The Emerging Business Model is Working for Games and Music; Will News and Video be Next?
I have written a lot recently about the plethora of new social distribution platforms and the value of the user data that these generate; however, an equally important trend in digital media is the emergence of the freemium model in the US that has been exploited with a great deal of success by the likes of Zynga and Playdom. By allowing their users to access the complete product for free, these companies have been able to attract huge audiences while simultaneously extracting an enormous amount of dollars from their most loyal users who are more than willing to pay for a richer experience or access to additional content.
With the freemium model representing a complementary revenue stream to advertising for digital media companies, it is one of the most exciting developments in the space, in my opinion. While it has worked for gaming, it has also proven successful for other content verticals such as music where companies like Pandora (a Hearst portfolio company) have benefited from adding freemium offerings. One the heels of these successes, now comes word from NY Magazine that the NY Times is considering testing freemium as well. Below is a link to that article:
As most of you know, many newspaper companies have tried to extract online payments from its users, but it has largely been done by putting specific content behind a wall and making it only available to those who pay. The freemium model is quite different in that it allows visitors to see all content; however, once they reach a certain consumption threshold (e.g. 20 page views or articles a month), they are required to pay a small fee to continue to consume the product. The bar at which this threshold is set is key as is the additional benefits provided to paying users (e.g. fewer ads, monthly online chat sessions with popular columnists, etc.). The Financial Times is one of the only news organization that I know of that has adopted the online freemium model to some degree of success. However, the FT.com audience is a fraction the size of NYT.com so seeing a large news organization have success with this model would be a significant proof point.
I really hope that the NY Times embraces freemium because I strongly believe that it has the audience and world class content to make it work. Should The NY Times be successful, it can be a blueprint for other news organizations and potentially bring life back into some traditional media businesses who, absent another digital revenue stream, will likely die. One caveat though is that in order to be successful with a freemium model, a business needs to have highly differentiated content that users really like. In the examples of the Financial Times and Wall Street Journal and NY Times, this is very much the case. I’m not so sure the same can be said for the smaller, more regional newspapers so their ability to succeed with freemium, while quite possible, is less certain in my view.
In addition to games, music and news, I believe that freemium works for a variety of other digital content types and expect to see more companies adopt this model in the near future (video, and more specifically Hulu, seems like a great candidate). That said, the contribution from payments versus advertising will likely differ for the various content types. Nevertheless, I believe that freemium will become a meaningful revenue stream for many web services in the years to come and am excited to see how this model evolves.
