Competing With Free: How to Build the Paid Content Business Model

Mark Mulligan[Posted by Mark Mulligan]

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My
colleague Bobby Tulsiani posted yesterday on the changing concept of freemium
and we’ve been debating the concept within the CPS Media team. I’m taking this opportunity to bring that
debate into the public domain and to solicit feedback and comment from the
readers of this blog.  So please do
comment, the best blogs are conversations, not monologues.

 

The fundamental
problem is that majority of consumers in the majority of content sectors will currently
not pay for online versions of that content, be it streaming or downloaded,
temporary or permanent. Each of those
distinctions can be used to shape the degree to which paying consumers can be
differentiated within premium tiers and from free tiers, but the inescapable fact
is the majority will simply not pay. With
a few notable exceptions such as radio and free-to-air TV, this differs
strongly from consumers’ historical relationship with content and media.  Consumers used to be willing to pay for
newspapers, magazines, CDs and DVDs.  What
changed? The main problem is of course free.

Consumers
are quite simply too used to getting content for free online. The persistent and pervasive nature of deep
and rich digital content catalogues has progressively corroded consumers’
perception of the value of media.  At best, media
companies of most types are learning that they cannot charge as much online as
they do offline.  At worst they are
realizing that the only way to engage mass market digital audiences is by
making content either be free or appear to be free.  This is where the music industry is at now.  But it is still to work out how that free
legal content can be seen as freemium compared to free illegal sources.


It’s
looking increasingly likely that the only way to successfully differentiate legal
offerings from free illegal ones is by making it more difficult for consumers
to access the illegal alternatives and simultaneously stealing the clothes of
the illegal sectors.  But the solution is
not applying blanket licensing to illegal peer to peer networks, because that
effectively legitimizes illegitimate business practices and penalizes those
business that have invested heavily (often very heavily) in acquiring content
licenses.  Rather, the flow from illegal
alternatives needs to be successively narrowed in parallel with legal sharing
alternatives being implemented in their place.  ISPs and mobile operators will be key partners
in this process.  I chose my words
carefully: the access companies need to be brought along, not pulled along.  The profit margins of most are vulnerable as
their markets saturate, so services that increase ARPU should be a natural next
step.  The problem is that most consumers
aren’t currently willing to pay anything for digital music because a) current
offerings don’t offer significant enough benefits and b) file sharing is so
easy to access.  Address both of those
issues and the picture will eventually change.  The access companies can address b) and the
music companies can address a).  Only
together can they build any chance of converting significant numbers of
consumers to subscription music services.  If they do it, the foundations will be built
for other content sectors.


On a directly
related note: I’ll be keeping close eye on Groove Armada’s latest release with
their new ‘record company’ Bacardi: they’re making their new EP available for
free download explicitly encouraging downloaders to share.  In fact fans have to share to hear the entire
EP: tracks 3 and 4 are only unlocked when a downloader has shared tracks 1 and
2 enough times. The freedom Grove Armada
have been given by Bacardi has enabled them to push the boundaries in a way a
major label might not have let them.  It’s
taken a non-media company becoming a media company to disrupt and challenge the
accepted rules of engagement.


Anyway, let
us know your thoughts and help us develop the debate.

 

 

Comments

re: Competing With Free: How to Build the Paid Content Business

I wrote up a few thoughts on my blog, but realized that doing so somewhat negates the purpose of this blog.The thrust of what I had to say was that ignoring the technology that has created a generation of users that are not prepared to pay for things is not going to help. This activity represents a cultural shift. The response lies in the context of this shift i.e. embracing existing activity.

re: Competing With Free: How to Build the Paid Content Business

I agree, and this actually what I was arguing in the post i.e. stealing the clothes of the illegal sector.The behaviour is firmly established and won't be changed simply by 'turning off the tap'. The vacuum must be filled by the formal sector else it will be filled by the formal sector, simply using some other technology solution.But success will depend on doing more than simply imitating. Legal services need to add further benefits. They need to provide 'Net Value'. There need to be more reasons to opt for legal alternatives instead of the grey market.

re: Competing With Free: How to Build the Paid Content Business

I work with an online music company that is trying to encourage legal distribution of music by rewarding the consumers for using their site. You set up a shop, encourage people to legally buy music from you, then earn credits for everything that you sell (which can be used to buy more music). I've seen this "reward" concept (either in credits or actual cash payments) pop up in a few different places lately, and am wondering if that will help shift the tide from illegal to legal downloading. Personally, I'm perfectly happy paying for music in exchange for ease of use and peace of mind. But that probably puts me in the minority :)

re: Competing With Free: How to Build the Paid Content Business

A major problem for content owners is that not many people have got viruses from P2P networks, so the 'piece of mind' argument doesn't hit home like it should. It did in Japan on the Japanese-language Winny network via the malicious Antinny worm in 2003. Online file sharing is subsequently modest in Japan (though mobile P2P is booming).

re: Competing With Free: How to Build the Paid Content Business

Had an interesting conversation with Mitch Singer, head of the Digital Entertainment Content Ecosystem (or DECE, thankfully) while at CES. With a keen eye on what has happened to music piracy, Singer was eager to make sure the DECE could offer people digital access to TV shows and movies they like, but while retaining a premium price by explicitly pricing multi-platform access as part of the price of the medium.For example, if you bought a movie from your mobile provider for $19.99, you would also have access to stream that movie to your connected TV or to take a copy of it with you on a laptop. That way, you're paying for the movie as much as the "medium" even though medium in this sense is a metaconcept that includes various devices. This is not unlike the way traditional media have been paid for in a pre-digital era. For example, when consumers used to pay for news in the form of the newspaper, they were really paying for the ink and the paper, with the news riding along almost for free. In a DECE-envisioned scenario, consumers are paying for the frictionless multi-platform experience.By the way, it's not unlike the Apple Premium people pay to own an iPod. Apple takes care of the multi-platform sharing and you pay extra for that "medium." To detract from McLuhan, whether the medium is the message or not is no longer the issue, it's whether the medium can still be the money.

re: Competing With Free: How to Build the Paid Content Business

In the UK, the killing off today of Kangaroo, the proposed portal offering both free and paid video content from the UK's three largest broadcasters, is a blow to the nascent paid-for online video sector. While its sister, the BBC's iPlayer, had educated mainstream users into watching long-form online video for free (271m streams in the last 12 months), some of us hoped that Kangaroo might be the platform to educate mainstream users to pay for archive video content.Kangaroo was an example of how regulation can kill innovation, not least by imposing a six-month delay to the venture while producing the Competition Commission produced a report. In civil service timescales that might be rapid, but in the online sector that is glacial progress, and with hindsight the project's card was marked at that point. Now it's back to the drawing board, and meanwhile more and more viewers will turn to illegitimate sources for the online video content they want to see and might have paid for.Those who protested about Kangaroo argued - successfully, it seems - that the broadcasters, by not selling online rights to anyone who wanted them, were skewing the wholesale market. Presumably they will now turn their attention to Sky, which has just paid £1bn to retain the UK TV rights to the Premier League.Sorry if some of this is off-topic, but the Kangaroo tale has implications for other companies trying to build legitimate online stores for their content. Beware the heavy-handed regulation that, rather than protecting you, drives your users to the pirated version.

re: Competing With Free: How to Build the Paid Content Business

A really important time. If we are to get tunes and films for free, how do the companies actually generate a revenue. Business models operated by co.'s such as Spotify will be the only ones that succeed in the future. But the question is : why don't all the labels sign up? A clean operation is what's needed in these pay per click times.