Competing With Free: How to Build the Paid Content Business Model
[Posted by Mark Mulligan]
follow me at Mark_Mulligan
My
colleague Bobby Tulsiani posted yesterday on the changing concept of freemium
and we’ve been debating the concept within the CPS Media team. I’m taking this opportunity to bring that
debate into the public domain and to solicit feedback and comment from the
readers of this blog. So please do
comment, the best blogs are conversations, not monologues.
problem is that majority of consumers in the majority of content sectors will currently
not pay for online versions of that content, be it streaming or downloaded,
temporary or permanent. Each of those
distinctions can be used to shape the degree to which paying consumers can be
differentiated within premium tiers and from free tiers, but the inescapable fact
is the majority will simply not pay. With
a few notable exceptions such as radio and free-to-air TV, this differs
strongly from consumers’ historical relationship with content and media. Consumers used to be willing to pay for
newspapers, magazines, CDs and DVDs. What
changed? The main problem is of course free.
are quite simply too used to getting content for free online. The persistent and pervasive nature of deep
and rich digital content catalogues has progressively corroded consumers’
perception of the value of media. At best, media
companies of most types are learning that they cannot charge as much online as
they do offline. At worst they are
realizing that the only way to engage mass market digital audiences is by
making content either be free or appear to be free. This is where the music industry is at now. But it is still to work out how that free
legal content can be seen as freemium compared to free illegal sources.
It’s
looking increasingly likely that the only way to successfully differentiate legal
offerings from free illegal ones is by making it more difficult for consumers
to access the illegal alternatives and simultaneously stealing the clothes of
the illegal sectors. But the solution is
not applying blanket licensing to illegal peer to peer networks, because that
effectively legitimizes illegitimate business practices and penalizes those
business that have invested heavily (often very heavily) in acquiring content
licenses. Rather, the flow from illegal
alternatives needs to be successively narrowed in parallel with legal sharing
alternatives being implemented in their place. ISPs and mobile operators will be key partners
in this process. I chose my words
carefully: the access companies need to be brought along, not pulled along. The profit margins of most are vulnerable as
their markets saturate, so services that increase ARPU should be a natural next
step. The problem is that most consumers
aren’t currently willing to pay anything for digital music because a) current
offerings don’t offer significant enough benefits and b) file sharing is so
easy to access. Address both of those
issues and the picture will eventually change. The access companies can address b) and the
music companies can address a). Only
together can they build any chance of converting significant numbers of
consumers to subscription music services. If they do it, the foundations will be built
for other content sectors.
On a directly
related note: I’ll be keeping close eye on Groove Armada’s latest release with
their new ‘record company’ Bacardi: they’re making their new EP available for
free download explicitly encouraging downloaders to share. In fact fans have to share to hear the entire
EP: tracks 3 and 4 are only unlocked when a downloader has shared tracks 1 and
2 enough times. The freedom Grove Armada
have been given by Bacardi has enabled them to push the boundaries in a way a
major label might not have let them. It’s
taken a non-media company becoming a media company to disrupt and challenge the
accepted rules of engagement.
Anyway, let
us know your thoughts and help us develop the debate.