Blog Post

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

34 Responses to “Enough Already About Charging For Content: How To Make The Free Model Work”

  1. Tom Altman

    Bob, how do you explain the success of Google, or Twitter, or Yahoo, or Weather.com, or WordPress, or, or, or.

    Seriously – you cannot compare a product-centric business with an information-centric business.

    Bob – how do you explain the success of Huffinington Post, B5 Media, Drudge Report and others?

    Times they are a changing…

  2. Bob Safir

    Right on, James. Loved your posting about free content. I'm amazed these days that some of my peers in the music industry expect to get paid for their work. Okay, so it's original, copyrighted music. Who cares? People want it for free, expect it for free – it oughta be free, right?

    A strange thing happened to me this morning. I had to get a new car battery and you know what? The guy from AAA wanted me to pay him for it!!! I said to him, "How are you gonna build any brand equity this way?!?! I finally caved in and payed the guy. Unbelievable!

    Then I went to Trader Joe's for some food and guess what! (You're never going to believe this.) Those guys wanted me to actually PAY for the food I put in my cart! Hello?!?! Welcome to the 21st Century, dudes. Get a clue! (I'm going to go to Whole Foods from now on.)

    So again, thanks for being so cool and hip and aware that the "old" business models don't work any more. People shouldn't expect to be compensated for their work. I mean, you don't get paid for what you do, do you James? Of course not! (Hey, if you do get paid, send me a check, okay?)

    Let's all drink to New Media and the geniuses who really know what they're doing!

  3. Patricia,

    No offense taken. It is certainly your right to ignore changes in the world because you don't like them.

    We've seen manufacturing jobs disappear because no one involved wanted to accept changes that they didn't like. Better to go down with the ship than adapt if adapting means we can't do what we have always done.

    You can like it, not like it, ignore it, or try to work with it, but technology is a game changer here.

    People in this industry need to get through their heads it doesn't matter if they think it is "fair," it just is. Only a handful of people are going to pay for garden variety newspaper content online.

    Too many people sound like homeowners who "have" to get $300,000 for their house despite the fact that market value is now $200,000.

    For once it would be nice to see an article on how to improve online advertising and its value to advertisers in order to generate more revenue in a realistic way. I think the world could take a one day break from the daily clever way some one has come up with to charge the legions of people lining up to pay for high school basketball scores or whatever.

  4. David Polakoff

    James, "The User Experience" struck such a positive chord with me; thanks for highlighting the often overlooked point. Website viability and stickiness (and willingness, perhaps, to pay has to have superior design, usability, and functionality. That's a key differentiator.

    – Dave Polakoff
    http://davidpolakoff.wordpress.com
    "Greater Sliced Bread"

  5. This discussion is great!

    I think Pitaro and Carol Bartz are trying the only strategy available to them. I suspect they have their hands tied by investors who want the stock price to go up NOW. There is no way they can make that happen with a paid model because it takes time. The fastest way is novelty, curiosity, driving people to the site and hope advertisers will pay. (i.e., catch lightening in a bottle) Good luck!

    Personally, I would rather be working on a more sustainable business model. If I were Pitaro and Bartz I would be investing half of that $100 Million ad budget on Plan B. Because cutting that budget in half isn't going to change anything but frequency on the people reached.

    But of course, Yahoo! investors are also invested in the ad agency holding companies and traditional media companies who will benefit from the $100 Million infusion into the market. So it's a good hedge for them. At least those stocks will go up even if Yahoo! doesn't.

    Ah the webs we weave.

    Katherine Warman Kern
    @comradity

  6. Jason Schmidt

    The free that James speaks of is not free. It's a difference of whom a publisher charges for her content – the advertisers or the audience. Asymmetric vs. symmetric.

    In the asymmetric model, publishers charge advertisers for their content, or more specifically, the eyeballs and customer leads their content attracts.

    In the symmetric model, publishers charge their audience directly.

    Of course, both models can and do often coexist. Witness paid Cable TV with plenty of sponsored programming, product placement and even ad spots.

    So, unless you're a charitable organization with a lot of money, time and no need for financial support, there is no such thing as "free" in a functioning society and economy.

    Of course, some here are arguing that big content portals like Yahoo! with their "free" model are gouging the true content creators and slowly, but surely failing themselves.

  7. The reason behind the small percentage of people willing to pay has nothing to do with the desire for free.

    The desire for free is a myth, people go to jobs, start business and want to spend and consume as a reward. However, what people spend and consume must deliver satisfaction or a need.

    The core issue is not paid content, it is the current status quo of newspaper executives, editors and writers have become antiquated. Those liberal arts degrees can't help them in the 21st century information distribution.

    If you want paid content, you have to provide content worth paying for. People in the 21st century expect super detail information and background and correlation and business intelligence, not cute "liberal arts" writings and opinions by a columnist.

    Throwing a "pay wall" on antiquated 18th century news reporting makes me laugh every time I hear it…

  8. Did I really just see an email exchange between Tom & Jerry? What a great way to start my day.

    Oh…and James is right. Free IS the consumer expectation, and only a small percentage of people will pay for content online. Of course, that small percentage of paying customers will be the difference between failure and success for many business, so I like the hybrid model.

  9. I think the way we communicate "news" is in a profound state of change, beyond what is obvious to see at the present time. What is truly important to people ?, what should they be seeking anyway? Is information about a plane crash in Indonesia of any real use to somebody living in Wales? They have no use for such material, at all. So they will find a way to filter out all that they do not want to hear, or consider relevent. Almost a reflection of their own conditionings and ego.
    Does this mean that we, as a species, are now in a state of "attention evolution" ?

  10. Tom, network TV doesn't work as well as it used to, which is why every US network has significant cable TV interests. Same goes for local TV, which used to enjoy gigantic margins, and in the biggest markets, those profits went right back to the networks that owned those stations. The networks can now own, or partially own, the shows they greenlight and broadcast, (which hasn't always been the case) and that means they get syndication revenue as well. So free to the end user? I suppose, even though most US households pay for cable or satellite TV.

  11. "A lot of these companies are going to drive away most of their online audiences as they pursue the holy grail of the small percentage of viewers who will pay." What's that audience worth then? Free has never been a business, and it's unlikely to be one going forward. Content costs time, money and expertise to create, particularly news content that is perishable and cares not about monetization schedules and media plans.

  12. <i>My point is that free can work. And, most of the time, it will be the only option. As I said, free is the rule and, if handled correctly by being laser focused on the audience experience, businesses can profit. </i>

    As others stated, that's easy to say in your position.

    Please explain clearly how any business or enterprise can profit from offering free services. Free cannot work as a standalone model. It only works as a commodity to encourage paid services in some other shape or form. Like running a startup technology blog and taking VC finders fee commissions under the table.

    It cost time and money to offer products/services for free.

  13. Tom Altman

    Thank you – great article.

    Even sites like Rivals only last until more players are in the game. It's the exact same model newspapers are living in. Newspapers charged for their content – until the same content becomes/became available for free.

    As blogs and blog networks around sports become more popular – the Rivals paywall will come down, or people will go elsewhere.

    Keep up this discussion – it's a great one!

  14. James Pitaro

    My point is that free can work. And, most of the time, it will be the only option. As I said, free is the rule and, if handled correctly by being laser focused on the audience experience, businesses can profit. But there are and will continue to be exceptions. If you have an industry leading brand and can offer category-specific expertise or you are offering content or a service for which users actually prefer to pay (see my Rivals.com example where subscribers want the protection of a pay wall), the pay model is the right choice. But simply reacting to the current challenges brought on by the macro-economic environment by transitioning to a pay model is a losing proposition. There will always be free alternatives, some offering sub-par content and some offering quality content, that will be waiting to build their audiences off of the defections created by your transition to pay.

  15. Steve Outing

    Re: Ian Bell's first comment. Yahoo! earlier in its history tried creating more original content and becoming a "media company on the side." Didn't work all that well back then, but if a bunch of big-name media companies put up pay walls that are too high, Yahoo! clearly will benefit, as James says in this article.

    1. It could start hiring journalists (plenty looking for work!) and offer free original news that the old-media execs have locked down. In media-geek circles, we're already talking about what other companies and organizations can hire journalists to do the work that's no longer being done by newspapers (especially investigative and enterprise reporting).

    2. Yahoo! will grow in traffic as people unwilling to pay for news on the web come to it more often looking for alternative free news sources. Researchers who've studied this topic will tell you that online, "good enough" and free most of the time beats "high quality" and paid, even when paid is only a few pennies.

    If traditional news companies get the height of the pay wall (or membership wall) wrong, they'll be giving Yahoo! a nice gift.

  16. Philip Scott

    Ultimately delivering perceived value to the audience provides the monetisation opportunities for publishers. This perceived value comes in many forms: quality journalism, analysis, timing, authority, context, relevance, etc.

    One way to increase perceived value and improve the user experience is serve the ultimate niche – a single reader. Deliver a tailored list of relevant articles to each and every reader. This is now technically possible.

    Relevance helps increase value to readers. As no one wants to read articles that have no relevance or bearing on what they are interested in.

    A relevant online experience means the reader stays longer, visits more often and provides publishers with more monetisation opportunities.

    At topikality we are talking to online publishers about this new technology and how it may impact on the bottom line.

  17. The entire argument for paying for content always seems so much like wishful thinking and people convincing themselves of what they want to believe.

    I am sure that anything that is hard to find content, in-depth financial or business info, etc. of course will be able to charge because the info is hard to get.

    What does a paper really have today that is hard to get? Headlines? Sports scores? Weather? Crossword puzzle?

    I'm not intending to be demeaning to these enterprises, only to point out that much of what they feel they produce is actually a commodity. The lock they used to have was on delivery, not superiority of material in most cases.

    No doubt this is an extremely difficult problem to deal with as it is unlikely that the old cost structures will ever be able to be maintained again. The industry needs a Dell, a firm that figures out how to produce quality at an efficient cost. No one is going to suggest that publishing in general doesn't have a lot of waste and excess in operating costs.

    It doesn't matter if it is fair, it just is. A lot of these companies are going to drive away most of their online audiences as they pursue the holy grail of the small percentage of viewers who will pay. This will destroy the traffic to support advertising revenue just as the continued deterioration of print products drives more traditional newspaper advertising online.

  18. That's the thing that kills me. Everybody in media, etc. THINKS nobody will pay for content — but they will. Honestly, so many models work already on the web. Trialware (which is the "freemium" model and has been around forever in software) is an option but why make it the must unless your reader/audience/user base demand so? Nonsensical.

    I'm willing to buy tons of content — free content is typically poor quality compared to paid stuff. if I'm willing to pay XYZ online or offline, why try to make me not?

  19. So to reiterate Mike Weiss, it sounds like a hybrid model does make sense. Offer the baseline for free – content that is being recirculated etc, but offer a premium service for in-depth articles, and original content.

    I could see this working.

  20. I do agree with your statement on partnership early on in the creative stage. The issue is both the publisher and the advertiser has to be involved and have a shared interest to providing the end user quality content. The "banner ad" or "contextual guesses" approach is too clumsy for niche publishers.

  21. Mike Weiss

    When I was CEO of Morpheus, the file sharing company, we managed to turn a profit with our freemium business model—even after shelling out millions in legal costs. It was unfortunate that the music industry refused to implement any of the revenue sharing models we suggested and that the money went to the attorneys and not the copyright holders and artists.

    However, what amazed me the most was the willingness of a portion of our users to pay for our premium product. There was great potential there, however we would have never gotten to that point without the popularity of our free ad-sponsored client. And, for the most part, our advertisers were very happy with the results they got from advertising to our millions of users.

  22. Scott Walker

    There's no silver bullet here – each company needs to size up its position in the competitive landscape and determine if people are willing to pay for its digital content.

    Some models work best on a totally free content basis, others don't and never will, and some, as suggested above, fall in between and use a hybrid model.

    The bottom line is that digital content is an economic play, and the economies in a digital world don't look anything like what most companies are used to.

    People pay for scarcity (whether it's a service or a product), and if the content isn't scarce, well, then, it's a long, hard road to finding people willing to pay for the premium of enjoying something that can be easily copied, distributed, and consumed (and almost for free, via the global distribution platform that is the Internet).

    And success in the digital world won't happen through legislated subsidization, either. The music industry is proof of that.

  23. Pete Prestipino

    I am very curious as to exactly how Yahoo! would benefit if "companies flip the pay switch" – portals/aggregators like Yahoo! benefit the most from free content (not that content publishers don't appreciate the exposure). The Fantasy Football argument doesn't hold much water on its own as it is more of a service (with a splash of content) than "content" alone. That said however, and correct me if I'm wrong, it sounds like what you (James) are advocating is a hybrid (free with an opportunity for paid) publishing model. I believe that to be true as well – it works for me and other premium publishers (like the WSJ) and scales nicely for niche publishers as well.

  24. With all respect, subscription content historically has been driven not by companies but users. Users are willing to pay. So you're suggesting to skip that they may and go with offering everything for free. I can't think of any reason why someone would suggest this idea.

    Kind of not a surprise then to see how things are playing out for Yahoo if this is its mindset.

  25. Paul Baron

    Actually, I agree with both James and Ian .. and the business model at http://www.hometowntimes.com validates both. With our content and ad management solution, and our local site owners/franchisees, Hometowntime.com delivers original local content, partnerships with other local and affiliate media outlets, AND aggregate readership across a national network of locally franchised community news, information, and advertising sites to share national ad revenue that supplements local advertising dollars. A true win-win for the community, the local publisher, partners, and the advertisers.

  26. James, this is easy for you to say. Contrary to what you say, Yahoo does not create a majority of it's content, they aggregate it from partner sites (including mine, Digitaltrends.com).

    Yahoo reaps the benefits of massive reach as a result, while publishers that are creating the content at expensive costs (it costs a considerable amount for researching, producing, and hiring these journalists etc.) are often passed over by media planners due to their small reach, or are asked to compete on CPM rates that simply are not high enough to pay for the content they are producing.

    If putting up a pay wall is the wrong way to go about it, how come blogs and portals (who rely on the original content), are the only ones complaining about it?