Paid Vs. Free Content Brawl Alienates Consumers

(MoneyWatch)  The simmering debate over pay versus free digital content that has media companies at each others' throats comes down to one thing: convincing consumers to pick up the tab.

But 80 percent of consumers recently surveyed by Forrester Research say they would discontinue their favorite free print content if they were asked to pay for it. Less than 10 percent of respondents would agree to subscription models; only three percent would opt for micropayments.

There is no consumer consensus about the digital devices they prefer for accessing newspaper, magazine and other published content. Nearly 40 percent prefer reading content on the Web and 14 percent on their smart phones, but only three percent on e-readers.

Consumers' general resistance to pay for content and the absence of built-in advertising models on smart phones and e-readers will create a financial crunch for content providers. Online advertising growth will continue to be insufficient to support the high cost of business. More than half of the $26 billion marketers will spend on interactive channels this year will go to search, most of which belongs to Google, says Forrester analyst Sarah Rotman Epps.

If Forrester's survey results prove true, it is bad news for News Corp. Chairman and CEO Rupert Murdoch and other publishing titans who say they are prepared to take drastic measures to keep their premium and specialized content behind new pay walls -- and even out of Google search -- in order to generate more consumer fees.

The Forrester survey results suggest that content providers will alienate at least one third of consumers by asking them to pay for content they are used to accessing for free. Google executives contend aggregators will be digital content gatekeepers, able to thrive on advertising support rather than subscriptions.

Jon Miller, News Corp. Digital Chief says there are alternatives to distributing the Wall Street Journal and other branded content online without resorting to Google search indexing, which Murdoch calls "stealing." "We can follow WSJ readers on Twitter and other social networks if we have to," Miller said, where they might be more easily converted to subscribers.

"Something's got to give. News Corp. is willing to do what it takes to protect the value of its content," Miller said at last week's Monaco Media Forum.

Tensions are expected to heighten even more as the paid-or-free debate carries over to video. Hulu is inching closer to launching a premium paid content tier early in 2010. Its co-owners -- News, Walt Disney and NBC Universal -- are expected to launch a similar online consortium for video and print news.

The emergence of Apple and Amazon as next generation content distributors also is driving traditional providers such as television networks, newspapers and magazines to create new access, pricing and bundling tactics. "They must be resolved over the next 24 months. Otherwise, I am not sure how we're going to pay for a lot of differentiated content," Miller said, referring to costly brand programs that provide a competitive edge .

One thing is clear: With more than $300 billion of overall content value at risk online, media companies ultimately will need to rely less on consumer payments and advertiser dollars, and more on third party subsidies. That could include exclusivity payments from device manufacturers and access providers.

"Publishers may find that charging consumers for content is just too hard -- or that even if they manage to get consumers to pay, revenues won't make up for the shortfall in a declining advertising business," Epps observes.