If you enjoy online media, such as music and video, chances are you’ll be paying for it in the near future if you want the quality stuff – whether it be through subscriptions, pay-per-view, ads you can’t turn off, or providing marketable information about yourself.
That’s the conclusion from telecoms/software/IT analyst Ovum, which says the notion that free content is the only answer to service providers’ financial woes, is unworkable.
Providers of online material have been wrestling with ways to get revenue for some time now; the problem being that the internet’s development has outpaced their business models. Some news outlets, such as those owned by Rupert Murdoch, have already imposed ‘pay walls’ on their content, and news executives are gloomy about their financial prospects (see page 14).
Providers of music and video face the same dilemma. Some tech bloggers believe that providing content free, offsetting the cost through advertising, is the way ahead. But Ovum says this logic is flawed.
“It is true that the costs of bandwidth and storage are falling, but they are certainly not yet zero,” an Ovum report says. “Moreover, looking at the marginal cost of distribution alone ignores rights and royalties, the significant capital required for developing a digital platform in the first place, marketing costs, and the cost of capital itself – not to mention management’s interest in making a profit.”
Free ad-supported digital content services, such as YouTube, haven’t reached a profitable scale using advertising alone, Ovum says, adding that large-scale free services are unrealistic. “Digital entertainment platforms will find it difficult to build the scale required to support free services because of the friction created by rights ownership,” the report says.
“Consumers will increasingly be asked whether certain digital content is valuable enough for them to pay for it,” Ovum Principal Analyst Mark Little told NetGuide. “There will be less free content available, and where there is free content, expect access to be increasingly conditional, for example: pay for more, pay for a better experience, watch an unskippable ad, or share personal data.”
The most likely model will be hybrid, combining subscription, advertising and retail, and a certain amount of free content in order to promote and attract traffic, Little says. “There is a surprising amount of scope and opportunity in the mash-ups possible from these four different business models. At the same time, there is a growth in alternative currencies to money that can be exchanged for value, such as people’s time, attention and personal data (in a way that respects privacy and security of course).”