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.
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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.Skip to next paragraph
In Pictures Apple's iCandy
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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.
- The New York Times edges closer to charging for online content
- More US papers mull charging readers for online content
- Hulu coming to the Apple iPad, likely for a price