The metered model deserves a closer look. One the dirtiest little secrets of the online media business is the actual number of truly loyal readers — as opposed to fly-bys. No one really wants to know (let alone let anyone else know). Using a broad brush, about half of the audience is composed of casual users dropping by less than 3 times a month, or sent by search engines; 25% come more than 10 times a month. Over the years, as audience segmentation increased, media buyers (and publishers) selected the simplistic counting of Unique Visitors (UVs) as the metric of choice. In the meantime, all forms of Search Engine Optimization (SEO) and Search Engine Marketing (SEM) outfits have further elevated the collecting UVs as the primary goal for online publishers. Along with that practice came cheating. In order to inflate their UV numbers, many large news sites now rely on third party services such games that have nothing to do with their core business.
This distortion contributed to the erosion in advertising prices. Media buyers might by cynical, but they are not stupid. They know that a growing percentage of audiences is composed of accidental visitors with no brand loyalty whatsoever and who offer no attractive demographics. Combined to the “unlimited supply” factor inherent to the internet business, the result is a downward spiral for ad prices. These are important factors to keep in mind while considering paid-for systems.
News organization have implemented such systems in different gradations. At the far end of the spectrum, we have the Times of London: no access to the site without first paying. That’s is the riskiest option. The site ends up losing 90% of its audience (and the related advertising revenue) but hopes to offset the loss by gathering enough online subscribers. Without the promotional booster of free contents, this is a challenge – to say the least.
Others choose to give some of the site for free and put the most valuable contents — sometimes the digital version of the print edition — behind a paywall. This doesn’t always make economical sense as many readers are happy enough with the free content part. Editorially speaking, this leads to the creation of two categories: cheap fodder available for free (often created by junior staffers), and more “noble” content produced by the most senior members of the newsroom who also feed the print version. This works fine for a brand associated with significant added value, or specialized (such as business news), or one that dominates its own market. The most successful paywall implementation has been the Wall Street Journal: it now has more than 1m paid subscribers, but it took 10 years to get there.
The third option involves a metered system. The principle is simple: once you’ve seen a certain number of stories in a given period of time, you need to become a paid subscriber to keep viewing the site. Some newspapers have been quite successful at deploying such a metered system.
For example, the Financial Times has set the cursor to 10 stories per month before hitting the paywall, after which the reader is asked to pay between € 4.99 and €7.49 (about $7.30 and $11) per month, depending on the package deal. A high price for really premium content. So far, FT.com has 3.4m registered users of which 224,000 have been converted to paid-for contents (+8% for Q1 2011). This translate into €20m to €25m extra revenue, only from subscribers (the service has been launched in October 2007). Currently, digital revenue (both ads and subscriptions) accounts for 30% of the FT’s revenue; according to FT execs, it is expected to reach 50% in 2013.
For the meter, finding the right setting is far from trivial. The trick is to decide how many free stories will be allowed before hitting the paywall, and how much to charge thereafter. In New York, three weeks ago, I spoke with Gordon Crovitz. With Steven Brill, Gordon co-founded Press+, which creates bespoke metered system for online medias. Press+ provides a complete set of e-commerce tools for publishers, from the access mechanism to the transaction system. It works with passes (daily, weekly), subscriptions plans (monthly or annual), topical packages, bundles and ancillary products.
Determining the right formula is usually done through A/B testing. Crovitz and Brill explain: the publisher will test two or three levels of free access (5, 10, 15 stories per month) and the same number of prices ($5 to $10 or maybe $15 a month). A few months of testing will determine the right formula. Typical ingredients are: the type of content, surrounding competition and possible alternative for the customers, the publisher’s willingness to bundle digital and print products. Metering can also be attractive for out-of-market audiences: an Australian newspaper will be free for its domestic audience but will charge overseas readers consuming more than 10 stories a month.
Another factor is the site’s advertising structure. The amount of inventory sold to advertisers varies widely. In the US market, the “sell-trough” ratio is about 60%, but it can go as low as 30% on some markets. This means the media can sustain some loss in page views due to the implementation of the metered system without losing ad revenue. An online media with a sell-trough rate of 55% can allow a 45% decrease in page views before eroding its ad revenue. According to Press+, traffic losses from implementing a meter are modest, ranging from 0% to 20% as counted in page views, and 0% to 7% in UVs.
Let’s try back-of-the-envelope calculations. A site gets 5m UVs and 100m page views per month; its yearly ARPU (Average Revenue Per User) coming from advertising is $3. This results in a yearly revenue of $15m. Now suppose only 20% of its audience reads more than 15 stories a month and one out of ten such readers are willing to pay $10 a month. The additional revenue will be: 5m UVs x 20% hitting the paywall x 10% willing to pay $100/year (discount included) = $10m in additional income — without depleting its advertising revenue. Actually, experience shows advertisers are now paying roughly 30% more for readers reached behind a paywall. All this before the 20% cut taken by Press+.
Naturally, as the saying goes, YMMV (Your Mileage May Vary), actual results will depend on many factors, one of them being how the pricing system is set (the simpler, the better). Again, a rigorous test of all hypotheses is critical. Metered systems are the opposite of the one-size-fits-all.
—frederic.filloux@mondaynote.com
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17 Comments
I don’t understand why we haven’t got a working micropayments model. It seems relatively simple:
1) Have a central payment engine where readers register
2) Register many websites with it
3) Have a charge related to each page
4) Periodically feed usage back to the payment engine
5) Aggregate all charges
6) When I hit a reasonable amount of usage, bill me
7) Pay the sites.
I’d happily pay as I read, but I’m never going to register with multiple websites just to read their content. Definitely not monthly payments in the off-chance I might get enough benefit from them. So have some pages free, some a few cents and maybe exceptional content can be more expensive.
In case you think this is just not possible, we had it in the 80′s in South Africa in a text service called Beltel. Micro-billing for reading pages decades ago, at the bottom of Africa. Sure it was centralised but this is the 21st century. Why can’t we just get this right, now?
http://en.wikipedia.org/wiki/Beltel
I completely agree with Richard’s comments. Surely publishers have got to get into micro-payments? In the same way that I can buy music by track or album.
In my opinion the Times model is completely flawed, particularly all the while the digital content does not offer enough of a hook for readers.
I’m in agreement with both Tim and Richard. Not only am I willing but quite happy to pay for content that I actually read/watch/listen to.
Publishers assuming that I’m going to prop up their entire business model so they can serve up slush of no relevance to me are arrogant and stupid.
I’m too busy and have too many other choices to waste precious time signing up for services to read the one article of interest to me, only to have to go through the ‘unsubscribe’ process (x) weeks later when I’ve decided they are not worth paying for at the end of my free period.
Better to skip the whole process and go for a walk, engage in a face to face conversation or spend some time thinking quietly by myself!
To Tim and Richard: it exists and recently launched. Check out this solution http://www.cleeng.com. It offers a progressive transition between paid-per-article across publishers, and then subscriptions for heavy users. What do you think about it?
Frederic, great analysis as always. One question: there is no duplication of monthly visitors and you enroll the same amount of unique paying users every month? In your calculation exemple, it means a site with 5M UV / month would be capable of registering 1M paying registered users per year.
While I think a metered model has a lot of merit, I worry that it keeps publishers in the mindset that value is derived solely from discreet bits of “content.” Publishers need to be looking at the entire “product” they produce and all the elements of it as the value driver. The news content is but a part of that equation. Creating rich, engaging news experiences and information utilities for their best users should be the focus.
The metered model has other major advantages in addition to those mentioned in Frederic’s column. In effect, the metered model is the beginning of a multiple revenue-stream mindset that content publishers simply must embrace to have a chance to build the revenue streams necessary to maintain their editorial operations. But it also allows something else all content providers must have to build their businesses: Time. Audiences build around great content. It takes a certain consistency of quality and context for a content company to prove its real worth. Giving readers/viewers time to test that content and discover it’s consistent value is just about the only way a media company can build a brand. Charging from the outset for all content, or for all the best content, shuts down that ability to give consumers the time they need (different for eveyrone) to determine that the content is worth paying for. This is even more important when we are dealing with new medium where consumers are testing BOTH the content and the form in which it is delivered. We are witnessing consumer habits changing right in front of our eyes, and we need to do continuing research into how they are consuming, not just what.
I think the one thing missing in looking at all these advertising pay models is content. Not the advertising content, but the content on the website. If it’s compelling and serves readers, people will pay or subscribe. If it is better than your competitors, people will pay. This is especially true with smaller websites that serve niche markets. The main problem with newspaper websites for example, is they have cut so much staff, the content suffers, thus allowing free websites to compete. They lowered the bar. Keep the bar high, readers and revenue will follow. Especially in small markets.
The problem that several of the commenters and the post itself points out is that the content needs to be great across the board. You can’t have sub-standard content at any point of the process because it doesn’t give a good indication of the supposedly superior paid content. I think the metered model makes the most sense in this respect, as long as the content is consistently highly crafted and cared for. Loyal readers will pay.
Micropayments don’t make sense because it is not a model based on loyalty, or retaining readers, but the attention starved content customer. Music can do it because they have other revenue streams that keep the listener engaged. Media doesn’t. Not to mention the idea that then you start thinking a post or article is only worth one cent… that completely devalues content.
Rebecca, I disagree.
Firstly, ‘loyal’ is nice when it exists but it probably makes most sense to find a business model that doesn’t rely on loyalty. I’m ‘loyal’ to only one magazine right now, so the rest of the content universe isn’t giving me the ability to pay for their work.
Secondly, the price doesn’t have to be 1c, although I’d suggest that many writers would love to get 1c per page-read instead of a dollar (hopefully!) per CPM, which would equate to 0.1c per page. With a micropayment setup, the author (or site) sets the page price and readers either accept it, or not.
Right now subscriptions are ‘just-in-case’ – I’m paying just in case you write something I like, or to ensure I don’t miss out. Companies like this because it makes revenue predictable and creates a producer surplus whenever a reader pays for more than they read.
Micropayments are ‘just-in-time’. Good content drives traffic which brings revenue. There is no 10-free-article consumer surplus and no pay-us-anyway producer surplus. Loyal readers will happily pay repeatedly but you would also benefit from drive-by readers from the very first visit.
Thanks, FF for the simple math at the end — it always amazes me how many media pros can’t do that sort of calculation. I agree with you that metered is the most interesting model right now. Full-stop paywalls drive away new/casual users, and that includes micropayment paywalls, folks. (The barrier is getting users to fill out the reg form and decide to give you money. It exists whether the cost is a penny or FF’s proposed $10 a month.)
The FT’s threshold of 10 visits a month is very high, IMHO. If they can generate an incremental $20M off that slice of the user base, my hat is off to them.
@Richard: You suggest we should aim for business models that don’t depend on loyalty. I think that is an astonishing statement. Even McDonald’s depends on loyal customers! I am going to spend the rest of my morning trying to think of a single business that isn’t dependent on frequent, repeat users with a preference. Please help me out with examples, if you have them.
Stephen – repeat business is great. By all means encourage repeat business, but don’t *rely* on a level of loyalty that will overcome the barrier that is a monthly subscription to a single source, given the enormous variety of alternatives for the reader’s attention.
There is a continuum of loyalty between the die-hard fan and the totally disinterested passerby. Relying on die-hard fans leaves a lot of money un-earned. Again, I witnessed a system that required a payment per page read, summed at the end of the month. It made money. All we need is that system, scaled up and modernised. It doesn’t *require* loyalty to work but obviously would benefit from it since regular readers would pay more.
Apologies, one other comment on Stephen’s:
“The barrier is getting users to fill out the reg form and decide to give you money. It exists whether the cost is a penny or FF’s proposed $10 a month.”
Exactly. A properly constructed micropayment system would require this registration only once, with the provider that aggregates payments across all sites. No more registering at each site. This means a casual reader pays from the first article they read and simply pays more as they read more.
There are obvious technical and psychological hurdles. We’ve been used to ‘free’ for too long. Still, I live in hope.
@Richard writes, “A properly constructed micropayment system would require this registration only once, with the provider.”
In other words, a good micropayment model requires ubiquity. That is the fatal flaw of micropayments to-date.
–> I predict, if one ever shows up, it’ll be an afterthought via iTunes or Amazon or PayPal. Only a truly giant payment system could have the leverage to make micropayments profitable (e.g. Amazon won’t pay as much per-transaction, because they will have built up bargaining power the the clearinghouses). And publishers will still end up giving these payment oligarchs 30%.
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The issue that several of the commenters and the publish itself factors out is that the articles needs to be great across the panel. You cannot have sub-standard articles at any factor of the procedure because it does not give a very good of the apparently excellent compensated articles. I think the metered style creates the most feeling in this regard, as long as the articles is continually extremely designed and maintained. Devoted visitors will pay.Micropayments never add up because it is not a style according to loyalty.
Honestly, I do not line that metered system which you suggest as a second thing.
Stacy from ejaculationtrainer101.org
“A properly constructed micropayment system would require this registration only once, with the provider.”
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