Paid content seen complementing online ads

NEW YORK Thu May 17, 2007 7:01pm EDT

David Sanderson, head of Global media practice for Bain and Co., talks during the Reuters Global Technology, Media and Telecoms Summit in New York May 17, 2006. REUTERS/Brendan McDermid

David Sanderson, head of Global media practice for Bain and Co., talks during the Reuters Global Technology, Media and Telecoms Summit in New York May 17, 2006.

Credit: Reuters/Brendan McDermid

NEW YORK (Reuters) - Do we make them pay or do we give it away? That question has bedeviled media executives ever since they discovered they need an online business plan.

The answer so far: A little bit of both.

Media companies will offer most of their content for free on the Web and rely on advertising revenue, but they will not stop charging for some content until they better determine what people want, executives said at the Reuters Global Technology, Media and Telecoms Summit this week.

"It depends a little on the nature of the content," said Viacom Inc. VIA.N Chief Executive Philippe Dauman.

"There will be premium products where people will be willing to pay," he said. "But we're big believers in brand and advertising."

Trying to figure out what business model makes the most sense on the Internet can get complicated.

Advertising is attractive because companies can better measure its success rate online than in print or television, and Internet ad sales are growing as businesses try to reach potential customers who spend more time online. But ad sales growth could trickle depending on larger economic patterns.

Companies also must consider the sometimes quixotic habits of Internet audiences whose tastes and responses can change as rapidly as communications technology advances.

"The consumer hasn't really figured out all the elements of what they want to buy, how they want to buy it, how they want to pay for it," said David Sanderson, head of the global media practice at consulting firm Bain & Co.

Some subscription and paying business plans work out well. Notable examples include Apple Inc.'s (AAPL.O) iTunes online music store and The Wall Street Journal's news Web site.

But many people use the Internet precisely because they can get news, videos and other material for free.

This has left companies such as cell phone maker Nokia Oyj (NOK1V.HE) hedging their bets on mobile music.

Customers "are willing to pay for the subscription model. It doesn't mean advertising won't become increasingly important," said Nokia Chief Financial Officer Rick Simonson. "I don't think every business model has to depend on advertising."

Randy Falco, chief executive of AOL, Time Warner Inc.'s (TWX.N) online unit, said Internet consumers have clearly stated their choice.

"You get conditioned, right? You go to the box office, you're conditioned to pay to go see the movie," he said. "When you go to the Web, you enter a place where you're conditioned to see and gain access to and learn about and gain information about everything -- and it's free."

But providing free material means paying for it somehow. Like TV, the Internet has grown thick with ads during the past decade and that often annoys consumers.

Bain consultant Sanderson said ads could be more effective if companies work harder to make them relevant for people.

"It isn't that advertising has to be a chore... It can be even in some ways a form of entertainment," he said.

Sanderson said he envisions ads, subscriptions and pay-per-view models co-existing in the future. "I think consumers will get comfortable with those same models in an online context; it just hasn't worked out yet."

(For more on the Reuters Global Technology, Media and Telecoms Summit, see <ID:nSP21633>.

For summit blog: summitnotebook.reuters.com/)

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