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Adding Fees and Fences on Media Sites

Richard Perez-Pena, Tim Arango|The New York Times
Monday, 28 Dec 2009 | 10:20 AM ET

Over more than a decade, consumers became accustomed to the sweet, steady flow of free news, pictures, videos and music on the Internet. Paying was for suckers and old fogeys. Content, like wild horses, wanted to be free.

Laptop and money
Laptop and money

Now, however, there are growing signs that this free ride is drawing to a close.

Newspapers, including The New York Times, are weighing whether to ask online readers to pay for at least some of what they offer, as a handful of papers, like The Wall Street Journal and The Financial Times, already do. Indeed, in the next several weeks, industry executives and analysts expect some publications to take the plunge.

Rupert Murdoch, beyond charging for access to The Journal, has talked about forming a partnership with a single search engine, which would pay him for the rights to scour the news and entertainment programming produced by his company, the News Corporation , rather than letting all search engines crawl his sites. Also Hulu, which is owned partly by Mr. Murdoch’s company, is considering charging viewers to watch some of the TV shows it now streams free.

Magazine publishers, meanwhile, have banded together to try to create their own version of the Apple iTunes store, aiming for a day when they can sell enhanced versions of what they have been giving away. And more and more media companies are planning to charge for apps on iPhones and other mobile devices, as well as on the Amazon Kindle and other e-readers.

Media companies of all stripes built their business models on the assumption that advertising would continue to pour into their coffers. But with advertising in a tailspin, they now must shrink, shut down or find some way to shift more of the cost burden to consumers — the same consumers who have so blissfully become accustomed to Web content that costs nothing.

So will future consumers look back on 2010 as the year they finally had to reach into their own pockets?

Industry experts have their doubts, saying that pay systems might work, but in limited ways and only for some sites. Publishers who sounded early this year as though they were raring to go have not yet taken the leap, and the executives who advocate change tend to range from vague to cautious in making any predictions about fundamentally changing the finances of their battered businesses.

But one thing clearly has shifted already, in a year rife with magazine closures and newspaper bankruptcies: conventional wisdom among media companies has swung hard from the belief that pay walls would only curb traffic and stifle ad revenue, to the view that media businesses need to try something new, because the current path appears to lead to extinction.

“Content providers see that the idea that everything has to be free, supported by ads, isn’t working well, and they’re trying to put the toothpaste back into the tube, but only partially,” said Alan D. Mutter, a media consultant and blogger who has been an executive at digital media companies.

He went on: “So we’re looking at some sort of an inflection point, at least in attitude. But I haven’t seen much realistic, hard-headed thinking about how that’s going to happen, so I don’t know how much is really going to change.”

Ann S. Moore, the chief executive of Time (a division of Time Warner), the nation’s largest magazine publisher, said, “A lot is going to change over the next two years.” But she conceded that it was very hard to predict the shape of that change, and she said that adding pay walls alone probably would not work.

AP

Of course, it is the established media, with their legacy of high operating costs and outdated technology, that face this problem. Leaner, newer online competitors will continue to be free, avidly picking up the users lost by sites that begin to charge.

Arianna Huffington, co-founder and editor in chief of The Huffington Post, predicted that much of the talk of media’s mining the Web for new revenue would never become reality — and that if it did, free sites like hers would benefit. Some of the plans now being laid might work, she said, but many of them would just alienate the Internet users who click from one site to another, wherever links and their curiosity take them.

“I’m not minimizing the fact that there’s a need to experiment with multiple new business models,” she said. “I just don’t believe in ignoring the current realities.”

For more than a decade, media companies have hoped for a day when they could either control access to their products online or at least put a price on them that a mass market would bear. But that day has never come. What has changed is the level of threat they face, given the worst advertising downturn in memory.

Since the infancy of the Web, there have been predictions that by making information more plentiful and accessible, prices would be steadily driven down, with no bottom in sight. At first, it did not seem to matter: Internet advertising grew at a breakneck pace, and traditional media thrived even as the assumption of free content took root online.

But eventually, the rise of the Internet punished most media, starting with the music industry, in the form of file-sharing. That history offers an object lesson. Despite the success of iTunes and other pay services, illegal downloads remain common.

Print publications are suffering most now, but digital distribution has grown in importance for broadcast television. Nearly all of its content is now available free online, as broadcast media lose audience and advertising. Book publishers are also fighting the tide; Simon & Schuster said recently that it would delay the release of e-book versions of 35 big titles, like Karl Rove’s memoir and a Don DeLillo novel, fearing that the $9.99 digital versions would eat into sales of hardcover copies.

Cable television has been an exception, thriving on subscriber fees, but even there, executives fret that consumers are disentangling themselves from their cable boxes, free to pick and choose individual programs online and watch on their TVs. Jeffrey L. Bewkes, the chairman and chief executive of Time Warner, has advanced a plan that he calls TV Everywhere, which would allow paying cable television subscribers to view shows online for no extra charge.

Similarly, Comcast started a service this month that gives subscribers to its broadband Internet and digital cable services access to its cable programming on the Web.

These efforts are not about wringing extra dollars from the Web but about preserving the current economics of the business.

“We’re saying, since those payments you have made have found their way to the networks and through distributors that give you the connection, that we want to have you be able to watch all those networks on broadband,” Mr. Bewkes said recently at an investor conference in New York.

Predictions '10 - See Complete Coverage
Predictions '10 - See Complete Coverage

A leading evangelist for the coming of a new era is Rupert Murdoch, who has said he envisions a not-too-distant day when all of the News Corporation’s news properties, including Fox News Channel, The Times of London and The New York Post, charge online. He and his executives have repeatedly criticized search engines and news aggregators, saying it was “theft” to profit from publishers’ work.

The News Corporation has been shopping around an online payment software system — so far without much success — in hopes of playing pied piper to other publishers, and it is a charter member of the group of magazine publishers that have banded together, in a consortium announced this month. And there have been talks about the possibility of Microsoft paying for the exclusive rights to have its Bing search engine direct users to News Corporation sites.

“Quality content is not free,” Mr. Murdoch wrote in The Wall Street Journal on Dec. 8, days after delivering a similar message at a Federal Trade Commission workshop. “In the future, good journalism will depend on the ability of a news organization to attract customers by providing news and information they are willing to pay for.”

People who have studied the problem argue that charging online would work only if consumers were offered a much-improved product with the convenience of access anywhere, on any digital device — the core idea behind the magazine consortium and its planned online store.

By that standard, much of the talk of wringing more money from Internet users rings hollow, said Jay Rosen, a professor of journalism at New York University and a prominent blogger on media subjects. “People who really think we have to charge or the industry is sunk would be more persuasive if they said at the same time we have to add more value than we’ve been adding,” he said.

And, most industry experts agree, entertainment will be easier to charge for than news. It may be hard to prevent free distribution of an episode of “The Office” or “NCIS,” but the product is unique, with no substitute being created by someone else.

A small number of publications already charge for Internet access, including The Wall Street Journal, The Financial Times, Newsday, Consumer Reports and The Arkansas Democrat-Gazette. But they tend to be either specialty products or near-monopolies in local markets, and they generally do not charge enough to fundamentally alter their profit pictures.

But for most general-interest news, any paid site would be competing with alternative versions of the same articles, delivered by multiple free news sources.

“One of the problems is newspapers fired so many journalists and turned them loose to start so many blogs,” Mr. Mutter said. “They should have executed them. They wouldn’t have had competition. But they foolishly let them out alive.”

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