The end of the free Internet?

Asking online users to pay for content hasn't worked so far, but iPads and smart phones may change their minds about the free Internet.

By , / Staff writer

"Information wants to be free" has long been the mantra of the Internet. Once a video, a song, or a news story is on the Web, it's harder to rein in than a roomful of curious cats.

Free introductory offers are a business staple. But as a long-term strategy, "free" doesn't make much sense: How can content creators afford to keep producing if they aren't paid?

Advertising is one way to pay the bills. But Web companies are still scrambling to understand and measure the impact of online ads. Meanwhile, many advertisers remain skeptical of the medium and question how heavily to rely on it.

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Now both the news and entertainment industries are experimenting again with online payment plans. Someday, 2010 may be remembered as the year when companies finally scrapped the idea of a "free" Internet.

Among the recent efforts:

Google now is experimenting with YouTube Rentals. The new service allows companies to charge users to view certain videos, such as TV shows or movies. Content originators can also try out different pricing schemes to see how they affect sales.

The Times of London, owned by Rupert Murdoch's News Corp., is about to erect a "pay wall," requiring online readers to spend about $3 a week or $1.50 a day to read articles. To further fend off freeloaders, search engines such as Google will be banned from linking to The Times's stories.

The New York Times announced plans to put most of its content behind what appears to be a fairly porous pay wall. The Times will ask for money only after a reader returns to the site a certain number of times per month. To lure in new readers, the paper says visitors who arrive via a search engine or other intermediary will always get a free pass.

The New Yorker magazine plans to offer a "one price pays for all" plan later this year, according to Advertising Age magazine. Subscribers would pay one fee and then be able to read the magazine in all its forms – print, Apple iPad, Amazon Kindle, possibly other e-readers – all for one price, rather than having to buy access to each separately.

Wired Magazine charges $4.99 to view an issue on the iPad tablet computer, the same as its newsstand price. The iPad version includes interactive features not available in print.

• The free video website Hulu may soon begin charging viewers to see its popular content, such as TV episodes, and perhaps release Hulu software for the iPad and the Xbox 360 video-game system.

The forgotten half of the 'free' quote

Part of this change has to do with the long-forgotten part of the famous "wants to be free" quotation: "On the one hand, information wants to be expensive, because it's so valuable," said writer Stewart Brand at the Hackers' Conference in 1984. "The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other."

Somehow, only the second half stuck.

"Free distribution of premium content is like eating your babies. You will give value away until you go bust," says a recent report from Group M, the media-buying agency of the international media and advertising giant WPP. The report calls people who use search engines to find news or information "useless tourists" who don't pay their way and have little value, even to advertisers.

Others are less sure that the Inter­net has hit a "time to pay up" moment. "I can make one prediction," said Arianna Huf­fing­ton, founder of the popular Huffington Post website, at a recent panel discussion of the future of the news media. "Pay walls are not going to work."

"Historically, consumers have not demonstrated a willingness to pay for electronic access to news," writes Dave Morgan, a successful online entrepreneur and an expert on online advertising, in an e-mail interview. "It's very hard to build paid subscription businesses in electronic news. There just aren't many examples of success in creating stand-alone consumer-oriented digital news subscription businesses."

The Wall Street Journal places much of its news content behind a pay wall, though it can be accessed indirectly through a search engine or via other websites. But the Journal is considered by some to be an exception to the rule, since subscriptions often are paid for by employers, not individuals.

The New York Times abandoned an earlier effort to place some of its content behind a pay wall, presumably because it found that a smaller number of readers reduced its attractiveness to advertisers.

One difference today may be the explosion of mobile devices, including smart phones and tablet computers. (A slew of iPad competitors is on the way. One industry analyst projects that tablet sales will exceed those of small, inexpensive laptops known as netbooks in 2012 and will surpass sales of desktop computers by 2013.)

With mobile phones, "Customers have been trained to pay for everything, from text messaging to voice mail to minutes [of call time]," says Darren Tsui, CEO of mSpot, a mobile music provider in Palo Alto, Calif. "So paying for content really isn't that foreign for them, versus Internet users, who are used to getting everything for free."

For Mr. Tsui, Apple's iTunes represents the model for developing paid content: Offer a valuable, free service and then incrementally enhance it with other paid features. iTunes began as a way for people to organize their own music. Only later did it become a way to buy new music, he says.

MSpot is among several companies that store people's music and movies online, where the files are available from anywhere on a variety of devices, from phones to laptops. MSpot offers a modest amount of storage free of charge. More storage space costs a small fee, beginning at $2.99 per month.

As mSpot tracks its users' musical interests, it also suggests other songs the person might want to buy. If the customer purchases enough songs, mSpot might suggest switching to a subscription plan, such as $10 per month for unlimited access to a library of millions of songs.

"Trying to get someone to go from free to $10 per month abruptly is very difficult," Tsui says. "If we can make that transition very, very slow and methodical, I think then that you'll have a better chance of converting the users."

Readers have never fully paid for their newspapers, points out Forrester analyst James McQuivey in his blog. Most of the cost of gathering and printing the stories and other features has always been borne by advertising. The same applies for programming on old-fashioned, over-the-air TV and radio.

Today, he says, consumers have grown accustomed to paying for "access" to content – through cable TV, Internet plans, and mobile phone charges – rather than for the content itself. But this means less revenue goes directly to the content creators and more flows to its distributors.

Surprise: A bad economy is no deterrent.

Pam Horan, president of the Online Publishers Association, is more optimistic that consumers will pay for online content.

The fact that smart-phone and iPad owners will pay for "apps," small software programs such as games or new reading material, is an early indicator that Americans will pay for content if it's packaged well, she says. "The key will be for publishers to deliver not only compelling content but compelling and new experiences," Ms. Horan writes in an e-mail. "Something like the iPad has it all – the visual impact of paper, enhanced by interactive elements like video and social-media integration tools."

Over the next year, "I think we'll see news and information sites explore ways to build complementary revenue streams to the current dominant advertising-supported model," she adds.

A bad economy isn't necessarily a deterrent to getting users to pay, Tsui says. He cites the "lipstick effect" after the 9/11 terrorist attacks, when sales of lipstick went up. During hard times, people will often gravitate to low-cost items that make them feel better about themselves. "Our business is actually doing pretty well," he says.

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