• by Diane Mermigas , June 24, 2008

At the moment, some digital content providers are getting paid something, some of the time. That's hardly a firm business model for future growth. The faster online players gravitate from old ways of making money on new platforms, the sooner they will hit pay dirt. But it could take a while.

There always will be a digital online market for access to content that first appears on television and in movie theaters. Dominant media and entertainment companies are overdependent on this because it is most familiar. It is their ticket into the digital world and getting the attention of interactive consumers.

But that approach is not enough to assure future profitability. Conventional television and film products can be too long and complicated to drive digital access--although the market for viewing films and TV on portable devices is likely to be much stronger than expected. The market woefully underestimates the numbers of college students and traveling business professionals who watch both on their laptops. Abbreviated forms of TV and film for mobile devices are another safe--but limited--extension.

At the other end of the digital spectrum is user-generated content created for initial showings online that is supported by YouTube and Veoh. In between traditional recycled entertainment and user-generated fare is a vast abyss of digital possibilities--that has the potential of real monetized value. But it is still early in the game, and there are many mixed signals.

Liberty Media mastermind John Malone recently warned that NBC Universal's ambitious multi-platform Olympic Games coverage this year will not generate the advertising sales needed to offset related licensing and production costs. Once you give big live events and other content away for "free," it is difficult to begin charging for it. The new business models and advertising revenues attached to online are in flux--and for now, many are under the command of Google.

Monetizing original digital content created for Web-connected devices on platforms like Vuguru are the shape of what's to come, although there is much work to be done. Will the monetization paths be what they are today: licensing and advertising deals? Or will user-generated fees become a major contributor? The jury is still out on the price point and the content consumers will pay for.

There also is a growing, important notion that user attention can be monetized with deeper, more relevant layers of must-have content. This concept of "freemium" value is explored in a new book of the same name by Wired editor Chris Anderson, who coined the phrase "long tail." Consumers' niche interests and their willingness to pay for what they really care about is the gold ring of digital content. It theoretically has the potential of being much more lucrative than today's monetization of TV programs on the Web, and helps crack the code of how to cash in on social networks.

A back-of-the-envelope formula provided by Bernstein Research suggests that online downloads and DVD sales generate the same value, which is slightly more than online streaming and traditional TV video models. It assumes double the current TV CPM and half the advertising inventory. In this nascent stage, some content commands twice the pricing for advertising delivering a smaller, but more quantifiably targeted, audience. That is the dynamic from which more sophisticated, fragmented monetization models will flow cross-platform in the future--for original and recycled content.

As I noted last week, a unifying metric and means for making money will result from measuring interactivity (consumers with content, advertisers with consumers, consumers with each other, e-commerce). It is the only way content creators and providers--on television, in newspapers, films and recorded music--will make consistent, substantial returns from broadband to offset the decline in their more traditional revenue streams.

Malone--who has been the consummate dealmaker and breaker in global distribution and content--said that transporting the conventional ad-supported free TV model to the Internet in a rush to mine new online opportunities will hinder the ability to charge for content later in the form of subscriptions, pay-per-view, purchase and download fees. Giving away content for "free" today reduces its leverage and pricing power ability tomorrow.

But that does not take into account the new ways that content companies and advertisers will learn to provide consumers what they specifically want and are willing to pay for--a viable revenue-generating model that has barely been explored.

A snapshot of online video today offers a slapdash sense of how far we are from where we need to be. Hulu.com generates ad revenue off each video, page and stream, for which rivals YouTube, MySpace, Veoh and Joost still struggle. Rather than rely on video from major media companies, YouTube is paying for free independent short films for its new Screening Room. Sony is the latest to launch a series on the Web and then take it to DVD. As an offset to economically sensitive ad-supported broadcast and cable networks, and working to ramp up revenues from its MySpace, News Corp. is buying up global pay TV businesses.

Despite optimistic projections, it is difficult to know what TV series and film extensions online will collectively generate in a depressed economy. Consumer attraction to original and user-generated content is powerful and unpredictable. Affinity groups will have a strong, underestimated draw in the digital world if Major League Baseball is any indication--commanding 40% of its online revenues from online paid content. In the future, content will be a catalyst for interactive activities and options that have specific value to particular consumers. That is a model that cuts through the fray of the Web's general clutter and provides some resistance to economic downturns, as consumers will always find the means to pay for what matters most to them.