The Best Media Minds Still Can’t Answer Their Most Problemic Issue: How To Make Money Off The Internet?

Philip Stone July 15, 2009 Follow on Twitter

The big shots of media got together last weekend at a retreat and the number one question they discussed was how they can make money off the Internet. The end result: they knew the general answer – charge for content – but they still haven’t figured out how and for what.

John Malone, Liberty Media chairman, probably summed it up best. “The Internet is moving too fast, too far. Clearly advertising revenue is going to be insufficient as a sole source of revenue. It may be too late for some companies.”

And by “some companies” he was speaking specifically of newspapers. “Just changing the ownership doesn’t solve the problem,” he said, noting that newspapers “are dropping like flies.”

Now Malone has some experience in getting consumers to pay for what once was free. As a cable TV man he comes from the background where TV consumers used to receive TV for free based on the advertising model, yet along came cable TV and consumers agreed to pay for that privilege. Why? With cable they got the free stations they had already received, but they got a whole lot more, too, so is that what it takes to persuade people to pay for Internet services?

Cable operators get revenue today from both ends – from the end user via the monthly subscription but also from the cable stations themselves for although they may have to pay for the programming they usually get in return a share of the advertising revenue. Can the cable model work for Internet pay?

Malone noted that Warren Buffett had previously told him that he would be willing to pay $5 a month for YouTube. Of course, Mr. Buffett can easily afford the $5 but it goes a bit deeper than that. If it is going to be the subscription model then all of us are going to have to decide how much we can afford to spend on Internet services, just as we decide how much to spend on cable, whether we take the premium packages or we don’t. And that basically means a survival of the fittest Internet war. Will there be “basic” packaging? Will there be “premium” packaging? How many social networks can we afford, how many newspaper sites and other information sites and so on. Packaging may well be one solution.

The magic word on the Internet today is Twitter – so many people use it but how to make money from it?  Malone said the only real answer for Twitter and for such sites as YouTube is to charge. “Sooner or later  people will be willing to pay for these services,” Malone said. Meanwhile the likes of Rupert Murdoch, Howard Singer,  and Barry Diller said they are not interested in buying Twitter, if for no other reason than they don’t see how to make money off it in spite of its popularity.

Ken Auletta, a New York writer who moderated one of the panels at the Booz Allen Sun Valley weekend, summed it up thus, “No one had any answers about making money in the Internet.” Well, they may not have too much longer to figure it out.

TV and movie producers do not want to fall into the same trap as newspapers, giving away content and making no money. Hulu.com, for instance,  has become extremely  popular offering TV shows and movies for free but it’s not making money via the advertising model, so it should be just a matter of time before a paid content model is introduced. Will the users pay up? For Hollywood moguls  being popular is fine; not making money is not fine.

Away from Sun Valley and The New York Times is asking its subscribers whether they would be willing to pay a $2.50 monthly charge to access its web site – that’ would be half the fee being discussed for non-subscribers. The Times, you may recall, previously had a section of the site walled off under the Times Select banner that at its height earned some $10 million a year for access to its premium columnists. But the company then decided at the top of the Internet boom it could do better by giving up that revenue and instead add more free viewers, making up and more the lost subscription revenue with higher advertising revenue. The New York Times’ web site remains today the most visited US newspaper site, yet all of the company’s  various web sites suffered an 8% drop in Q1 revenue. So much for that bright idea that advertising alone will do the trick.

Many other newspaper sites have also reported declining Internet advertising income so all the grand strategies of the past that Internet services should make up about 50% of a newspaper’s total income are at best delayed, and perhaps worse now just pie in the sky. No wonder many major publishers say they are considering Internet pay models.

And newspapers more than ever are taking an ever closer look at copyright law. Opinion is divided whether what aggregators such as Google do with newspaper stories is good or bad. But there seems to be a growing feeling  that newspaper copyright protection laws, written before the Internet was even a gleam in someone’s eye, need a reworking to expand protection covering Internet usage. The bottom line probably is that if the likes of Google wants to aggregate they should pay newspapers for the privilege.

The ideal media pay solution, of course, is to come up with a formula that has the right ratio of subscription revenue to advertising revenue. Trouble is that both are moving targets and finding the right formulation, let alone figuring out what people will really pay for, is what is eluding even the brightest media minds for now.

But time is running out. They need to implement solutions quickly or it will be more  than newspapers and magazines that fall like flies.