Consolidation is a natural phenomenon in maturing markets, especially those markets where disruptive channel changes are occurring. The world of content is no different as evidenced by the growth of mega-media conglomerates and the proposed sales of magazines – think Newsweek in recent headlines.
However, even for the consolidators the rules of making money in the digital age have changed. Paywalls are sprouting left, right and center, but there is considerable debate of how to profit from digital content while still retaining and strengthening relationships with end-users. Having watched the implosion of the music business from a ringside seat, I would recommend some key concepts that matter for all content genres.
Access Charges Are Dead: Charging simply for access is a losing proposition, especially in the hard news category. The reality is that intellectual property and access are almost too cheap to monetize. This is driving a shift to selling content as a service. As an interesting example, a company I recently talked with is contemplating launching a political blog with content from well-known and respected political pundits. Rather than charge a subscription fee for access to the content (which might limit the network effect), their plan is to charge a recurring fee to post comments on the blog entries. This will both provide a greater immersive experience and help with screening out people who don’t “contribute” to the debate. Simultaneously, this social goods monetization enables commenters to create affinity with “high-status” folks and raise their own profile and visibility.
Aggregation and Disintermediation Are Both Relevant: But in ways far different than before. If you are a content aggregator, by simply making your content easier for your audience to use and consume, you greatly increase the relative value of your service. Don’t simply be a pipe (see #1.) It was completely unsurprising to me that Netflix would pay $1 million for improvements to their recommendation engine because they understand their value is in providing services that lets customers figure out what to watch next. How much value would cable companies bring if customers had direct payment access to the underlying shows? And if customers had access to that show across different devices?
Price Discriminate: Understand what people are willing to pay for and use that information to price appropriately. There’s a reason why airlines use dynamic and very variable pricing. While digital content doesn’t suffer from the same scarcity (i.e., there are finite # of seats), content consumers will pay for different experiences and services associated with that content. Your job is to test and determine what those thresholds are and how those customers psychographically identify themselves.
Don’t be Shy to Ask for Money: As a corollary to #1, don’t assume content has to be free and that your business model has to be advertising-driven. Quite the contrary, assuming you’ve built a compelling experience for consumers you should assume that people will pay. In fact, setting a price point of zero devalues the content service you are providing. There’s a reason that many online games continued to show strong worldwide growth despite the economic recession – the immersive experience, the social elements, in addition to the game mechanics – all provide a reason for customers shelling out $15/mo for a subscription or spending a few dollars each month buying and using virtual currencies and goods.
The shift to content delivered as a service takes a slightly different mindset. Many in the content business have assumed that Google Search is their competitor. I posit that it may really be Google Reader and Instapaper that are the real competitive threats. When major media companies begin to look inward at their strengths and assets, it would seem to me that they should be able to provide content services that cause “aha!” moments that pull me away from aggregating RSS feeds. When major content companies focus on creating services that target articles and blog posts to individual customers as well or better then their ad serving partners do, then they are on the right path to services worth paying for.
