a debate on whether or not users will pay for content online, Clay Shirky mentions that people will only pay for that which is ‘necessary’, and that most content available isn’t so much ‘necessary’ as ‘optional’. But, a quick scan at the most popular of 60,000+ iPhone apps last year and I find Super Monkey Ball; hardly an app one might consider critical content. And yet, you’ll find many consumers drawing the line when newspapers announce their conversion to say, a non-free iPad app version.

In that case, maybe it’s not only about access point. Clearly, the consumer dynamic has changed enough with these platforms to reveal that access points won’t necessarily guarantee paying customers for all content, (and certainly previously considered ‘important’ content such as newspapers are suffering the harsh reality of this). What people were willing to pay for before may have been necessary, sure, but now people are willing to pay for content that’s fun, personalised, and shareable. It’s not just about getting to an access point, but how to use it, and the iPhone, iPad, Netflix, whatever the access point is, has met huge success in training consumers to pay for content. It is safe to say though that, echoing Shirky’s sentiments, not everyone might be willing to make the transition from a consumer generation that has accessed free content online by doing the exact opposite: not pay a dime.

Google has a program to allow publishers with paywalls to include their results in Google’s rankings, whilst allowing searchers to read the article they click off to for free.

I’m sure most publishers considering paid content have seen this, but for those who haven’t…

It’s called First Click Free, and more information can be found here. The summary:

We’ve worked with other subscription-based news services to arrange that the very first article view by a Google News user (identifiable by referrer) doesn’t require subscription. While the first article can be seen without subscribing, all clicks on the article page are “trapped.” This means that if users click anywhere else on that page, they’ll be prompted to sign up. This allows our users to view the article of interest while also exposing them to your site, encouraging an actual subscription. There is some evidence that this model yields more subscriptions and more return visits. This is our preferred solution since it benefits both you and our users. By default, first click free will apply for both Google News and Google Web Search results… Please let us know if you’d like this setting to be applied only to Google News results.

For publishers, its a great way to opt for paid content without losing much in terms of search. And for Google it allows paid content news sites to be searchable. But allowing searchers to read the first article for free is a tough term for a publisher to accept. It once again demonstrates the power Google has in the news market.

There are two problems from a publishers perspective, although these probably shouldn’t dissuade publishers from using First Click Free.

1. If the first click from Google is free, it is pretty trivial to access all of the publisher’s content for free, by routing through Google each time, or by using a URL extension or browser plugin that mimics that process. This is discussed in this post and the appended comments (re the Wall Street Journal).
2. More importantly, First Click Free strongly encourages users to use Google and Google News as their news interface, because individual publishers or other aggregations probably contain some content behind registration or paywall. This exacerbates the issue that publishers already face, where news is atomised and publisher brand strength is minimised in the face of news search engines and news aggregators. But can any publisher stop this trend?

Its a sad story, but one we must learn from. Businessweek was founded in 1929, and by the 1990′s was seeing a circulation of more than 1 million people. It used to carry more advertising pages than any other US magazine (up to 6000 pages in 2000), and was a profitable, valuable, and well-regarded publishing success. And as the digital publishing revolution began, BusinessWeek was there – experimenting, spending, and learning.

In 2006 the print magazine was making $110 million in revenue, and almost another $20 million online. It was charging $25 CPM for online inventory, and selling 79%.

A few long turbulent years later, and print revenues have almost halved to $60 million, with ad pages falling to around 1,250 in 2009. Online, traffic has grown, and revenues have risen marginally (to $20.5 million), although CPMs have slipped and sell-through of online inventory has fallen dramatically. It’s the classic case of digital pennies not equalling print pounds.

The troubling thought about the Businessweek story, is that despite making innovative and positive moves forward with their online offering, despite spending a huge amount on digital, despite cutting costs, they will lose over $40 million this year, and are probably going to be sold for a nominal $1. Ouch.

According to many ‘digital experts’, they made bold moves that should have turned out better:

• They built a strong online offering.
• They spent a lot to build a strong and valuable social networking/bookmarking element to their service. Which they then promoted heavily across their properties.
• They were one of the first business publications to see the value in integrating with the LinkedIn API.
• They launched a range of blogs (currently 28 at last count).
• They engaged readers in creating content, as well as crowdsourcing questions for interviews with business leaders.
• They experimented with multiple channel delivery, including e-paper.
• They launched iPhone and Blackberry apps to ensure their audience could get the content anywhere.
• They were one of the first mainstream media sites to build upon the Twitter API.
• They talked the right talk.

They did the right things. But it cost too much. As an example, the social networking element they launched, Business Exchange, has cost $21 million over three years. Even now it makes around $600k a year in revenue. As Rafat Ali asked, “With tons of white label social net services out there, and the value of being a media org, BW couldn’t get a cheaper and better deal?”

But digital spending isn’t what is killing Businessweek. The trouble is that all the above simply tries to achieve the wrong objective. It is all about maintaining the existing structure, the existing editorial standards, and existing cost-base, and not about evolving into an entirely new one that could survive.

Let’s do some quick (and no doubt wildly inaccurate but hopefully directionally correct) maths. Based on what Businessweek currently makes off each unique monthly user ($3.64 per year), in order to cover this year’s loss, online traffic would have to more than triple to 15 million monthly uniques. And that is just to break even. And that assumes that the print side of the business maintains its current revenues (which is probably unlikely). And it also assumes there are 15 million people ready and waiting to read what Businessweek has to offer. Fantastic, so the solution is just somehow, someway, drive traffic. EXCEPT that as mentioned above, Businessweek does not even sell all their online ads now. In fact they now sell only 38% of their inventory. So even if traffic rose dramatically, Businessweek would likely only see a very marginal growth in revenue from display advertising.

As Jeff Jarvis recently wrote about newspapers, the problem is simply that they have been guilty of “not running a business. It was not creating a sustainable P&L.” The old cost structures just don’t work in the modern media landscape. Howard Owens, who has run online-only news sites since 1996, explained his revelation:

In a market where the newspaper newsroom might cost $10 million, I knew how to make $1 million online, or even $2 million, but I didn’t know — and still don’t — how to make $10 million. So if I can make a million online, why do I need operate a $10 million newsroom, especially given the greater efficiencies of online publishing?

Businessweek, as a print magazine, is all about the last 5%. That is to say, the finalising, careful editing and re-editing, and re-editing again, the intricate design decisions, and the polishing. It’s the last 5% that keeps 400+ people employed. But the tragedy is, that despite the historical value of this type of approach, it just doesn’t matter that much anymore. Only 16% of Businessweek’s online readers viewed original Businessweek content (the stuff that really costs). The rest looked at slideshows (45%) and other content aggregations. That’s incredible. And it underlines the business case for changing the way major publishers create content.

As Clay Shirky wrote:

“If the old model is broken, what will work in its place?” To which the answer is: Nothing. Nothing will work. There is no general model for newspapers to replace the one the internet just broke.

The new owner of Businessweek (if it ends up being sold), would be wise to:

• Push up the print cover price, to improve profitability.
• Continue moving the print version to provide analysis and in-depth reporting that is separated from the fast-moving cut-and-thrust of news publishing.
• Keep building the digital strategy, supplementing original content with aggregations and reader-created content, pushing out via multiple channels, engaging readers with social elements, and publish for the ‘audience of one’ using personalization methods.
• As the most fundamental point, take a step back and plan the staff requirements from scratch. Everything that can be done by the crowd, the audience, technology, other complementary or even competing services, should be done those ways. And everything that doesn’t add tangibly to the bottom-line, must be ignored in the first instance.

The last one about staff costs will be especially painful for all concerned. But it is the only way. Whilst mainstream media stood back and criticised new publishers such as Techcrunch for not having high enough editorial standards, or not providing enough original thought, it is now the turn of the growing ranks of online-only publishers to say, “One word, two syllables: profitable” (yes that’s an Office reference, not a typo…). Oh and growing like a weed. And not drowning in debt obligations. And hiring new staff.

The Guardian recently reviewed the startup ecosystem that is forming around providing paid-content revenue streams to newspapers, which is worth a read. But to go beyond the startups mentioned there, I have created a summary of the various approaches.

Donations – These services (like Kachingle, but see this article for more examples) hope to supplement revenues for newspapers by encouraging readers to donate voluntarily for articles they find useful. At least this concept still allows for content to be free, but I can’t imagine that many people will choose to pay. If the fact that you pay for a piece of content is broadcast subtlely to your friends, these services could provide a foundation for a more powerful content recommendation system. If I knew a friend had paid for something she recommended to me, I would be more interested in reading it.

Paywalls - Although most publishers are looking at this option as a bespoke development project, Journalism Online is looking to sign up newspapers to use a unified system which charges users to read any content within the network. This provides a ready-built system for publishers, and allows users to only pay through one gateway, and to get discounts for purchasing across all sites. I just can’t see why people won’t go elsewhere for free.

Targeting - These systems are very similar to Journalism Online, but instead of just relying on paid content, they collect and use data about user interactions (which we think is smart). ViewPass plans to use the data to target higher performing advertising, and Circulate takes a similar approach to idio by actually targeting content based on user preferences.

I hope all of the above startups manage to successfully carve out a niche and help publishers navigate the next few years. However, the fundamental problem remains: there are scant few examples where paid content is working online, with the main examples being in business news, which is often seen as a commercial necessity. And for all the talk, including a variety of strongly worded statements from leading figures like Rupert Murdoch, launch plans for mass-market paid news services still seem vague. The risk in erecting a paywall and then seeing the audience dissipate is just so high.

I have heard many people discuss Facebook or Twitter’s revenue model, and ask why they don’t just charge people a small amount for their services. And the answer is that although it might drive a lot of revenue in the short-term, it would likely end their long-term revenue potential. The audience would quickly move to competing services that are free. News organisations face exactly the same issue – it is very hard to compete with free. Or as Clay Shirky puts it: “as the drunks say, you can’t fall off the floor.”

If all newspapers charge for their online content, without offering anything of more value, online-only media outlets from AOL and Huffington Post to new startups, would rub their hands in glee, and watch their traffic and influence grow rapidly.

I do like the halfway-house that is being proposed by several news sites, where content is free, until you consume a lot of it, and then you are asked to pay a monthly fee to continue accessing it in volume. It charges those who are getting the most value from your content. But the problem is, from a user perspective, you are penalising your most loyal readers. By driving even a minority of them to find other sources for their news, you will lose a disproportionate amount of your pageviews and reader interactions.

I understand that any newspaper exec will say that charging for content is absolutely vital and also fair. I’m just concerned that it doesn’t fit the way the online audience behaves, and no newspaper exec is going to be able to force users to open their wallets against their will.

If you follow iPhone news, you will have heard that a new operating system was released for the handset on Tuesday. There were several improvements, and one which didn’t receive much of a fanfare might prove to be very valuable for publishers. The Appstore now allows developers to build in an “in-app” purchase option to new applications, allowing users to buy additional services from inside existing applications. Much has been said about micropayments as a funding mechanism for content, and although this doesn’t allow a full iTunes-style experience as some have envisioned, it does provide a first step. Additional content can be purchased by the user, through the original application.

Men’s Health magazine has been the first to recognise this possibility, and they have built a fitness app which delivers intructions and a personal tracker for a huge range of workouts and exercises. The app costs $1.99 to download, and additional content (“expansion packs”) are available for purchase – with titles such as “The Ultimate Abs Pack” and “Huge Arms in a Hurry.” In addition to these, they intend to sell feature stories, and other products using this system.

The potential uplift in average-revenue-per-user that the in-app purchases could give should certainly be explored immediately by publishers looking to monetize the iPhone as a delivery platform. As with every Apple product, the process of taking money out of the users pocket is made painless (even pleasurable!), and with a good stream of quality content products, publishers should be able to build small groups of loyal customers around each brand application.

Let’s get things straight. All we are talking about is revenue. Plain and simple. Can you imagine the owner of the local cornershop talking about the monetisation potential of his stock?

(And yes, I know that I am often the worse villain).

Ok. Mini rant over with. Sorry…