Will Web Sites Remain Free?
N E W Y O R K, April 2, 2002 -- For media companies, the early days of the Web resembled a land grab, as they fought for the online audience. But today, the people running major content sites are more like geologists hoping to strike oil in uncertain terrain.
Two years after the dot-com mania began to fade, Web executives are still trying to reconcile one of the medium's best-known dictums — that information wants to be free — with the fact that businesses exist to make money, and that to date, most Web sites have not.
So instead of geological survey maps, they're scrutinizing user registration lists and demographic studies, looking for clues that might indicate how they can open readers' wallets without scaring off their audiences.
As a result, the amount of online material available only through subscriptions or other fees is increasing, although the people running many prominent Web sites say they are not planning to charge for basic access to their sites.
"We're not doing that any time soon," vowed Washington Post Co. chairman and CEO Donald Graham, speaking a recent conference held by research firm Jupiter Media Metrix.
Even executives at The Wall Street Journal online, the best-known news site charging subscription fees for basic access to its offerings, think their own approach will remain something of an exception to the rule.
"There is always going to be free competition in news," says Neil Budde, publisher of the WSJ's online edition.
Go There Free, Then Pay the Fee
Such forecasts come with strings attached, however, since the broad pattern in the industry — apparent to frequent Web users, and reinforced by comments from an array of media executives — is clear enough. Many large sites hope to turn profits by offering a basic layer of free content, in order to draw a wide audience, while charging for additional content or services.
"Our basic hard news product needs to be free," says Larry Kramer, head of CBS' Marketwatch.com. But he quickly added: "We're going to test subscription products. Sites giving away things for free that don't attract revenue actually will go away."
For instance, the popular portal Yahoo!, which provides many Web users with their news, is charging for more and more of its services.
And among other sites following a two-tier model: CNN.com, which announced two weeks ago it would charge for all video clips on its site, and this Web site, ABCNEWS.com, which already charges for some video clips.
Both sites offer video via RealNetworks' RealOne SuperPass, which aggregates clips from several sources and costs $9.95 per month. RealNetworks shares the revenues with the companies providing the video clips.
"The trend is that companies want to have diversified revenue streams," says David Card, a senior analyst at Jupiter Media Metrix.
Ad Slump Prompts Sites to Package Content
This two-tiered model is shared by Web sites belonging to organizations that traditionally charge for subscriptions, like newspapers, as well as those previously in the habit of giving their audience news for free, like the television networks.
The Web site of The New York Times, for instance, offers its daily news for free, but charges for archive searches, packages of op-ed pieces, classified ads and a special crossword section. The Times' Web czar, Martin Nisenholtz, says those elements have helped the site turn an operating profit for two consecutive quarters.
And in the context of a recession-induced ad slump, charging for some content has begun to seem like a necessity. Even the newer dynamic Web ads, featuring animated objects like cars zipping across computer screens — as opposed to the static format of banner ads — appeal less to advertisers than plain old television spots.
Compared to TV, says Card, the Web is "a very targetable medium, but not a very emotional medium. If you're trying to get a lot of people to feel good about Coke, it's more difficult."
But Will They Buy It?
While the two-tier model sounds appealing, will people pay for video news clips and other types of online information after being in the habit of getting them for free?
"The willingness is certainly a lot higher than it was a year ago," says Evan Williams, a Web designer in San Francisco who started a site, theendoffree.com, tracking the disappearance of free Web content and services.
But a Jupiter survey released in March shows 42 percent of Web-using adults expecting to have to pay for content on the Web in the future — down slightly from 45 percent in August 2000.
Thus the existence of free alternatives — like the Times, the Post and Yahoo!, which also offers a wide variety of products, from greeting cards to e-mail services — remains a powerful deterrent to Internet executives pondering the subscription model.
"As long as there's an alternative, I won't pay," says Kristen Miranda, a former Web producer and long-time Web user in Hoboken, N.J.
Internet executives are well aware of the problem this poses for them.
"We're all competing with Yahoo!," says Charlie Fink, president of AmericanGreetings.com, adding, "As free content goes away, we may be able to charge more."
Graham: Early Days Yet
There is at least one other reason why content sites are still shying away from charging subscription fees, though: some of them, including the online magazine Slate and The Washington Post, have tried it before and abandoned the idea.
One basic problem: Fewer readers mean lower ad rates. In the case of the Post, Graham recalled a company executive in 1996, when the site had about 10,000 subscribers, saying, "'We're winning the county track meet, but the Olympics are going on next door.'"
As a result, the Post switched to its free format, and Graham thinks it can become profitable in the long run with improved ad revenue as well as fee-based job listings, personal ads, retail deals and more.
Instead of being scared off by online losses, Graham thinks his Web site could follow the path of the Post's print edition, which was bought by his family in 1933 but took more than two decades after that to make money.
Looking at the road to profitability for the Post's Web site, Graham declared: "It's early yet."