No Free Lunch

Published Dec 12, 2003
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The days of free online content are over. If you are thinking: ‘I will never pay for anything on the Internet,’ think again. Nobody can afford to bring you premium content for free. So here’s a rundown of the math involved, the basic cost vs. revenue-calculations all content providers must deal with, and – importantly – the psychology of the (soon to be) paying public.

No Free Lunch-Body

It’s really very simple: If you want to watch a movie or download a full-size computer game over the Net, you will have to pay for it. The cost of transporting large amounts of data across the networks is not huge, but it does add up with many large transfers. And the customers seem to forget that the production costs are significant, even with the cheaper packaging the Internet requires. We tend to forget this, probably because the Net has been associated with the inexpensive, with a ‘anybody can do it’- vibe that has made it accessible to the masses.

We have talked about how bandwidth is cheap for a long time, but we have been talking about moving small amounts of data, and we have been talking about this in relation to the status quo. The status quo has been: Everything on the Net should be free. So we haven’t been seeing the whole picture. Following the status quo has lost content providers and distributors – especially the large portals and major online news publications – staggering amounts of money.

Some of these losses would have come regardless of distribution strategies. The Internet as a media channel has only been around for roughly ten years, and – as fast as we have adapted to the new medium – building markets takes time. One way of looking at the Internet’s first ten years is to see it as a period of education, of showing the potential future paying customers what the Net would come to offer. The content providers were giving it away. This was made easier by the fact that many of the early sites were spin-offs from real-world media companies such as newspapers and TV networks. Since they already had outlets, they tended to view the Net as a sort of bonus. It took a little while before the focus turned towards profitability.

Profitability turned out to be very elusive for the vast majority of the content providers. As we now know, the future of Internet advertising showed itself to be a lot less bright than everybody was betting on. And if the text-based narrowband content providers can’t make money, how can the broadband industry be expected to do so. They can’t. The only way to go is to start charging a fee for premium content. If we think rationally we know that to demand that premium Internet content remain free is exactly the same as demanding that the waiter should pick up your tab at a restaurant. There is no such thing as a free lunch, of course, and we all know this.

But while the industry is busy implementing payment systems an access control, the paying public is reacting violently. They seem to be looking at paying for Internet content as a sort of human rights issue. So why do we expect to get free streaming video from ‘Big Brother’? Why do we accept that we have to buy newspapers on the street, but never online? The fact is, normal law-abiding people, who would never steal a newspaper or neglect to pay their cable bills, cheerfully steal copyrighted material online.

What Are We Buying, Exactly?
Some have argued that we have a hard time accepting the notion of paying for online content because of its perceived virtuality – its supposed lack of tangible physical existence. There is something to this; we tend to view the Internet as a separate realm – a space without a definite ‘there’. Just think about how you imagine the contents of your computer. The files and applications on your PC are deliberately and painstakingly organized according to metaphors from the outside – the ‘real’ – world. In the same way, web sites are designed to emulate real world objects. This illustrates a very basic fact about human beings: We are physical, in a physical world, handling physical objects. It seems inevitable that we have to make the virtual resemble what we are used to from our physical lives.

It is not true, of course, that online content, and the files and applications in our computers really lack physicality. They are made up of atoms in the same way we are. The thing is; we don’t make the distinction by whether or not we know something exists as a group of molecules. We separate the things we can hold and manipulate directly from those we can’t touch. One reason we find it hard to accept the notion of paying for online content is simply that since we can’t hold it, it doesn’t seem to contain the same lasting value.

Digging Their Own Graves
Another reason behind the customers’ reluctance to shell out for online content is the simple fact that the industry has spent so many years giving it away. There is no shortage of media executives who are cursing themselves for not having the foresight to establish their products with a price at the outset. We have to say, in their defense, that it would have taken a concerted effort from the entire media industry to make this scheme work. If only some of them had started charging for their services, they would have lost their customers to the competition.

This was indeed the case when the New York Times implemented paid membership on their online edition four years ago. As it turned out, not even the tremendous reputation of one of the world’s most respected newspapers could get people to pay to read their news online. The only major news medium to successfully implement paid membership is the Wall Street Journal, but they are in a unique position, providing expert information to a specific market that has very specific needs.

The idea of giving content away for free stemmed from a belief in a business case based on advertising. The media industry envisioned an explosion of inventive advertising with the new possibilities offered by the medium. The explosion never came. Although online advertising is by no means dead, nobody adheres to the notion that this can generate enough income to keep an online venture alive.

Pay Up!
Now that the media industry has grown tired of losing money on their Internet ventures, (they probably grew tired a long time ago, they just didn’t do anything about it), they are joining together to create strategies and implement technologies that will work to further the interests of the industry as a whole.

There is a collaborative spirit that is unprecedented in this very competitive sector. Among the most important results of this joining of forces will be – if it is successful – the creation of standards that can allow for easy and secure distribution of valuable content.

This includes so called DRM technologies – Digital Rights Management – that are essential in making Internet content, in particular broadband content such as music, movies, and computer games, into products that can be sold securely. This may be the single most important weapon in the fight against illegal distribution of copyrighted material. It also includes new and innovative payment solutions, where different ideas are being tested. Cross-platform solutions are being developed that offer several choices for payment – using credit cards, drawing directly on bank accounts, utilizing virtual internet accounts, or charging payments to the phone bill.

There is a new regime coming. And while most people will tell you they don’t like it, they don’t really have a choice in the matter. Without the introduction of paid content online, the Internet will be a much poorer place. It is simply impossible for an ailing media industry to keep giving it away. Besides, the industry has finally gotten a whiff of a potential source of great income, and history has shown us that they are eager to capitalize on such possibilities. Either way: You and I are going to pay. Whether we like it or not.

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