The world of digital content is in a state of almost continuous upheaval, but a new report from GigaOM Pro analyst Paul Zagaeski (sub req’d) estimates that the worldwide market for digital goods will grow to $36 billion by 2014, up from $16.7 billion in 2009, thanks to an ever-growing user base, migration from physical formats to digital distribution and a proliferation of new connected devices.
As Zagaeski points out, some digital goods creators such as software companies and game makers have been able to get their users to pay directly for their content — or for virtual goods that are related to their content, in the case of social game companies like Zynga — while advertising-based content companies such as news publishers have not been so lucky.
“As large news organizations look to diversify from ad-supported business models, the last decade has produced no evidence that a significant percentage of their consumers will pay for content that is free elsewhere. Still, there continues to be significant enthusiasm for subscriptions, micropayments and other payment models as more devices such as the iPad come to market.”
The GigaOM Pro analyst is right that micropayments for digital goods such as music and games will likely continue to grow significantly, thanks in part to the growing dominance of Facebook in the virtual marketplace, along with mobile platforms such as the iPhone/iPad and Android.
But where does that leave news and information publishers? Their challenge is that users (i.e., readers) aren’t used to having to pay per-piece for the content they’re consuming the way many music buyers and game buyers have grown used to doing. Because they are advertising based, news publishers and other content companies have always insulated their users from the full cost of their businesses, but the unfortunate reality is that advertising online isn’t even close to covering the costs of digital publishing yet.
The challenge that faces information and media companies is to somehow replace lost advertising with some form of online revenue; but as Zagaeski points out in his report, there are no real signs that micropayments or paywalls are a viable model for the industry online, although some publications have made subscriptions work. There is “no evidence of demand for paid-for news content as long as news is readily available from free sources,” he writes. “Some organizations will test this hypothesis in the next 18-24 months, but a 10-year-long debate has not revealed any substantial evidence to the contrary.”