Enough Already About Charging For Content: How To Make The Free Model Work

James A. Pitaro is the vice president of media at Yahoo! (NSDQ: YHOO) He has worked at the company since 2001.

With advertising and media leaders from around the globe descending on New York for the annual Advertising Week conference, one topic will be hotly and obsessively debated in conference halls, panels and interviews this week: Is the future of content online paid or free?

Today, we see traditional media businesses struggling to adapt to the changing business realities fueled by the internet and the macroeconomic environment. Many companies are trying to protect their bottom lines by putting up pay walls. However, this plan ignores two simple facts: (1) consumers are also struggling during these tough economic times; and (2) no matter how many businesses charge for online content, there are always going to be free competitors that will attract those same users.

Publishers of mostly free content like Yahoo! stand to benefit when media companies flip the pay switch. But the reality is that the paid model simply won’t work for many of the media businesses now seriously considering it because their users not only want the content to be free — they expect it to be free. Look no farther than the music industry for an example of what happens when content owners discount the behaviors and expectations of their most valuable users.

Yahoo! has been moving farther into free territory, most recently making its real-time Fantasy Football scoring free. (It used to be $9.99 per season.) To help other businesses give more consideration to the free alternative, here are some recommendations for how to make that model successful, whether you serve one million people or five hundred million.

To be clear, in some instances where there is strong brand equity, category-specific expertise or a niche audience need, a paid model will work. But those cases will be the exception rather than the rule. The only times that the paid model makes sense are if a company owns a category expertise that truly differentiates its business– or, as an absolute last resort. Here’s the blueprint for making free work effectively:

The Content: Consumers who have grown up with the internet are sophisticated and demand quality. Citizen journalism and user-generated content are important to the health of the web and culture at large, but in order to thrive, sites need to balance that content with professionally or semi-professionally written and produced content. Without that, publishers will continue to struggle to achieve category credibility and attract core advertisers.

The User Experience: At a time when online licensed content is ubiquitous, a differentiated experience requires both context and quality. Win by focusing on the experience around the content. Stock quotes, for example, are available on every major portal and financial site. What text, data, tools and original content can you surround stock quotes with to build your own voice and brand?

Conduct research to understand your users and the competition