Coming soon: end of the Net's free ride?

Summary:Media firms have long wanted to charge for online news and entertainment. With ads in a deep slump, there may soon be fewer free rides for consumers. But are you ready to pay?

During the land grab that marked the Web's explosion of popularity in the mid-1990s, media companies shoveled free content onto their sites to lure coveted eyeballs.

Some sites argued that free was the only way to go, figuring that advertising and e-commerce revenue from heavy traffic would make up for lost subscription fees. With so many sites trying that strategy, many companies that did plan to charge for content -- including pioneers such as Time Warner's Pathfinder -- backed down. There was just too much free competition.

In the last year, however, many Web publishers have discovered that advertising alone isn't enough to sustain a viable business. And so another race is on to discover a revenue model that works. That search has ignited new interest in making consumers pay for content.

But will they? And for what?

Free lunch, fee for dessert
Unfortunately for Web publishers, subscriptions are still the risky bet they were several years ago. With users now accustomed to free content, it will be tough for sites to impose fees without losing much of their audiences to rivals.

Realizing this, sites that have dabbled with subscription fees have largely settled on hybrid models. Once entirely subscription-based, TheStreet.com Inc. decided in January 2000 to open the doors to its flagship site to all users. It created a separate subscription-based site called RealMoney.com, which charges subscribers $199.95 a year. Now, its revenue is split about 50-50 between subscription and ad-based revenue.

Most of the content sites that have stuck with subscription-only pricing schemes are trade publications or sites geared toward business users. (Or adult-entertainment sites.) For instance, Variety magazine (www.variety.com) and Billboard magazine (www.billboard.com) charge subscription fees.

Still, a niche audience doesn't guarantee success. In August, Women's Wear Daily shelved plans to launch WWD.com, the online companion to the trade publication, citing "current business climate and market conditions." The magazine, published by Fairchild Publications, had planned to charge $895 a year for WWD.com.

Change of heart
While trade magazines and struggling dot-coms have tried various subscription plans, few major publishers have given fees more than lip service. Of the top 10 news sites measured by Jupiter Media Metrix -- including MSNBC.com, CNN.com and NYTimes.com -- none charge for their core Web sites.

"You are hard-pressed to find a media company that's not absolutely ogling subscriptions or some type of paid content, and trying to move there," says Mark Mooradian, vice president and senior analyst at Jupiter Media Metrix. "But that doesn't mean that it's been a success."

Jupiter forecasts the market for paid content will grow to nearly $5.7 billion by 2005 from $1.1 billion in 2001. Those projections, however, include a broad swath of media, including not just news but also adult entertainment, online gaming, education and music.

When the Internet was crowded with well-funded upstarts serving up content for free, Mooradian says, "traditional media companies were being very, very wary." But he adds that now that many start-ups are struggling or out of business, "there's been a real change of heart."

"People are saying, 'Let's get our senses together and figure out how to make this thing work as a paid model,' " he says.

Neil F. Budde, publisher of The Wall Street Journal Online, which has 609,000 paid subscribers, says that publishers should think carefully before diving into subscriptions.

"The weakness in online advertising really shouldn't be the driver for considering a subscription model," Budde says. He cautions that many sites "won't be able to build sufficient audience to make subscriptions work and will be hurting for page views when advertising rebounds."

Once bitten, twice shy
Sites have a reason to be cautious, given the shaky state of the U.S. economy and previous experiences with the pay model.

Microsoft Corp.'s Slate magazine tried to make readers pay for its news and political commentary back in 1997, but dropped those plans. Editor Michael Kinsley told Slate readers at the time that the publication had "chickened out" on plans to charge for access. Slate resurrected the subscription model in 1998 -- but scrapped it again in February 1999 amid a sharp downturn in the site's traffic.

Given Slate's previous subscription flop, Slate Publisher Scott Moore today finds the renewed industry interest in subscriptions and so-called micropayments "amusing." Slate gave up on its subscription model during Moore's first week at the online magazine. "There's no evidence people will pay for [content]," he says.

Some publishers, though, think they can make a go of premium services -- if they are served alongside free offerings.

Although the majority of iVillage Inc.'s content is free, the network of sites geared toward women does charge a fee for things such as astrology charts, personalized horoscopes and in-depth IQ analysis. And its Business Women's Network, which the company acquired this year, provides fee-based consulting services on diversity and women's issues in the corporate world.

"This is something that we've tread carefully in," says Doug McCormick, iVillage's chairman and chief executive officer. McCormick says that iVillage hopes to roll out within the next 12 months what he calls iVillage Platinum, which will be sold on a monthly-subscription or pay-as-you-go basis. McCormick declined to outline details of the service. He is quick to add, however, that iVillage still believes in the advertising model and isn't considering converting its network of sites into subscription-only ventures.

"I'm not suggesting that stuff we give away for free today we charge for tomorrow," he says. "I'm saying that improvements and new things we would charge for."

Online newspapers a tough sell
Geoff Lewis, a former editor at TheStreet.com and CNBC.com, agrees that the sites with the best chances of successfully charging for content are those that offer analysis and commentary to a niche audience. But general-interest sites may face a harder time, he warns: "Even the best journalism, if it doesn't have any transaction value, is going to have a hard time generating a big subscription following."

Knight-Ridder Inc.'s Mercury Center, the online sibling of the San Jose Mercury News, collected subscription fees for more than three years before making the site free in 1998. Today the site, which is now part of KnightRidder Digital's Real Cities Network, only charges users to access its newspaper archives.

Most big metropolitan newspapers, such as the Detroit Free Press, the Washington Post and the Los Angeles Times, now require a small fee for access to their archives, but serve up the rest of their content for free. Some, like the New York Times, also sell premium subscriptions to things like crossword puzzles.

Lincoln Millstein, executive vice president of NYTimes Digital, a unit of New York Times Co., says sales of the unit's for-fee products are going "very well," but adds that an aggressive push isn't planned.

"We decided not to put a subscription gate at the front door," he says. "What you are going to see more and more is the introduction of premium paid content like crosswords and archives, to give the user a menu of choices."

Chris Schroeder, chief executive officer of WashingtonPost.Newsweek Interactive, says he is all for the subscription model, but adds that "I think it's a ways away."

"A lot of sites are carving off portions of their sites, but I will be very surprised if they are able to get that many dollars out of it, or if the effort is worth the time," Schroeder says.

But at least one mainstream paper is bullish on charging for its content. The Gazette of Cedar Rapids, Iowa, a daily newspaper owned by Gazette Communications, began in September to restrict free access to its Web site (www.gazetteonline.com) to people who subscribe to the print paper. Nonsubscribers must buy a print subscription or pay either $8 a month or $60 a year to access the entire site.

On the horizon
One sector where subscriptions may be gaining traction is in online broadcasting -- both music and news.

One leader is RealNetworks Inc., whose Gold Pass offers music and music videos, plus live streams of CBS's Big Brother reality TV show and unaired footage from the network's Survivor reality show, among other offerings. The service's biggest draws, says Jupiter's Mooradian, are real-time sports feeds from Major League Baseball, National Basketball Association and National Football League games.

For $19.99, RealNetworks offers a one-month Gold Pass subscription, plus the RealPlayer Plus multimedia software. For subsequent months of service, users pay $9.95.

RealNetworks also is involved in one of two online music ventures whose impending rollouts are drawing a lot of attention. MusicNet is backed by RealNetworks, AOL Time Warner Inc., Bertelsmann AG and EMI Group PLC. The other venture, Pressplay, is owned by Sony Corp. and Vivendi Universal SA. Both ventures hope to launch subscription services this fall.

MusicNet's subscription services, which will feature digital music from the BMG, EMI, Warner and Zomba record labels, will be offered through partners RealNetworks, America Online and Napster Inc. The venture delivered the technology platform to its partners in late September. Under a similar arrangement, Pressplay will deliver downloadable and streaming music from EMI, Sony and Universal through affiliates including Yahoo Inc., Microsoft's MSN and MP3.com.

Jupiter's Mooradian says MusicNet and Pressplay have a good shot at success.

"Though there's a whole lot of free competition out there, I believe that they will have adoption if they're rolled out in a smart way," he says. "Whether that actually happens, we'll know in six months to a year."

-- Timothy Hanrahan and Stephanie Miles contributed to this article.

Topics: Microsoft

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