Premium or Bust: Will Customers Pay for Digital Content?

By: Monica Eaton-Cardone

When it comes to monetizing digital content, there are a few different models providers tend to go with:

  1. Provide the content on a paid subscription basis
  2. Offer free content, then generate revenue through ads
  3. Make the content available for free, then capitalize on the collected customer data

Generally, customers tend to be okay with at least one of these models—it’s when they feel that they’re paying for content twice, with information or ad revenue and cash, that content providers run-up against friction.

Customers Enjoy Premium Services

There is a large number of popular subscription-based content providers currently on the market. Some, like Netflix, Hulu, Newsweek, and The New York Times, rely on subscription fees to generate a profit. Other services, like Spotify, offer multiple subscription levels, with an ad-supported free version and an ad-free premium service.

Either way, all content providers collect and analyze subscribers’ data. In some cases, companies do this in order to look at customer behavior and select the best content, and sometimes it’s for the purpose of providing that data to third-parties.

Of course, it’s not a secret that companies collect customer data. However, the fact that data collation is so well-known may actually dissuade some consumers from paying for digital subscriptions. A number of customers may feel as though they shouldn’t have to pay for a subscription when the content provider is already making money off of ads and customer data.

Paying in Cash and Data is Nothing New

That line of thought seems to visualize data collection and advertising in premium content as something new; however, all three of these models of monetizing content go back many decades.

Compare contemporary subscription services to older print media such as newspapers and magazines. With the latter, you paid for the content, but were still subject to ads. In addition, data such as television ratings and viewer or reader demographics have always been closely scrutinized. This is especially true for media of a more specialized subject, such as magazines or TV shows targeted at specific hobbyists.

This line of thought doesn’t seem to bridge the gap between those more tangible services and digital subscriptions in customers’ minds. Now, the expectation seems to be set that customers will pay with data, ad revenue or cash, but never all three.

Discrepancy Between Customer Expectations and Reality

The problem, of course, is that what customers expect—in this case, to receive quality content and offer less in return—is not always a possibility.

There is a discrepancy between what customers believe and the reality that content providers face. In many cases, one revenue stream is not enough to support an entire organization and also deliver the level of content customers expect.

Looking at newspapers and magazines for example, many customers believe that these media outlets make more than enough money off of ad revenue and digital data, so there is no need to pay for the content. In truth, digital products contributed just 25% of overall ad revenue just 25% of overall ad revenue for newspapers in 2015, and that was due less to an increase in digital ad spend but more to a rapid drop in print ad revenue.

In most cases, print content effectively subsidizes digital content for media outlets, but consumers’ willingness to pay for digital content is not keeping pace with the drop in demand for print. In early 2016, only 6% of UK residents reported that they would be willing to pay for news content online, meaning that for these outlets to thrive going forward, they will need to define customers’ expectations regarding new media.

Retraining Customers’ Expectations

The expectation that people will have to pay for content yet still be subject to data collection and ads is not amenable to a large number of consumers. As Paul Fishlock explains, “You don’t need to have read any behavioral economic books to know that when you train someone so well to expect things for free…then turn ‘round and say ‘we are now going to charge you’, it’s not going to be an easy task.”

However, the key is not to simply fold under the pressure, as this will only lead to an ever-deepening spiral of inferior content and stricter consumer expectations. Rather, digital merchants will need to focus on retraining what the customer expects of their digital content experience.

It will be necessary to impress upon consumers the idea that quality content isn’t cheap, and somewhere along the lines, they will need to pay in order to play. The real question is how much each consumer is willing to pay in cash to be ad or data-free.

Perhaps one of the best approaches for news media to take is to offer a multi-tier subscription service. For example, a news outlet could make 5-10 articles freely-available to non-subscribers each month, but then require a subscription in order to view the full content. Beyond that, the outlet could even offer an ad-free service for a higher price, depending on whether that model would ultimately be profitable for the organization.

This model could appeal to a broad range of consumers:

  • The casual reader, who would likely only view a handful of articles per month. Going subscription-only would exclude this reader entirely, but by offering a free limited service, the casual reader can still generate revenue for the outlet in the form of ad view.
  • The consistent reader, who is willing to pay for unlimited access to content, but who also doesn’t mind seeing the occasional ad.
  • The premium reader, who possesses the means and is more than happy to pay in order to access content without seeing ads on the page.

An Uphill Battle for the Digital Business Model

It certainly won’t be a piece of cake to win customers over to the prospect of willingly paying for content. However, as customers’ demand for content grows increasingly digital, it will be just as increasingly necessary for content media to take that step.

Otherwise, the content that customers love simply won’t be able to sustain itself, and if that happens, then everyone loses out.

Author: Monica Eaton-Cardone

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