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  • 1. For Consumer Product Strategy Professionals Includes data from Consumer Technographics® June 25, 2009 Eight Models For Monetizing Digital Content Ad Revenue Softens, And Publishers Seek New Ways To Make Content Pay by sarah rotman epps with Mark Mulligan and Erik Hood ExECUT I v E S U M MA Ry History repeats itself: As they have in other economic downturns, publishers are considering offering paid content products as a way to wean themselves off the shrinking teat of advertising. In this report, we examine the four qualities that characterize content for which people are willing to pay, and we define eight models for digital content monetization. Whether publishers adopt a “free-mium” model, introduce micropayments, or develop new products to drive incremental revenue, they need a comprehensive strategy that accounts for consumer receptivity, impact on other revenue streams like advertising, and effects on other online and offline products and channels. publisHers Have Had enougH of tHe all-you-can-eat content buffet With online ad revenues flat or declining thus far in 2009, publishers have reached a breaking point where they are forced to radically reconsider their online business models.1 As they have in previous down cycles, publishers are considering various paid models for their content. The Wall Street Journal recently announced it would begin a micropayment program this fall that will complement its existing online subscription program.2 Cablevision has announced its intentions to end free online distribution for Newsday.3 Martha Stewart Living Omnimedia will be testing paid downloads for its online video content starting in June.4 And Pandora, whose core streaming radio product is free and ad-supported, has introduced Pandora One, an ad-free streaming desktop app for $36 per year.5 But these programs can be controversial even within the companies that are proposing them. As one publisher recently told Forrester, “We’ve worked hard to build a sustainable online advertising business. Putting content behind a pay wall would kill those efforts overnight.” While it’s true that some efforts to make consumers pay for content can cannibalize existing revenue streams, other efforts can be complementary. To help publishers sort out what models make sense for their companies and their content, we’re taking a closer look at: 1) what types of content people will pay for, and 2) what models publishers can use for digital content monetization.“Monetizable” content Has at least one of four characteristics Conducting research for Forrester’s five-year forecast of the paid content market has led us to conclude that content people pay for has at least one of four characteristics.6 People pay for content that: · Supports a job or career. Content and functionality that help people (and we intentionally say “people” rather than “consumers” to include business users) advance their careers is worth paying for. LinkedIn, which has been profitable since 2006, complements its free service with premium Headquarters Forrester Research, Inc., 400 Technology Square, Cambridge, MA 02139 USA Tel: +1 617.613.6000 • Fax: +1 617.613.5000 • www.forrester.com
  • 2. Eight Models For Monetizing Digital Content 2For Consumer Product Strategy Professionals subscription services such as access to more messaging bandwidth, more search results, and more alerts for $24.95 to $499.95 per month. In addition to career advancement more generally, content and services that help businesspeople with a specific job pain also justify payment. For example, WeddingBook, a local search site for wedding vendors, lets vendors claim their listings and add content for free and charges them for lead generation if vendors choose to submit a proposal to a qualified bride. It’s worth noting that business-focused media like Women’s Wear Daily have had an easier time charging for online content than consumer-focused media. · Enhances serious hobbies. Consumers in general can be a hard sell; companies can find more success in offering content and functionality that targets “prosumers” (amateurs who are seriously invested in their hobbies). SoundCloud, for example, enables musicians to share and sell their work online; the basic services are free, but pro accounts with more upload capacity and upgraded customer service justify the expense for heavy users. Similarly, Yahoo!’s photo site, Flickr, offers basic services for free but charges $24.95 per year for unlimited storage and archiving. · Provides substantial entertainment. Entertainment — video games, music, and filmed entertainment — constitutes the lion’s share of online paid content: $4.7 billion in 2009, increasing to nearly $7 billion by 2013.7 It’s notable that nearly all the most-downloaded iPhone apps in 2008 were games like Texas Hold’em, Moto Chaser, and Super Monkey Ball.8 Apps in the news and information space, such as the popular Net News Wire app, are generally offered for free. Other runaway success stories of paid content also tend to be in the entertainment space. Since its launch in November 2007, the video game Rock Band has sold more than 40 million songs in its in-game store at $1 to $2 per song, producing a steady stream of incremental revenue to complement sales of the game itself.9 · Differentiates the delivery experience. Content that’s worth paying for sometimes isn’t about the content at all—it’s about the delivery experience. Buying iPhone apps or Rock Band songs is so easy you don’t even have to think about it; in both cases, the transactions are seamlessly integrated into the media experience. Amazon’s Kindle is another example of a differentiated delivery experience: The Whispernet wireless service allows consumers to download a book in 60 seconds without taking out a credit card. The seamlessness of the transaction makes content that consumers can otherwise get for free — like newspapers and blogs — worth shelling out a few bucks for on the Kindle.eight Models emerge for digital content MonetizationExamining cases of digital content monetization, it becomes clear that there are many differentmodels that publishers can follow (see Figure 1). Each model has different strengths and weaknessesthat affect its profit potential and consumer appeal (see Figure 2). Though conceptually distinct, themodels we describe below aren’t mutually exclusive; in fact, models can be complementary to eachother, and employing multiple models simultaneously can support greater consumer choice.June 25, 2009 © 2009, Forrester Research, Inc. Reproduction Prohibited
  • 3. Eight Models For Monetizing Digital Content 3For Consumer Product Strategy Professionals 1. Content licensing and syndication. Content licensing, where a publisher syndicates content to another business for paid use, isn’t new. But it’s worth renewed attention because there’s a growing demand for media content from non-media companies as content becomes more central to marketing strategy.10 J.D. Power and Associates, for example, licenses its brand to well- reviewed companies like Lexus for promotional use. Condé Nast has syndicated its Style.com content and Reddit voting tool to Dillard’s retail site. Forrester’s take: The advantage of this model is that it provides an additional revenue stream with no pain for consumers. The disadvantage of this model is the overhead that it takes to sell one-off licensing deals, and there’s the risk of brand dilution that comes with working with too many partners or with partners that don’t complement your brand. 2. The marketing loss model. In the marketing loss model, content is given away for free in one channel to drive purchases in a more profitable channel. Examples include most magazine Web sites, which are free for consumers and drive subscriptions for the print magazine, which commands much higher advertising revenue in addition to subscription revenue. Some recording artists have also embraced this model: Radiohead and Prince have distributed albums for free, thereby increasing their fan base, which drives sales for live concerts. Free photo sites like Snapfish and Kodak Gallery offset storage and bandwidth costs by selling merchandise like mugs, prints, and T-shirts. Forrester’s take: While this model doesn’t ask anything onerous of consumers, it can be hard to manage politically within a company: Many organizations struggle to establish digital channels as standalone profit centers and don’t want to justify their existence solely as a marketing expense. 3. The “free-mium” model. In a “free-mium” model, most content is available free and is ad- supported, with paid access to premium content services. Examples include pro accounts from Flickr and LinkedIn, as well as many dating sites. Even video game companies are starting to experiment with this model: Anyone can download the Web-based game Battlefield Heroes and play it for free; the game is funded by in-game advertising, as well as fees from users who want to pay for content upgrades (this revenue-generator also doubles as an anti-piracy measure). Forrester’s take: The pros of this model are that consumers who want more value can get it, and consumers who aren’t willing to pay aren’t alienated, so the site can maintain high traffic levels and continue to sell online advertising. 4. Incremental paid content and services. In this model, new content, services, or applications are developed and sold separately from the core content product. Dow Jones, for example, partnered with RavenPack to create its Dow Jones News Analytics product, which integrates Dow Jones’ data feeds with traders’ algorithmic workflow tools. Better Homes & Gardens has taken more than 20,000 of its stock photos and created a subscription site for decorators called decoratinginspiration.com.June 25, 2009 © 2009, Forrester Research, Inc. Reproduction Prohibited
  • 4. Eight Models For Monetizing Digital Content 4For Consumer Product Strategy Professionals Forrester’s take: With incremental paid content, people who want more value can get it, but the uptake for any particular product is likely to be small, so companies may find it difficult to justify the overhead of creating entirely new products. 5. Pay wall/subscription model. In a pay wall or subscription model, most or all content is available only to subscribers who pay on a monthly or annual basis. Examples include financial news sites like WSJ.com and Economist.com; consumer services like Angie’s List, Consumer Reports, and Zagat; game subscription services like Steam and Xbox LIVE; and Netflix subscriptions for mailed or streaming movies. Forrester’s take: The strength of this model is that it is simple and transparent to consumers. The weakness is that putting content behind a pay wall will undoubtedly decrease traffic because the paid service will appeal to a smaller segment of consumers. 6. Microtransactions. Forrester defines microtransactions as selling modular bits of content, which in an offline distribution model would have been bundled together, individually through easy transactions. Examples include iTunes tracks and movies, iPhone apps billed to your credit card on file, and on-demand movies charged to your cable bill. It’s worth noting that microtransactions work well for certain types of content, such as music and video: Forrester’s data shows that 28% of US online consumers have bought individual music tracks from an online store like iTunes, but only 6% have subscribed to a service like Rhapsody. Similarly, twice as many US online consumers have paid to download individual videos as have paid for an online video subscription service like Vongo (10% and 5%, respectively).11 Forrester’s take: The pros of this model are that publishers can create content once and sell it many times and they only have to pay for what they want, but the cons are that consumers may feel nickel-and-dimed in having to pay for content one bit at a time. 7. The metered model. In a metered model, consumers are charged for usage once they cross a certain threshold. While several newspapers are considering implementing this model, the only examples to date are negative: Cell phone “overages” create consumer anger and have made the companies that charge them vulnerable to competitors that advertise that they don’t charge these fees. In the broadband space, Time Warner has attempted and failed to charge high- bandwidth users more for Internet access. Forrester’s take: While media companies, especially newspapers, hope that a metered model will allow them to “play it both ways” in terms of advertising and paid content, it’s complicated and not transparent to consumers. Even worse, a metered model punishes the most-engaged content consumers — an outcome at odds with media companies stated goals of increasing engagement.12June 25, 2009 © 2009, Forrester Research, Inc. Reproduction Prohibited
  • 5. Eight Models For Monetizing Digital Content 5For Consumer Product Strategy Professionals 8. The marketplace model. The marketplace model is perhaps the most complicated but also the most interesting of the emerging monetization models. In a marketplace model, publishers open up their content assets for a community of developers to build their own apps, which can be sold in an “app store” for shared revenue. NPR opened up its API, which includes feeds of all the content for which it has redistribution rights, to the iPhone app developer community. One of the resultant products is the popular NPR Addict app, which is offered for free and generates ad revenue for NPR through the sponsorships it sells for the content.13 In another example, the UK- based Guardian uses a vendor called Mashery to make its content (data, text, multimedia, user- generated content, and tags) available to developers, encouraging the creation of commercial and non-commercial apps.14 Forrester’s take: The benefit of this model is that it increases the speed and breadth of innovation — currently, it takes publishers far too long to decide what apps and products to build and get them to market. The potential downside of this model is that publishers may perceive the new products as threats to their brand and may not be willing to open up their content assets to a community so as not to dilute their own value and cachet.June 25, 2009 © 2009, Forrester Research, Inc. Reproduction Prohibited
  • 6. Eight Models For Monetizing Digital Content 6For Consumer Product Strategy Professionalsfigure 1 Eight Models For Monetizing Digital Content Model Definition Examples Pros Cons Content licensing Content is licensed • J.D. Power licenses its brand Additional revenue One-o , overhead and syndication to another business to well-reviewed companies stream, no pain for to sell for paid use. like Lexus for promotional consumers use. • Condé Nast syndicated its Style.com content and Reddit voting tool to Dillards’ retail site. Marketing loss Content is given • Most magazine Web sites No pain for Hard to manage model away for free in one • Radiohead and Prince consumers politically channel to drive distributed albums for free, within a company purchases in a increasing their fan base, more pro table and driving sales for shows. channel. • Snapfish and Kodak Gallery o set storage and bandwidth costs by selling merchandise like mugs, prints, and T-shirts. Free-mium model Most content is • Flickr Pro, LinkedIn Pro Consumers who Overhead of available free and accounts want more value creating new is ad-supported, • Dating sites get it, but it products, revenue with paid access • The video game Battlefield doesn’t cut down likely small to premium Heroes is distributed for free on tra c. for service content services. on the Web. Anyone can download the game and play it for free; the game is funded by in-game advertising, as well as fees from users who want to pay for content upgrades. Incremental paid New content, • Dow Jones News Analytics Consumers who Overhead of content/service services, or provides a feed that want more value creating new applications are integrates with traders’ get it. products, revenue sold separately algorithmic work ow tools. likely small from the core • Better Homes & Gardens’ for individual content product. decoratinginspiration.com, products a subscription site for decorators with 20,000 photos. Pay wall/ Most or all content • Financial news sites like Transparent, Will decrease subscription is available only to WSJ.com, Economist.com simple model tra c, only model subscribers who • Consumer services like appeal to pay on a monthly Angie’s List, Consumer small segment or annual basis. Reports, Zagats • Game subscription services like Steam, Xbox LIVE • Netflix subscription for mailed or streaming movies53811 Source: Forrester Research, Inc.June 25, 2009 © 2009, Forrester Research, Inc. Reproduction Prohibited
  • 7. Eight Models For Monetizing Digital Content 7For Consumer Product Strategy Professionalsfigure 1 Eight Models For Monetizing Digital Content (Cont.) Microtransactions Modular bits of • iTunes tracks, movies, and Create content Consumers may content, which in apps billed to your credit once; sell it many feel nickel-and- an o ine card on le times. dimed; news distribution model • On-demand movies content has would have been charged to your cable bill limited appeal. bundled together, are sold separately through easy transactions. Metered model Consumers are • The Massachusetts Turnpike Companies can Not transparent to charged for usage • Cell phone “overages” theoretically consumers, once they cross a • Time Warner’s failed “play it both ways” punishes most certain threshold. attempt to charge in terms of engaged high-bandwidth users advertising consumers more for Internet access and paid content. Marketplace Publishers open up • NPR’s open API for iPhone Exciting new Overhead to set model their content assets apps products, up and manage, for a community • Time Warner’s platform for innovation from fear of opening of developers to game developers using crowd up assets to build their own Harry Potter content assets community apps, which can and losing control be sold directly or monetized through advertising.53811 Source: Forrester Research, Inc.June 25, 2009 © 2009, Forrester Research, Inc. Reproduction Prohibited
  • 8. Eight Models For Monetizing Digital Content 8For Consumer Product Strategy Professionalsfigure 2 Not All Monetization Models Are Created Equal Marketplace Micro- Free-mium Licensing/ transactions syndication Incremental Profit content potential Pay wall/ Marketing subscription loss Metered Consumer- friendliness53811 Source: Forrester Research, Inc.June 25, 2009 © 2009, Forrester Research, Inc. Reproduction Prohibited
  • 9. Eight Models For Monetizing Digital Content 9For Consumer Product Strategy Professionals R E C o M M E N D AT I o N S create a coMpreHensive strategy around content Monetization To avoid disastrous failure, publishers need to look before they leap into a paid content strategy. Publishers considering such a strategy should: · conduct research as to what will resonate with your consumers. Qualitative research like focus groups and quantitative surveys of customers and prospects are a must for assessing what products and services — at what price points — your consumers are likely to adopt. · Model the effects of new pricing on other revenue streams. There’s no question: Putting up any kind of barrier to your content — whether that’s a pay wall, a metered model, or micropayments — will undoubtedly have some effect on your ability to attract consumers to your content and monetize that content through advertising. Using the data you collect in quantitative and qualitative consumer research, create a model to predict what the costs and benefits will be of your new monetization strategy. · give consumers choice. While some consumers may want to pay for only what they use, others will want access to everything. Consider using multiple models in tandem, offering consumers choice between subscriptions and other models like micropayments. · consider a bundled solution. What you do in one channel shouldn’t be done in isolation — smart companies will use this opportunity to revamp their entire product and channel pricing strategy. ESPN has recently ended free online access for its magazine content; it now bundles together the magazine and ESPN Insider product for one subscription fee. If a newspaper is shifting its primary distribution to an eReader format and phasing out print, it should consider whether to continue to offer free Web access, or to bundle a subscription for eReaders, Web, email, and mobile access.endnotes1 Q1 2009 saw online ad revenues decline for many publishers. Gannett reported that online revenue fell 20% at its US newspapers, excluding USA Today. Source: “Gannett Sees No Relief in the Ad Downturn,” The Wall Street Journal, April 19, 2009, (http://online.wsj.com/article/SB123988512019224995.html). The New York Times Company saw an 8% decline in online advertising for its News Media Group and a 4.7% decline in revenue for its About Group, which includes About.com. Source: Richard Perez-Pena, “Times Co. Reports Loss of $74 Million,” The New York Times, April 21, 2009 (http://www.nytimes.com/2009/04/22/ business/media/22paper.html).2 “News Corp is planning to introduce micro-payments for individual articles and premium subscriptions to the Wall Street Journal’s website this year, in a milestone in the news industry’s race to find better online business models.” Source: Edward Edgecliffe-Johnson and Kenneth Li, “Micro-payments considered for WSJ website,” The Financial Times, May 10, 2009 (http://www.ft.com/cms/s/0/afcc5024-3d97-11de-a85e-00144feabdc0.html).3 “In laying out its goals for Long Island newspaper Newsday, Cablevision (NYSE: CVC) COO Tom Rutledge told investors that the company plans to end free access to the paper’s site.” Source: David Kaplan,June 25, 2009 © 2009, Forrester Research, Inc. Reproduction Prohibited
  • 10. Eight Models For Monetizing Digital Content 10For Consumer Product Strategy Professionals “Cablevision To Charge For Access To Newsday.com,” Paidcontent.org, February 26, 2009 (http://www. paidcontent.org/entry/419-cablevision-sets-goal-to-end-free-access-to-newsday.com).4 Source: “Martha Stewart To Test Paid Online Video Downloads,” WSJ.com, May 14, 2009 (http://online.wsj. com/article/BT-CO-20090514-715617.html).5 In a blog post on Pandora.com, CTO Tom Conrad explains that Pandora One offers higher quality music, an ad-free experience, and a customizable desktop application. Source: Tom Conrad, “Pandora One: Upgrade the Pandora Experience,” Pandora blog, May 19, 2009 (http://blog.pandora.com/pandora/ archives/2009/05/pandora_one_upg.html).6 No longer mere information, content — especially content that consumers are willing to pay for — has morphed into information plus experience. Content that fits this new paradigm, like video games, will be the big winner of consumers’ wallet-share, while news articles, TV shows, and other forms of “old” content will increasingly rely on free-content business models: some combination of advertising, “free-mium” pricing, and marketing loss for more profitable channels. See the December 3, 2008, “US B2C Online Paid Content: Five-Year Forecast” report.7 Consumers spend twice as much on entertainment as on other forms of online paid content. See the December 3, 2008, “US B2C Online Paid Content: Five-Year Forecast” report.8 For a complete list of the top 10 most downloaded iPhone apps, please see the original article. Source: Greg Krumparak, “Apple announces Top 10 iPhone apps of 2008,” MobileCrunch, December 2, 2008 (http://www. mobilecrunch.com/2008/12/02/apple-announces-top-10-iphone-app-downloads-of-2008/).9 The sale of 40 million downloads furthers “(Rock Band’s) position as the music video game leader in paid song sales and downloadable content with over 600 songs available to date in the Rock Band catalogue.” Source: “Rock Band(R) Franchise Officially Surpasses $1 Billion in North American Retail Sales, According to the NPD Group(1),” PR Newswire Association, March 26, 2009 (http://news.prnewswire.com/ DisplayReleaseContent.aspx?ACCT=104&STORY=/www/story/03-26-2009/0004995271&EDATE=).10 For example, Fidelity’s redesigned home page looks more like Yahoo! Finance than a traditional banking Web site, with content from Motley Fool, Kiplinger’s, and Money magazine. Delta Air Lines includes destination content on travelers’ boarding passes when they print them out online. And Louis Vuitton Moet Hennessey has announced that it will be folding its eCommerce site eLuxury.com and relaunching it as an online magazine for fashion and luxury content.11 Source: North American Technographics® Media And Marketing Online Survey, Q2 2008.12 Magazine companies, newspapers, TV networks, and other companies strive to increase engagement in their digital channels. See the March 2, 2009, “What Engagement Means For Media Companies” report.13 NPR Addict features podcasts and streams from NPR stations across the country, as well as 13 years of NPR content. Source: Demian Perry, “NPR on the iPhone,” Inside NPR.org, April 22, 2009 (http://www.npr.org/ blogs/inside/2009/04/npr_on_the_iphone.html).14 Source: The Guardian (http://www.guardian.co.uk/open-platform).Forrester Research, Inc. (Nasdaq: FORR) is an independent research company that provides pragmatic and forward-thinking advice to global leaders in businessand technology. Forrester works with professionals in 19 key roles at major companies providing proprietary research, consumer insight, consulting, events, andpeer-to-peer executive programs. For more than 25 years, Forrester has been making IT, marketing, and technology industry leaders successful every day. Formore information, visit www.forrester.com.© 2009, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinionsreflect judgment at the time and are subject to change. Forrester®, Technographics®, Forrester Wave, RoleView, TechRadar, and Total Economic Impact aretrademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. To purchase reprints of this document, please emailclientsupport@forrester.com. For additional information, go to www.forrester.com. 53811