Pay to Play
Content kings say free Internet ride may be over
By Karen Brown
from the March 19, 2001 issue of Broadband Week
With high-flying financial optimism all but dashed, the free ride on the Internet also may be ending--the freewheeling, advertising-driven Internet eventually will be replaced by Old Media strategies including subscription and pay-for-use business models.
That was a central theme at the 2001 Jupiter Media Forum in New York City earlier this month. Faced with the continuing Great Internet Depression, panelists and analysts alike concluded online advertising alone may not give Internet ventures enough financial firepower. Similarly, another message repeatedly heard emphasized licensing and partnerships, with plenty of warnings that companies straying from their core business to do it run the risk of overpromising and underdelivering.
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It's the Services, Stupid
Studies find apps, not speed are key for consumers
The job of selling consumers on the benefits of broadband is no longer a matter of speed.
According to two studies presented at the recent Jupiter Media Forum, the numbers for the broadband Internet growth show consumers are no longer as impressed by zooming speed and more interested in old-fashioned consumer values--what broadband can bring them, and at what price. The studies by Jupiter Research and McKinsey and Co. both emphasize that people seemed to concentrate on value rather than blinding speed.
Joe Laszlo, a senior analyst at Jupiter, says the results of a December consumer study indicated that broadband providers would be better off marketing services emphasizing the always-on connection and applications only available in broadband. "What we think needs to happen is there really needs to be a shift about how broadband is marketed," he says.
McKinsey's Joseph Berchtold, meanwhile, said that while broadband consumer numbers were growing, their habits still weren't differing much from narrowband. The most visited sites for broadband users are almost identical to that of narrowband users, and none of the broadband-dedicated sites came even close to the top 10 most popular sites for high-speed users, McKinsey's study found.
"What this means to me is these providers of content need to figure out a new model," Berchtold says. - K.B.
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Exploiting the value of a paying customer is a priority for Bob Pittman, president and chief operating officer of the newly forged AOL Time Warner. Speaking at the recent Jupiter Media Forum, Pittman emphasized that the relationship with consumers--not sheer numbers--is the basic business building block. Generating money from that relationship, he said, is best done through a subscription-based business that can be used as a basis to sell other services.
"The reality is that a subscription relationship is the most valuable," he said. "You are beginning to see even in this industry that people that once gave stuff away are trying to charge for it. What you know is if someone is paying for a relationship, it's a lot more of a loyal relationship."
Pittman predicts that in the future, the lines between the "four boxes we love"--the television, computer, stereo and telephone--will continue to blur as service providers provide consumers with the brands they want, any time and any place. To Pittman, the ultimate killer application in this new world is home networking.
"What that does is drive a lot of new services...and they are coming," he said. "And they are coming from consumer demand. They are not coming because technologists say it is possible. Yes, they have to be possible to do it, but that's the means to the end...but what's driving the end result is consumer demand."
Though only in the beginning stages, interest in interactive TV was one of the few places one could hear the echoes of Internet's former optimism at the forum. Leslie Moonves, president and CEO of CBS, pointed to several first stabs at interactive TV on his network, an outgrowth from a development deal struck last summer with Microsoft TV.
CBS has added interactivity to its crime drama "CSI," and for the first time the NCAA basketball championships this month include interactive programming links. In all, CBS plans to have about 1,000 hours of interactive broadcasting by the end of the year.
"We believe our opportunities in the digital world are even greater than the analog universe," Moonves said. "And as new and untested as this brave new digital world might seem, the core of that business remains the same for us--it's broadcasting. Reaching the greatest number of people, of all ages, all demographics, with our entertainment, news and sports...bringing people together around whatever technology is invented to deliver our content."
Interactive TV also dominated a panel of execs from Sony Corp., TV Guide and Microsoft Web TV.
For Rob Wiesenthal, Sony's executive vice president and chief strategy officer, interactive TV and the home network is all about getting content where the consumer wants it. "I think it's not so much having music or film or television on a specific device but having access to it," Wiesenthal said.
To that end, Sony is working on an IP-based video-on-demand service for the PC, initially on a rental per download basis with prices yet to be determined.
"IP-based video on demand can have a role not only on the PC but it could migrate to set-top boxes, PVRs, and we could be in a situation in the future in which such a service could overnight download a whole bunch of movies to your PVR and then you could then queue them up on demand and be charged for that," Wiesenthal said. "I think what is interesting about it is that it is, once again, a technology that is siphoning our content and putting another window on, and that is creating more value for our libraries. And any new way of accessing our content for the consumer via technology is just another revenue spring for us."
Perhaps thinking of his own company's rocky experience with interactive television so far, Jon DeVaan, senior vice president of the TV Platforms Group at Microsoft noted that it was important for the ITV industry to take some developmental chances.
"I think there will be a lot of experimentation--I think there needs to be. Sometimes we will do a home run; sometimes we will strike out," he said. "A lot of people in the industry can look at it in a somewhat scary way because it is a change. I think it also allows an unprecedented amount of opportunity to learn more about the consumer--if you can imagine at 9 a.m. having a complete report about exactly how many people saw your advertising and exactly how many people clicked through on different types of opportunities presented to them.
"That kind of learning will allow us to create much more interaction with the consumer over traditional media."
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