Sellability of Content

Compelling Forms
If we wanted to merge the sentiments from observers in Europe and the United States into one sentence, it would sound like this: “To charge a fee for content, you need new products with entirely new content that is truly compelling, and that means things people have never seen before, never expected, or never assumed would be free.”
The word “compelling” came up much more frequently in our discussions than the word “exclusive,” which people generally consider to be the most important success factor for premium content. To develop compelling content, providers need to look well beyond the current spectrum of free content, and discover the shades and wavelengths we have not yet seen: new formats, new programming ideas, similar to CNN and MTV in the early days of cable television.
Much of this content can be drawn from forms of content we are already accustomed to paying for, but which have not yet been adapted to the online world. These include music concerts, which obviously lose their “live” character when shown on the Internet. The challenge is to use the clear advantages of the Internet  -  networking, nearly instantaneous two-way communication, low distribution costs - to make the online concert a unique product, not just a lame one-to-one copy of the transmission we would have seen on TV or in the arena. This kind of content reflects one important aspect of compelling, namely, the “wow, you’ve got to see this” feeling.
This feeling is rare nowadays. Who gets goosebumps on the Internet? We currently have as much emotional attachment to the open Internet as we do to our encyclopedias or old school books. That will change when these new forms emerge. Extra bandwidth will help, but this will remove only technical barriers, not creative ones. Content providers need to take advantage of this extra power to develop new forms and surprise us with compelling content, not just send bigger files faster through bigger pipes.

Convenient Forms
Stephen King’s failed attempt to sell a novel online as a text file demonstrates why form matters as much as the actual content itself. When you only get Mr. King’s words - a simple typed manuscript converted into a PDF file - you lose the comfort and ease-of-use of a printed book, a communication form perfected over centuries. Without this form, the novel is for most people no longer worth reading, much less paying for. The lesson in Stephen King’s book is not that people are unwilling to pay for premium content. Rather, the lesson is that form is essential and that compelling content forms on the Internet are rare things indeed.
Form must also have a practical side. Premium content on the Internet must be easy to find and easy to buy. Charging for content can still work even if the content is not exclusive and also available elsewhere on the Internet for free, as long as the content provider can place that content prominently before the right audience. Like people who drive 20 miles out of their way to buy gasoline because the price is a few cents cheaper, there will always be Internet users who bypass websites that charge them for content. Some enjoy the sport of surfing for that very reason, because the free stuff is only a click away. This pervasive “free-of-charge” culture will not disappear overnight. It will take time to teach people to make the tradeoff of convenience and quality in exchange for money, and perceive that surfing is more work than it’s worth.
How we access and pay for this content matters as well. Even in the Google era, surfing for content is work, and paying for it is often even more difficult. Oliver Samwer, a successful German Internet entrepreneur who currently is in the managing board of the company Jamba, estimates that at every time potential customers need to click on another icon or fill out another form on the Internet, around 30% of them give up and go elsewhere. If you’re billing process requires lots of clicking and typing, you can be glad that anyone has the patience to make it to the end. Easy payment goes hand in hand with making content on the Internet a positive experience, which is easy to enjoy and easy to appreciate.

Effective Business Models
The first step to a realistic approach to premium content is to determine its role in your company’s business model. For most companies, this model invariably involves some combination of access charges, usage, commissions, licensing, advertising revenue, and content sales. The balance between these elements is always shifting. Some years ago AOL depended on access and usage for more than 90% of its revenues. That amount has been reduced significantly. Despite its unrivaled access to film, music, news, and other content forms, AOL actually still realizes much of its revenue by helping Homo Contentus let his creative juices flow, either through email or instant messaging. In contrast, Yahoo traditionally earns more than 90% of its revenues from advertising, and companies such as Earthlink or T-Online still depend on access and usage charges for the bulk of their revenues, as do most mobile phone companies.
How the focus shifts can depend on a conscious decision or on external forces. When the downturn in online advertising revenue intensified, portals and other suppliers of content on the Internet learned something that their colleagues in the ink-and-paper world have known for years: revenue from fees and subscriptions tend to be more stable than revenues from advertising. The never-ending boom in advertising that was promised by the forecast factories two or three years ago never materialized. Even America Online’s cross-selling muscle through the other AOL Time Warner properties was not enough to prevent their revenue from advertising and e-commerce from falling. The pain was greater at Yahoo! and was fatal for The Industry Standard, Germany’s Net Business, and other colorful commentators of the dot.com era who have closed their doors because the advertising money has dried up.
The upshot is that companies who want to survive need a broad revenue basis. A company’s vulnerability is a direct function of its dependence or narrow focus on a small number of revenue sources.

New Target Markets
Before the companies can create a sound offer, they need to understand the target segments and customize the benefits of their specific online content. The opportunities rest not only in the ability to serve a large number of customers at low cost, but also in greater access to smaller segments, which can be better cultivated and more economically served than currently possible. The potential for customization opens up possibilities for a finer segmentation based on customers’ needs. In this context, content providers should not forget new opportunities resulting from partnerships with other media (ISPs, mobile phones, etc.) which have started to melt together. Customers increasingly will buy content following cross-promotions that in times of wireless Internet access by laptop and mobile phones are only clicks away.
A few conclusions about the market for premium content seem well supported. Creating the market will not involve simply charging money for the exact same content that used to be free. Restaurants would face a backlash if suddenly charging a few cents apiece for napkins and straws. Mass circulation magazines have learned that their websites serve as an effective trial subscription, and they will likely continue offering high-quality content free of charge. This means that topics with a “mass” following - general news, sports, weather, finance - will be supported by a large amount of familiar and free content. Earning money in these areas with today’s content will be particularly difficult. But earning money with content has never been easy, because interest in a particular theme or subject is hard to translate into cash. Although The Wall Street Journal or Major League Baseball claim to have millions of visitors or sold paper versions, only a small fraction serves as paying customers for online services.
Another important point to state is that content providers must tap into a basic customer motivation. The best way to get people to pay for content online is to give them a clear reason to do so. The main motivations of Internet users fall into two categories: money and fun. Money itself encompasses two areas: saving it and making it. While not directly offering content for money, AOL has already worked these aspects into its communication to customers. The pop-up window that described AOL’s recent price increase for unlimited service in the United States stressed that AOL plans to offer more “valuable benefits which help members save time and money.” Right behind money on the list come “fun” aspects such as playing, laughing, and curiosity. NTT DoCoMo’s i-mode service demonstrates that content does not need to be sophisticated or broadband to compel people to open their wallets. Simple games, ring tones, wallpaper or logos, and silly jokes are all unsophisticated, cost little, but can generate significant revenues. They are the ornaments that Homo Contentus uses to spice up his own communications. Customers in i-mode generate higher revenues than conventional mobile phone users, which can amount to a rather large pile of money when you have 25 million customers under contract. Germany’s D2/ Vodafone has learned from this and has introduced a range of downloadable games for mobile phones. Their high-profile advertising campaign shows they mean business.

A third but more nebulous aspect is community. Before its commercialization the Internet was essentially a loose network of niche communities - largely academic ones - exchanging their own content. Today the Internet is ideal for satisfying our basic need for interaction with other people and helps us discover others who share our interests. These niches can embrace many millions - such as people who want to lose weight - or thrive well outside the mainstream - such as people who collect snakes. The challenge is to define when such groups are large enough to have commercial potential, and when managing the community and providing its content generation is best left to the passions of Homo Contentus, who does the job for free.

Sophisticated Pricing Strategy

Pricing Model
Is $9.95 for 2,430 radio broadcasts an optimal price? You can’t park your car at a ball park for $9.95, never mind watch a game or have a meal there. Even one actual baseball itself costs more than $9.95.
The lesson is that compelling content in the right form requires more support before it makes the cash register ring. You still need to determine how - and how much - to charge people for that content. There is no clear-cut recipe in this area. The choice of revenue model is both a strategic question for the individual company, as well as a direct result of customer input and reaction. In principle the revenue model must fulfill certain general criteria in order to be successful.

Chart 2: Alternative price structures
In many cases, neither per-download nor subscription - the two most obvious pricing structures - is ideal on its own. Depending on multiple membership tiers or service levels, a more intelligent pricing structure is required. Both components - subscription fee and pay-per-download - could be combined into multi-dimensional tariffs to avoid uneconomical usage while strengthening the relationship with the customer. Other pricing alternatives include bundling, price customization, and different types of volume discounts, all of which are designed to both manage and guide demand while optimizing profit.

Price Level
None of the pricing issues can be resolved without customer input. No matter how glorified content may become as a potential or revolutionary revenue source, it is still nothing more than a product. These products need prices that reflect their full value in the customer’s eyes. Right now, pricing for online content is extraordinarily difficult because it is unexplored territory. There are few benchmarks, even fewer success stories, and hardly any empirical information to build on. It does seem clear that consumers are reluctant to commit to a subscription for online content before they have a positive experience with the content on a pay-per-use basis. All other information must be acquired on a product-by-product basis. In this constellation, input from customers - especially their views on value and price - give companies a firm basis for pricing decisions. Leave that part out, and the only other available method is trial-and-error.
Setting the right price level involves understanding how the customers perceive the features you are offering, and how much they are willing to pay for them. The benefits from many content forms we know disappear when they go online, as the example of Mr. King’s novel showed. The words are still there, but the convenience and portability are gone. All of these features and benefits can be described in money terms.

The important thing to consider is: There is no difference when car companies determine whether and how much consumers will pay for more horsepower, more comfortable seats, telematic services, or certain styling features; then compare that information with the cost of developing them, and then the challenge that companies like Major League Baseball, AOL Time Warner, or Vivendi Universal face if they want to charge money for online content.