Audiences Don't Pay For Content

The media industry needs to get healthy but we won’t get there if we think about the Internet as the reason that consumers have stopped paying for content. Instead, we need to take a dispassionate view of mass media content and ask ourselves why the Internet is a reason that consumers should start paying for content. 

A Brief History

For almost 30 years, the people closest to the leading edge of digital media have discussed the best way to get the user to pay for content.

Only about 10 percent of the total information collected everyday in the newspaper’s newsroom and features desk…is actually used in the paper, and yet, according to most surveys, the reader only reads 10 percent of what has gone into his paper. It seems, therefore, the whole agony of distribution is undergone in order to feed each reader just one percent of the material that has been so expensively collected.

(“Goodbye Gutenberg” Anthony Smith, 1981)

That was 1981! Today, the relevant way to paraphrase Mr. Smith’s insight goes like this; the reader willingly pays for the “whole agony of distribution” even though they are only interested in a small fraction of the content. This makes sense. The audience for mass media cannot possibly be expected to predict exactly which content they will want to see in the future. Breaking news, new needs, time management and serendipity play a huge role in the content the consumer decides to ingest each day. The value of mass media to the consumer is much greater when they do not have to micro-manage their needs.

The holistic view of mass media overwhelmingly suggests that consumers are easily persuaded to pay for distribution but only rarely do they pay for content in a specific and direct manner. Advertisers underwrite content while consumers pay for distribution services.

The insight matters because we need new ideas that will get the consumer to help pay for content in the digital era. To get there, we need to develop strategies with the opposite mindset of what is currently in vogue. We need to stop blaming digital technologies as the reason that consumers stopped paying for content and recognize that digital technologies may actually be the opportunity to get the consumer to pay for content when they were never willing to do so before.

As the Internet grew up, it seemed like charging for content was a question of finding the technology that would make the payment easy for the consumer. The follow-up question seemed to be how much you could charge for media content. But, we reached the point where the price could be pennies and the payment could be “one-click” and we never did figure out how to scale the idea of charging the user for content.  It turned out that the challenge was the premise of the whole idea. We did not behave as if asking the consumer to pay for content was a brand new request, we behaved as if they were used to the idea and so nothing scaled. 

Advertising business models for online media ramped successfully and the urgency of these questions died down until recently. 

Today’s Sense of Urgency

With newspapers going out of business on the one hand and TV programs showing up all over the broadband Internet on the other, traditional media companies have returned to this question of getting the consumer to pay for content with a new sense of urgency.

Walter Isaacson has been savvy enough to dive right into the middle of this critical challenge by telling the newspaper industry what it wants to hear.

There is, however, a striking and somewhat odd fact about this crisis. Newspapers have more readers than ever. Their content, as well as that of newsmagazines and other producers of traditional journalism, is more popular than ever — even (in fact, especially) among young people.

The problem is that fewer of these consumers are paying. Instead, news organizations are merrily giving away their news. According to a Pew Research Center study, a tipping point occurred last year: more people in the U.S. got their news online for free than paid for it by buying newspapers and magazines. Who can blame them? Even an old print junkie like me has quit subscribing to the New York Times, because if it doesn't see fit to charge for its content, I'd feel like a fool paying for it.

This is not a business model that makes sense.

(“How to Save Your Newspaper” February 5, 2009)


Traditional media pundits like Mr. Isaacson seem to be having some kind of epiphany that the Internet destroyed paid content. The digerati are trying to be empathetic while pointing out that they have tried all manner of things like micropayments over the last decade and they just don’t scale.

So, it is easy for traditional media industry pundits to say that the consumer should pay for quality content and then wash their hands regarding the question of how to get that to happen. It is also easy to blame it on the Internet and then the digerati are caught on the defensive because they assume that this really is the Internet’s fault.

The reality is that the audience never paid for newspaper content. The audience paid the newspaper company to deliver the paper to their door and now they are paying an Internet Service Provider for distributing the content to their computer. The audience is still paying for distribution; they are just migrating to a digital distributor because it is better, cheaper and greener than newsprint.

Media Consumers Never Paid for Content

Step back and try to confirm Mr. Isaacson’s premise that consumers paid for mass media content in the analog era. Set aside non-mass media (books, movies, and music) and there isn’t much evidence to support his premise. While the consumer never had to consciously articulate what they were willing to pay for in the past, actual behavior indicates that advertisers have always paid for the content and the consumer has always paid for the distribution of the content.

In TV, this is easy to see. The consumer paid for the hardware – the TV and the antenna – that made distribution possible and got all the content for free when TV was over the air. Then along came cable TV. In the Cable TV era, the consumer paid the distributor of content a monthly subscription fee but continued to get the content for free. Throughout this entire era, the advertisers paid for the content and the consumers paid for the distribution. Radio, of course, is the same. Electronic media is paid for by consumers who do not directly link their investment to specific content. The idea that a consumer would challenge his cable bill because NBC dropped his favorite prime time show is incomprehensible.

Just like Mr. Smith’s observation about newspaper distribution, we see the consumer willingly paying for the distribution of content even though the amount of content they use is a very small fraction of the amount that is distributed. Paying for content “al a carte” is an awkward concept for the consumer. When it comes to mass media, the consumer doesn’t even buy “prix fixe,” they buy everything on the menu and just eat whatever they feel like at the time.

The phone companies were the first massively scaled distributor of user generated content. They charged for the distribution of content but never for the content itself. When users spent too much time on the phone generating too much content, their bill went way up. But, the consumer knew they were being charged because of the demands they put on the phone company to manage extra distribution. The content itself had nothing to do with the extra charges.  

The same holds true for magazines and newspapers. It is hard to imagine a newspaper charging extra for the sports section.  The consumer is paying a fee for the effort it took to gather all the content in one place, get it printed on paper and then get “all the news that’s fit to print” distributed conveniently.  The consumer is not paying for the content itself. The consumer would not know how to pay for newspaper content even if some magic wand could be waived that made it possible. The consumer makes real time decisions about which content gets their attention each day based on a huge number of variables, most of which are unpredictable. The consumer is much more comfortable paying somebody to just dump the whole thing at their doorstep even though they only use a small fraction of the content each day.

As printing technologies became more efficient, some print media consumers received different editions of a magazine or newspaper than did others. For example; Sports Illustrated started including expanded golf content that went only to the readers who were avid golfers. Even then, the golfers did not pay for the extra content, the advertisers did.  When big newspapers started creating more customized sections, the subscriber was never asked if they wanted to pay for the custom content. They were not asked because the question wouldn’t have made any sense.

The Growth of Online Media

Online media grew up in a manner that was exactly aligned with the history of media company business models. The ISPs were the distributors of the content and they had no trouble whatsoever getting the consumer to pay. The content that was delivered to consumers, although unique in many ways, was not paid for by the consumer. Efforts to get the consumer to pay for content seemed like a no-brainer to the publishers of online content and seemed nonsensical to the consumer of the content.

Not surprisingly, advertisers got involved and that was how the content got paid for.

It was the publishers of digital content who were trying to get the Internet to be different, not the consumers.

Examples from the Modern Era of Media

NETFLIX: Blockbuster felt that it had monopolized the home movie rental business but never realized that their model was fundamentally flawed and they were simply benefiting from a narrow window of media transformation. Blockbuster charged for the movie itself and so the foundation of the business was an Achilles heel. Going to the store put too much of the distribution burden on the consumer and having to pay for specific content during specific windows of time was a less than ideal consumer experience. Netflix went the other way. Netflix charges a monthly subscription fee for distributing movies to your home via the mail. The fee is the same if you keep one movie in your home for 3 months or if you mail movies back and get new ones every few days. The consumer pays for a distribution method and there are no fees specific to the way that they tap into the content. Even with the limitations of snail mail, this was a wild success from the consumer’s point-of-view.

AOL: In AOL, we have the complete picture of distribution and content in the digital era all in one Petri dish. AOL was a huge success thanks to its subscriber model. At its peak, AOL had more than 20 million homes paying something like $20 a month for AOL. It was a sweet business but it was a media distribution business.  AOL was a leading ISP in the dial-up era. In order to fuel their distribution business, AOL used its incredible cash flow to flood the consumers with dial-up era content. With email, entertainment, recipes and rich magazine style content, AOL fed their subscribers 100X the amount of content that any one dial-up user could ever hope to experience. They did it very well. But, as AOL lost its role as a distribution provider, it clung to the notion that it could hang on to some type of subscriber fees because of its compelling content. Even with all of their going-in advantages to convert the consumer to arrangements where they paid directly for content and with many of the best minds in the Internet and media businesses all focused on this objective, clinging to the false notion that consumers pay for content nearly destroyed the company. Only when AOL threw in the towel and committed aggressively to a model where advertisers paid for the content did the company begin to climb out of the deep hole that it dug for itself.

KINDLE and the iPod: It’s too early to draw conclusions with certainty, but e-readers appear to be an effective method to get newspaper and magazine readers to continue to pay a subscription fee. This is a new form of distribution that blends the benefits of the print form-factor with the advantages of digital efficiencies and technologies. If the consumer likes a new and better distribution solution, that can go a long way towards getting them to pay for the content more directly. The iPod did this for music. The music industry had to get used to the idea of making less for content than it did in the analog era but they all signed on when the alternative was that music would be free. Apple has a big success because they make their money selling a unique and brilliant combination of hardware and software. Kindle type devices are about to do the same thing for books, magazines and newspapers. The hardware manufacturers make a healthy profit because they offer a new and better distribution system and legacy media in danger of collapsing gets a new lease on life because the consumer starts paying more directly for their content.

Exceptions that Prove the Rule: There are many exceptions to the over-riding principle that consumers pay for distribution and advertisers pay for content. However, the scope of these exceptions represent a rounding error in terms of total media revenues generated by subscriber fees for distribution and advertising revenues that underwrite content.

The one exception that is particularly interesting is the consumer’s willingness to pay big money for an entire year’s worth of episodes for a TV show that has already aired. At one point a few years ago, Nielsen did a survey of college students to see what the most popular TV shows were on campus and “Family Guy” was #1. That was awkward because Family Guy had been cancelled the previous year. It turned out that Family Guy episodes were being passed around on DVDs the students had brought to school with them. From the point of view of the college students, this was just a different manner of content distribution; they didn’t assume that the surveys only wanted to know about broadcast distribution.

Paying for a whole season of TV shows all at one time in order to watch them whenever you want, as often as you want and with no commercials is a successful example of selling the content – or is it? For the slice of consumers who do this, it appears that the TV broadcast is more like a sampling opportunity. These consumers have decided that the traditional distribution method for these shows is no longer the best method for them. So, whether it is via their iPod or their DVD , they are willing to pay specifically for the content if that gets them a much preferred method of distribution.

This makes a lot of sense. Many TV shows today like “24,” “Lost” and “Heroes” have extremely complex plots and characters which unfold over many connected episodes. Many would-be fans of these shows have lives that make it impossible to appreciate these programs in the manner that they are originally intended for distribution. One episode a week, available at a time determined by the network instead of the consumer and filled with long, distracting commercial breaks is simply not a satisfactory distribution solution for this kind of programming. But, the content remains very appealing to some viewers so they are happy to pay for a better form of distribution.

Where to Look for Opportunities

Once the media landscape is viewed through this lens – that consumers have almost never paid for content but have usually been quite willing to pay for distribution – we can start to gain some visibility into new ideas that make sense in the digital era.

It is probably not micro-payments where the consumer pays $1 to watch a TV show or a few pennies to read an article that will save the future for professional, high quality media content. On the other hand, the idea that the consumer will always pay for distribution that massively over-serves their needs is not a foregone conclusion either. Paying $2500+ per year for cable/broadband/telephony/mobile in order to gain access to a million times more content than you could ever possibly need is not going to work out so well for the media industry either.

We need solutions that improve the relevance of content for individual consumers without expecting individual consumers to be able to predict exactly what they want. Right now, the Internet has exploded the supply of content but digital technologies have only just begun to filter and sample that content for the consumer in the most effective manner.

Content providers who used to enjoy their control over the method of distribution are feeling a lot of pain but their content remains vital and appealing to consumers. Rather than simply stomping your foot like Mr. Isaacson and saying that the consumer simply should be paying for content, it is better to focus on new and improved methods of distribution that tie content and distribution together in new ways that create great consumer experiences.

We don’t know what the other side of this transformation will look like but we have many helpful glimpses that can shape our strategies. Look at what the iPod did for music. Look at the potential of what Kindle can do for print publications. Look at the popularity of expensive sets of DVDs for old TV episodes. Think of what the future DVR might be capable of doing. Think of what GPS could mean for the distribution of extremely local and timely content. Think about what Twitter is doing to distribute content in tiny windows of relevant time. Think about what Search is doing to reveal the needs of the consumer for very specific content at precise moments in time.

It is time to think about distribution and content holistically. Digital technologies are not the enemy, they are an enormous opportunity to improve the relevance of content to the individual consumer. Don’t think so small as micropayments for one article at a time and don’t think so big as to charge a big monthly fee for massively over-delivering irrelevant content. Look in the middle.

Somewhere in between asking the consumer to buy content “al a carte” and asking the consumer to pay for the whole menu, new “prix fixe” solutions are going to mature.

A Final Word from Our Sponsor

But, while you are at it, do not lose sight of the value of the advertising supported model. We are in the middle of a complex media transformation and a brutal recession. At times like this, pundits like Bob Garfield want to convince us that advertising is dead.

Advertising works. In the digital era, the consumer finds it very easy to ignore irrelevant advertising but they are quicker to engage with relevant advertising than ever before because the Internet makes engagement very easy.

Be careful not to throw the baby out with the bath water in pursuit of the goal of getting the consumer to pay for the content. The advertiser remains happy to assume that role so long as you can offer a reasonably scaled and engaged audience. We just need to apply our new resources to help the advertiser better align their message with the right consumer at the right time.

Media companies can create new and better advertising values and it will still command a premium RELATIVE to the costs of distribution. Now that digital efficiencies have greatly reduced the cost of distribution, many media companies need to look hard at their overhead that is a hangover from the analog era.

Some legacy media executives complain that they are trading analog dollars for digital pennies as advertising moves online. That is a valid concern so don’t drag your feet when it comes to rethinking your overhead costs from analog dollars to digital pennies as well.

We can slash overhead, improve advertising value and find new consumer models that offer interesting combinations of content and distribution all at the same time. We need to be more disciplined about who the consumer is and what they really want as we build our new solutions, but the solutions are just waiting for the imaginations of new media moguls to find them.