Wednesday, August 19, 2009

Murdoch's plan to charge for website access

Rupert Murdoch's announcement earlier this month that he plans to charge for access to his news websites raised some eyebrows. Many commentators remarked that it was like trying to "put the genie back in the bottle." How can you train consumers to pay for something that they had been getting for free only yesterday? And didn't the NYT's paid access to parts of its site via "TimesSelect" subscriptions fizzle out just two years ago?

This got me thinking back to that earlier transformation where "free" became "paid": the cable television industry. Could the boom in paid television hold lessons for the movement from free news websites to paid access? I came across two interesting Harvard Business School cases that gave overviews of the U.S. television industry and cable television regulation:

Primer on the U.S. Television Industry by Jan Wei-Skillern and Sonia Marciano, (Oct 27, 2008)
http://harvardbusiness.org/product/primer-on-the-u-s-television-industry/an/308128-PDF-ENG

Note on Cable Television Regulation by Willis Emmons and David Grossman (March 30, 1993)
http://harvardbusiness.org/product/note-on-cable-television-regulation/an/391022-PDF-ENG

The two articles give a pretty good overview of how cable television developed and how it morphed from a tool to extend broadcast television into geographical areas unable to receive broadcast signals to a full-fledged content delivery system that rivals, and in some ways exceeds, broadcast.

In 1950, Robert J. Tarlton, a television and radio salesman, built the first commercial cable television system in Lansford Pennsylvania. Though the city was just 65 miles from Philadelphia, the broadcast signals couldn't get over the Allegheny Mountains that separated them. With access to Philly's TV stations, Tarlton figured his customers would buy more of his television sets. Cable television grew slowly during that first decade but picked up steam during the 1960s and 1970s as the technology upon which cable television relied became less expensive and more communities outside major metropolitan areas established franchises for cable television. During this period annual subscriber growth rates hit 20%. But it wasn't just better reception that boosted subscribership, it was the creation of original programing available only on cable.

The watershed year for cable television was 1972 when Time, Inc. launched Home Box Office (HBO). By 1974 HBO had 57,000 subscribers but was not profitable because of the complexity of distribution via its cable systems. To solve the limits of spotty distribution, HBO was delivered over satellite but the cost of satellite dishes were $80,000 in 1975 which limited the number of cable systems able to buy them. But by 1977 the prices for dishes fell to $25,000 and many more cable systems could afford to buy access to HBO through flat monthly fees. At the same time, Ted Turner put WTBS on a satellite and became the first "superstation" but he charged each cable system based upon its total number of subscribers rather than a flat fee making it more affordable for cable systems.

Throughout these decades broadcasters waged a pitched battle in the courts and through the power of the FCC to defend their interests and limit the ability of cable operators to filch audience without having to pay for use of airwaves. The courts were unwilling or unable to do much for broadcasters and the FCC was only marginally better. But it wasn't until the ascent of Ronald Reagan's era of deregulation that cable subscriptions grew rapidly despite the fact that cable rates rose faster than inflation (in most cases, much faster than inflation).

While the comparison between broadcast/cable television and print/digital news delivery isn't perfect (government regulation being a major factor in the former), there are some lessons to be learned. First and foremost is that it seems you can get consumer to pay for something that was previously available for free. Of course, the content you are asking a fee for cannot be exactly the same. Consumers are willing to pay for content that they cannot get otherwise. People were willing to pay for HBO because they couldn't watch The Sopranos on broadcast television. And today people are willing to pay for basic cable because without it, they can't watch Mad Men. Content is king.

News websites need to offer content that are not available on free sites or on broadcast television. A former colleague of mine used to suggest that newspapers should hold back long-form content for their print versions and use the web as a marketing tool to tease readers into buying print. I think consumer practices have changed too dramatically for that model. People want the information they seek easily and immediately. And they are often willing to pay for it if they can't get it for free elsewhere.

Paid access isn't for every newspaper or new site. Some (The Daily News?) simply don't offer the added value that consumers are willing to pay for and it may be too late for them to transform themselves into a premium content delivery system. But The Wall Street Journal offers unique content and subscribers are willing to pay for it.

The next question is pricing. I wrote about Charles Blow's NYT column on streaming music earlier this month which raised the question of whether or not the iTunes model of individual music track purchases is becoming outmoded. Is a subscription model the right one for newspapers (and maybe even books?) or will consumers prefer to purchase articles from news websites individually? These are some of the questions Murdoch needs to figure out before he launches something like the dismal TimesSelect program.

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