Thursday, February 12, 2009

Micropayment Flap: Beyond the Rhetoric to the Real Issues

As you may recall David Carr triggered a firestorm of discussion in the media industry about micropayments with his 11 January column in The New York Times when he suggested that newspaper publishers should think about how Apple's iTunes platform does quite handily charging consumers for by-the-song access to music. I blogged on this and other aspects of the business model quandary a couple of days later and mentioned micropayments as one innovative avenue for publishers to explore. It would be hubris for me to say that I triggered the ensuing firestorm of discussion on micropayments, but certainly the "M word" has been buzzing around quite a bit these days.

The crescendo on micropayments was marked by former Slate online magazine editor Michael Kinsley's op/ed piece in The New York Times a few days ago in which he lambasted the idea of micropayments. Kinsley notes rightly as have others that the prime thing that keeps people from paying for content from traditional brand sources is the availability of free/ad-supported sources of content from new online sources that are oftentimes perfectly acceptable alternatives. There's no doubt that Kinsley's early abandoned experiment with online subscriptions was a bellweather for the content industry (my now-rusting Slate umbrella from my own subscription now shelters me on the way to the end of my driveway for newspapers and mail), so his negativity certainly speaks from experience. However, Kinsley's slap against micropayments seems to miss the mark. He notes:
Micropayment advocates imagine extracting as much as $2 a month from readers. The Times sells just over a million daily papers. If every one of those million buyers went online and paid $2 a month, that would be $24 million a year. Even with the economic crisis, paper and digital advertising in The Times brought in about $1 billion last year. Circulation brought in $668 million. Two bucks per reader per month is not going to save newspapers.
Well, yes, micropayments of that scale are certainly not going to preserve major media companies as they've existed for the past century or so. But Kinsley's math is based on newsprint daily circulation. Looking at the New York Times' online monthy unique visitors - estimated by Compete.com to be at about 16 million in January - the same math would come up with a rather tidy $384 million annual revenue for The New York Times from online micropayments. Given that such revenue would not have to support the lumbering NYTimes printing presses over in the borough of Queens, that would also be a pretty tidy profit, as well, probably close to the net income from newspaper circulation.

I don't think that micropayments are the only answer to online media's problems, nor is any one particular business model going to produce a "magic bullet" revenue stream in all likelihood. As Walter Isaacson noted in his recent Time magazine article on how to save newspapers:
Newspapers and magazines traditionally have had three revenue sources: newsstand sales, subscriptions and advertising. The new business model relies only on the last of these. That makes for a wobbly stool even when the one leg is strong. When it weakens — as countless publishers have seen happen as a result of the recession — the stool can't possibly stand.
Clearly most publishers have relied on multiple business models and revenue streams to build strong businesses, including Time magazine's own powerful direct marketing capabilities, as noted by Susan Mernit at The Huffington Post. There's no solid reason to think that micropayments couldn't develop into one important revenue stream that could benefit both traditional media organizations as well as the millions of independent publishers whose content has become popular online. Unfortunately micropayments remain a neglected alternative with a reputation that's been scarred by poorly planned early micropayment experiments in the early days of the Web. What's most discouraging is that there are plenty of successful models that are analagous to online micropayments that work very well for content and communications revenues. A few familiar analogies to micropayments:
  • The phone bill model. You might say that telecommunications companies introduced the first micropayment model with their ability to charge by the minute for phone calls that were billed to clients on a monthly basis. It has worked for decades and has included both fixed payments for base-rate services and add-on payments for value-add services. Thinking of news as a communication rather than as a thing may help publishers to reconsider just what it is that they're trying to get people to support.
  • The music royalty model. The music industry certainly has its challenges these days, but certain aspects of music monetization are still fairly intact and operable - including the royalty payment scheme that's used to disperse payments to music publishers and artists when songs are played on broadcast outlets. Monitoring the use of news content can provide similar mechanisms.
  • The newsstand model. One of the most obvious payment models that's been around for years is the newsstand model. After years of plunking down quarters for newspapers on the way to catch a train to or from New York, it's hard for me to accept that some people cannot fathom the idea of small payments for news content when it's in the right place at the right time.
  • The tips model. You see it all the time on streets and in public spaces: street musicians plunking, bowing or blowing away with a tray to collect tips from passers-by. Public broadcast outlets in the U.S. as well as many online news Web sites have been using the tips model to receive donations from people who appreciate their content creation efforts. Micropayments could be as simple as enabling a per-item tip jar infrastructure.
Any and all of these are possible approaches to micropayment-supported media that are both relatively simple to implement from a technology perspective and that offer possible paths to value-add revenues. A micropayment system may tick along in the background on some metered system at lower rates than newsstand fees without a per-use transaction, but an obvious advantage of such a system is that it could easily trigger a per-issue payment for someone who want to browse through more than one or two hit-and-run articles - which could also be billed in the background.

Why hasn't such a system been built to date? Certainly highly competitive rivals in the content industry have managed time and again to try to turn micropayment systems into a proprietary choke point that can give them an advantage in the marketplace; in the process of doing so they choke off the potential for the industry as a whole to grow through micropayment. Nobody down at Grand Central Terminal is trying to install cash registers at newsstands that can be used for only certain newspapers or magazines: why would it benefit the industry to do so for electronic content?

Similarly, for all of the praise that's been lavished on premium downloads on iPhones, the iPhone represents a relatively small sliver of the mobile markeplace where music could be sold. The model appeals to music publishers because it has that good old "choke point" feel to it, but the truth is that the iPhone's highly proprietary approach to content ecommerce only underscores how poorly music publishers fared in coming up with a technology-neutral micropayment solution.

I do believe that many new successful models for generating revenue for content suppliers are on the verge of being introduced. The bad news for many publishers is that probably established major media companies are not the ones that will create them or implement them first. It's far more likely that the chokehold-averse, technology-neutral community that generates social media and other new forms of publishing will recognize that there are benefits to be gained by collaborating on payment systems that can benefit their community as a whole - with our without established publishers benefiting from them. One can see this to some degree already in the book publishing industry, where innovative online outlets such as Lulu.com have been aggressive in pushing value-add print-on-demand sources of revenues while traditional book publishers continue to focus on mass production of print titles.

The sad truth about most media companies is that if their existing sales and marketing forces aren't going to benefit from a new revenue stream it's fairly difficult to get it accepted by their organizations. Thus the anxiety about exploring micropayments may have as much to do with an executive's career comfort level as it does with any strategic business factors. The flap about micropayments is really not about micropayments themselves as much as it is about a mindset in most media organizations that has yet to grasp how to do business the Web way. Search engine optimization is a small step forward in that understanding, but it's really only about optimizing one revenue model and not much at all about confronting the real nature of how to broaden the revenue base for content on the Web.

Micropayments are coming and they will provide billions more in content revenues online eventually, but by the time that traditional publishers get around to adapting them the millions of publishers using social media publishing tools to take advantage of them may leave them a fairly meager slice of the revenue pie to share. If media companies can stop trying to build artificial chokeholds and focus more on enabling content commerce the way that the Web really works, perhaps there will be hope yet for them to close the revenue gap between online operations and their traditional operations. In the meantime, brace yourself for micropayments - they're coming anyway.
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