Sunday, November 13, 2005
BUSINESS MODELS: How well will pay-on-demand for content personalization work, columnist asks?
ORIGINAL URL:
http://www.nytimes.com/2005/11/13/business/yourmoney/13frenzy.html
A New York Times media columnist speculates that the success of ring tones, downloadable iTunes music and announcements about video-on-demand by the clip via the Internet suggest the public may be willing to pay for content on a per-use basis -- especially when the consumer is able to "time shift" their reading, viewing or listening. Richard Siklos writes Nov. 13, 2005 that the "limits of what people will pay for personalization -- getting what they want, when they want it -- have yet to be tested." Sikos' conclusion: It's not a question of whether pay-on-demand efforts will work, but "how well they will work."
COLUMN: Media Frenzy
Published: November 13, 2005
HEADLINE: It's Like Selling Meals by the Bite. And It May Work.
By RICHARD SIKLOS
The New York Times
HOW much is this sentence - the very one you are reading right now - worth? Is it potentially more valuable than this entire column, this section, or the entire newspaper itself? This is not a play for a raise or a plug for the genius of my prose, but a riff on the latest mania in media-land: finding new ways to be paid for old material. Nearly every day, it seems, a new business strategy emerges that on its face may sound not only counterintuitive but also absurd. Then consumers start to buy it, and you can only say, "Who knew?"
The ultimate example of this is the ring tone - the grating, pulsing rendition of the Macarena or an old Whitesnake song that has replaced the annoying blaring ring on the cellphone of the person sitting next to you on the bus. When media companies of every stripe are facing increased competition and rising costs for programming and marketing, here is a product that consumers love - and that simply reuses a fragment of existing recordings.
According to the NPD Group, a research firm, 18 percent of wireless telephone subscribers in the United States - many of them tech-wise teenagers - download ring tones, at an average cost of $2.32 a pop. Informa, a British research and analysis firm, forecasts that ring tones will grow to a $6.8 billion global business in 2010 from nearly $5 billion in 2005, with the North American business growing to $1.5 billion from $510 million. Who knew?
Now, it seems, every media business is in search of its variation on the ring-tone premise. Last week, we learned that both Google and Amazon.com were working on services that would allow readers to buy electronic versions of books, either by the page or by the chapter.
In one respect, this sounds like very much a back-to-the-future concept, harking back to the days when Dickens's work first appeared in serial form. But, really, it's probably less about reading the latest "Harry Potter" installment a bit at a time than it is about parceling out passages and chapters of books for how-to or research purposes. Just as a music lover may want to buy a great single but not the whole album, a student may want a relevant chapter for her research but not the entire book.
Another recent twist on this theme is Apple's ingenious idea to sell rock videos to download on its latest iPod; Apple proudly declared that it sold its first million video downloads, at $1.99 apiece, in less than three weeks. Among the top sellers it cited were music videos from Michael Jackson and Kanye West, short films from Pixar and episodes of ABC network television hits, including "Lost" and "Desperate Housewives."
While Apple did not break down the downloads by type, the fact that any music videos have a retail monetary value is fairly remarkable. After all, music companies largely produce them as promotional vehicles in the hope that they will gain attention from MTV or its imitators. And there are already countless Web sites for viewing them free. Who knew?
The latest entrant in these sweepstakes was the exciting but complicated news from CBS and NBC Universal that they had separately entered into video-on-demand deals to sell fresh reruns of some of their most popular programs at 99 cents each. CBS made its deal with Comcast, the big cable company, while NBC Universal's was with DirecTV, the satellite TV giant controlled by Rupert Murdoch's News Corporation.
In the case of CBS it has agreed - in markets where it owns its own TV stations, as opposed to where it supplies programs to independently owned affiliates - to let Comcast digital cable subscribers buy episodes of four top shows, including "CSI: Crime Scene Investigation," from within hours of their initial broadcast until the next episode is broadcast a week later. NBC Universal is offering a total of six shows, including "Law & Order: SVU," in a similar fashion on DirecTV. Unlike the CBS shows on Comcast, NBC's shows on DirecTV will initially be free of advertisements; but to buy them on demand, a DirecTV subscriber will need a new version of a digital video recorder that is about to hit stores.
Everyone involved cautioned that these were just baby steps. But the bigger point is that it is now possible to envision a world not too far in the future where all imaginable types of programs, including the latest movies and top-rated network TV shows, are available through some kind of download or video-on-demand system.
Then again, both the CBS and NBC ventures instantly conjured a good deal of skepticism. An obvious question is this: Who on earth will pay for a rerun of a show that he or she can watch free in the first place? More and more people have digital video recorders like TiVo that simply record free programs onto a hard drive, letting viewers enjoy them anytime and fast-forward through the commercials. (In NBC's deal, it's a doubly relevant point, because you actually need that new DVR in order to buy these shows on demand after they've been broadcast.)
The answer from all involved is that they still expect most viewers to watch their favorite shows when the networks have scheduled them - and, of course, the networks want their advertisers and affiliates to be reassured that they really, really believe this. This new video-on-demand window, they say, is simply a way to capture easy money from people who either don't have DVR's or forgot to record a show. Even better, the networks say, the water-cooler buzz about a great episode the previous night may spur some people to buy a show they wouldn't have watched in the first place, get hooked and then tune in for the next episode.
The funny thing is, it may work. After all, TV producers have found unexpected riches in selling DVD compilations of popular new shows, proving that consumers are not averse to paying for something that they might find on reruns or in syndication, if they just bothered to look.
TWO lessons are apparent in all these attempts to revamp media business models. One is that the limits of what people will pay for personalization - getting what they want, when they want it - have yet to be tested. The other is that consumers are not nearly as pragmatic as they may imagine themselves.
A case in point: remember all those late fees that Blockbuster used to charge on video rentals? Pragmatic folks would have returned the videos on time. Another example: just this morning I brewed a pot of coffee at home, drank a cup and poured the rest down the sink. The pragmatic me would fill up before I left the house, or maybe get an old-school Thermos. The real me bought another cup from the vendor on the corner outside the office just as I arrived for work.
As media companies slice and dice their products into new businesses, the central issue is not so much whether they will work as how well they will work. Just as the ring tone has not saved the music industry - it has only mitigated its troubles - will gains from chapters-on-demand or video-on-demand offset the digital challenges of the publishing and video industries?
Who knows?
Copyright 2005 The New York Times Company
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