Commentary

Many New Media-Subscription Businesses Will Fail

by Dave Morgan , Featured Contributor, June 3, 2010

A lot of media companies today are trying to build or grow new fee-related businesses. The New York Times Company has announced that NYTimes.com is going behind a metered pay wall next year, hoping to generate subscription revenue online as it does in print. Broadcast TV stations and broadcast networks want dual revenue streams like their cable network brethren, so they're now demanding a piece of the pay-TV subscription fees paid to cable, satellite and teleco companies.

Hoping to survive some serious headwinds from its content partners, Hulu is now testing fee-based models for Web video, recognizing that online advertising alone won't generate enough revenue to keep its content partner/owners happy. HBO just announced a deal with Sony Playstation to begin offering fee-based downloads from HBO's movie library, positioning the two companies to be long-term competitors to Netflix and others that market streaming movies directly to consumers. Finally, there's probably not a major media company in the world that doesn't have some initiative to create paid apps for Apple's iPhone and iPad.

In a perfect world, all of the above efforts will be successful, and each and every one of those companies will soon benefit from diversified revenue streams, tighter connections to their consumers, and some buffering from the cyclical vagaries of the advertising marketplace. Unfortunately, this is not a perfect world. Most -- or probably a large number -- of these new subscription- or fee-based efforts will fail. Here are some reasons why:

Changing consumer behavior is hard. In some of the new initiatives, consumers are being asked to change their behavior and pay for something that they get for free today. Those kinds of behavior changes may test well with focus groups, but when people have to actually open their wallets and part with their hard-earned money, it's not so easy.

It's all about direct marketing. What many forget is that subscription marketing is all about direct marketing. It's not just about managing distribution channels. Companies with lots of experience in direct marketing, like The New York Times Company, will probably deal with that well. Companies without that experience, like Hulu or HBO, are going to find themselves with a steep learning curve.

Results will take time. No matter what, these businesses won't be built overnight. Building big user-pay business takes a lot of time, trial-and-error and patience on the part of business owners and investors. Many folks are betting their careers -- and their companies' stock price -- on these new initiatives. Almost all are high-profile. Almost all have permitted big expectations to be created. It took AOL more than 15 years to build its subscription business to real scale (only to see broadband erode it significantly). It took WSJ.com more than ten years to build itself up to where it is today. I will be surprised if today's initiatives will be given even a fraction of that time to show real results.

Most consumers need to do more with less. Finally, this is a lousy economy to ask consumers to pay more for things. The recession may be technically over, but unemployment is still high (and could still grow), and most consumers aren't waking up every day and asking for more places and more people to send money to. In fact, most consumers are cutting back. There just might not be enough room in consumers' budgets for most of these new fees.

Net-net: subscription businesses are very, very hard to build. That is why they are so valuable. It is quite understandable why so many media companies now want to build newer, bigger and better ones. It is not quite so logical to assume that most of them will be successful doing it. What do you think?

pay wall

5 comments about "Many New Media-Subscription Businesses Will Fail".

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Michael Odza from Odza Consults/Social Media Lift, June 3, 2010 at 12:01 p.m.
While I don't disagree with Dave on his main points (and always need to think twice before I dare disagree with him in any case!), I think the idea that many of these subscription models will fail is hardly news, just on the grounds that most new business models/attempts fail, especially online. I believe the industry thinking here is that if every major content publisher goes to a subscription model at the same time, then perhaps they will all succeed. If too many break ranks, then all will fail.
As the former publisher of a subscription newsletter, I do agree with all Dave's reasons, and particularly that direct marketing skill is required. However, as a former marketing director for Showtime (and The Movie Channel and MTV) I would offer a minor correction: HBO is one of the kings of direct marketing -- although their greatest early success came when they scrambled their satellite signal one night, leading millions of freeloaders to complain, then pay up after years of free content. I don't know who called for that bold move, but it turned out brilliantly. But that was before the Internet, and before the plethora of content really exploded. I'm back with Dave in thinking that the same tactic won't work nearly as well for content companies in this era.
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Paula Lynn from Who Else Unlimited, June 3, 2010 at 1:01 p.m.

I mentioned before in a commentary that the median income is $30,000 for a family of 4. The great divide is dividing further. Yes, we don't like to think about it. Now, bump it up to $50,000 and start subtracting living expenses. No matter how understandable content providers and deliverers need to get paid for a substantial living wage, there is an extremely large audience where paying for a dozen various entertainment subscriptions every month is just not going to happen with or without a recession.

Jim Fox from Mad River, June 3, 2010 at 1:13 p.m.

It's all about virtual currency and micro payments, media companies will need to adopt a standard or standards that allow consumers to use the same pay method among multiple sites in small increments seamlessly. Consumers need an virtual experience similar to putting a quarter or two into the kiosk to buy the paper that day. We need to figure it out how to recreate virtually and seamlessly sooner rather then later.

http://apps.facebook.com/khasbah/pages/home

R.J. Lewis from e-Healthcare Solutions, LLC, June 3, 2010 at 2:54 p.m.

Once you go free it's hard to go back. "If you love something add a fee, if they come back it was meant to be."

Douglas Ferguson from College of Charleston, June 3, 2010 at 9:26 p.m.

There will always be some rising competitor who will be willing to give it away for free, until they get popular and bring in a pay wall -- and then some OTHER competitor will come along and give content away for free -- and so on, ad infinitum. Too many suppliers and too many channels for anyone to find very many subscribers (maybe enough to eke by, but not enough to turn back the clock to the way things were).