Freemium; as Advertising Slumps, Is a Mix of Free and Premium Content the Way Forward for the Media Industry? ANALYSIS

The Evening Standard (London, England), March 20, 2009 | Go to article overview

Freemium; as Advertising Slumps, Is a Mix of Free and Premium Content the Way Forward for the Media Industry? ANALYSIS


Byline: GIDEON SPANIER

EVERYONE from advertisers to economists has been seduced by the idea of going free in the past decade. Whether it's the rise of Google, the creation of the Freeview digital TV service, or newspapers such as Metro, the power of free has been compelling. It is the ultimate marketing tool.

Technology has been the driving force, bringing down the cost for users to virtually zero and increasing the size of audiences dramatically.

But there's no such thing as a free lunch. The business of free depends chiefly on advertising and the problem is that revenues have abruptly stalled because of the recession. Commercial free-to-air TV in the UK has seen advertising dive by up to 20% in the first quarter of this year. Dozens of small free newspapers, which don't have a cover price bringing in a secondary revenue stream, are being closed. Even online advertising growth has slowed markedly.

For those who experienced the first dotcom bubble bursting in 2000, there is a sense of deja vu. It's "the end of the free lunch -- again", says the new edition of The Economist today. The magazine's business editor Tom Standage describes it as "the collective hallucination that advertising would pay for everything."

Plainly the solution involves generating revenue from outside advertising and the most obvious way to do this is to charge users for content. American publishing giant Time Inc is among those which has said in recent weeks that it plans to introduce online charges. "Good information costs money," said Ann Moore, chief executive of Time Inc. "Someone has to pay for the Baghdad bureau. I don't know what the business model is, but we are going to start pursuing it."

Finding a business model that works is the Holy Grail. Consumers will certainly pay for high-quality or niche services (say Sky TV or Home Box Office; the Financial Times or the Wall Street Journal). But for mainstream media and entertainment brands, it remains hugely difficult. Erecting a pay wall means audiences stay away and, as Emily Bell, director of digital content at The Guardian notes, it's expensive to enforce, to manage customer relations, and so on. The New York Times, the world's most popular newspaper website, is the prime example of a site that gave up on a pay wall to boost audiences.

Evangelists for free media such as Chris Anderson, author of The Long Tail and US editor of technology magazine Wired, are convinced that it is essential not to give up on free. Instead he advocates "freemium" -- a basic free offering, with premium paid-for services.

In an inspirational talk at Bafta in London recently he cited a string of examples where he felt the "freemium" model had worked. The owners of old Monty Python material put a slew of it online free -- and, as a result of a mass audience getting to know the videos, sales of Monty Python DVDs soared. …

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