• by Diane Mermigas , February 29, 2008

The intensified debate over free Internet content may become a moot point in a boundless viral digital universe. The true economics of interactivity are not rooted in content, but in the wealth of related connections and actions that are so misunderstood.

Trying to create a walled garden around content can be futile. AOL learned the hard way. Hulu.com, a creation of NBC and Fox, is testing those waters. An exasperating tenet of the Net is that most content can be had for free through cunning search and seizure, often a nine-times removed party link rather than outright piracy. That is why Google's deep-dive searches outrage producers and distributors (like Dow Jones) otherwise seeking to charge for access to their most premium content.

Certain premium and on-demand content can thrive, so long as there still are limited, protected windows early enough in the exhibition food chain. Those will always be in flux. Apple has defied the odds--being successful with a walled garden of paid on-demand content because it is intricately linked to its popular iPod, iPhones, and other iTunes-linked devices. The model works because it represents a relatively inexpensive convenience for users. Only Steve Jobs is shrewd enough to get consumers to pay both for the devices and content access.

The notion of what--and even if--content is really ever free is one of many ideas Chris "The Long Tail" Anderson promises to expound on in his new book, "Free." The age of "freeconomics" has arrived because the cost of doing business on the Web is negligible. In a bid for enough eyeballs to achieve scale on one hand and the most finely profiled consumer on the other, the Internet has become a commodity of space and time. The providers of goods and services will pay for the connections that are facilitated by content. That is why video game-centric social networks like GameStrata and a growing number of online group-playing video games are being made available for free. Affinity advertisers can make a virtual killing on related micro-transactions.

The relative low (and going lower) cost of doing business on the Internet, and its effective reach, makes most efforts to charge for tiered services, access or products look like greed. Consider recent efforts by the two largest cable operators, Comcast and Time Warner, which come off as being the anti-free by indiscriminately leveling fees against heavy broadband users. Suddenly the promotional carrot is gone. The idea of giving something away for free in order to build consumer interest and loyalty is wiped out. It is the antithesis of distributing free digital set-top boxes and free mobile phones to stimulate subscriber demand for bundled, fee-based contracted services.

Suddenly, the Internet's free game is looking more like the grocery store. The sale items rotate weekly, only to be offset by the unadvertised hiked prices of other items. In the end, the providers of goods and services get the end fees they need--one way or the other--from the consumers to maximize profits.

What has resulted is a Net Neutrality free-for-all. Consumers complain about blocked access and free speech by cable operators (mostly Comcast) that claim to manage their systems in times of peak use. Time Warner is charging for what it considers excessive downloads despite bandwidth abundance, creating what some are calling a metered Internet that is double-charged--and definitely not free. So it is usage--not content--that becomes the tiered premium-priced proposition. That could theoretically and absurdly result in $50 movie downloads for cable companies, raising their prices another 5%-plus.

The nascent interactive market will continue testing fees and tolls that may not be well-received, but will be tolerated by consumers who want something. No one is eager to tread down the disastrous path taken by digital music, whose value proposition has been destroyed by file-sharing and illegal downloads, search engines and social networks. Today, growing numbers of musicians (a la Radiohead and Prince) give away their songs and videos for free as a promotional hook for expensive concert tickets and merchandise. It's back to giving away sample-size detergent and cookies in the hopes that someone will buy more.

The new media economy is all about mining individual connections for content and commerce in deeper ways than print or television advertising has attempted. The providers of goods, services and content pay for interactive connections to targeted consumers who generate revenues. The more relevant and functional the services, the more likely consumers are to pay for the privilege. The more specific the data about consumers' Web behavior and preferences, the more valuable it is to advertisers willing to pay for the connections.

There will be countless indirect ways that companies and individuals will find to make money. Software and interactive tools are being made available for free to consumers. User contributions to sites -- from Wikipedia to Facebook--create double-edged value for gatekeepers, who charge advertisers for matching them with particular demo, while getting their Web content for free.

Anderson is right in predicting that "free" will become the Internet's many-colored animal--and in noting that nothing is every really free. Someone, somewhere, always pays for it. The Internet's next stage of development will be predicated on the many ways that occurs.