LONDON (Reuters) - Consumers will soon have to start paying for news and entertainment they have become used to getting for free on the Web as media firms face the reality that advertising can no longer foot the bill.
Jolted into action by a recession that has caused advertising spending to be slashed by 10 percent this year, publishers led by Rupert Murdoch’s News Corp (NWSA.O) are abandoning the dogma that information wants to be free.
Executives speaking to the Reuters Global Media Summit this week delivered the unanimous message that their romance with free content -- stimulated by global ad spending that reached a peak of almost half a trillion dollars last year -- was over.
“There is no business model right now on the Web,” said David Zaslav, chief executive of Discovery Communications (DISCA.O), which owns dozens of television network brands around the world including the Discovery Channel.
Web search leader Google (GOOG.O) has promised publishers ways of earning advertising revenue alongside news stories, but most big news organizations scoff at the idea that such ads are enough to fund the production of quality journalism.
A few publishers, like Britain’s trust-owned Guardian News and Media, have adopted the Web industry’s strategy of building a large online audience as its first priority. It had 31 million unique users in October and has no plans to charge online.
Those who do have such plans must take into account the advertising revenues they will lose by turning their back on mass audiences in favor of a smaller, paying subscriber base.
Most consumer media companies have held back from charging for online content for fear that their audiences will simply switch to rivals in an environment that is still overwhelmingly free. No one wants to be the first mover.
But an unlikely champion has emerged in the form of Rupert Murdoch -- previously more feared than loved by the industry -- who has announced plans to charge for online content starting with British newspaper The Times next spring.
The News Corp chief executive was credited with extracting a concession this week from Google, which took steps to close a loophole that allowed articles to be read on Google News even when publishers had put them behind a paywall.
Google’s CEO Eric Schmidt was moved to write an opinion piece in the Wall Street Journal, saying that his company made a “tiny fraction” of its sales from ads placed against news articles, and should not be made a scapegoat by newspapers.
The development was characterized in much of the media as a victory for Murdoch, and has helped reignite an old debate over which is more powerful -- content or distribution.
“At this point in the cycle, there’s no question that distribution has been the more powerful tool driving the Web,” David Levin, chief executive of British business publishing and events group UBM (UBM.L) told Reuters.
“It hasn’t funded the creation of content, and what we’re all struggling with is: How do we fund the creation of content?”
A change in ideology on the part of media owners and a rapprochement with Google are only the first steps toward answering that question, and the work of finding business models that consumers will accept is now beginning on a large scale.
FORGET YOU‘RE A NEWSPAPER
RTL, Europe’s biggest commercial broadcaster, conducted a recent experiment in which it asked viewers wanting to watch a special episode of a drama to pay 1.10 euros ($1.66) or else watch a six-minute preroll ad and answer six questions.
Over 90 percent chose not to pay. “If you want people to pay, you can’t have a free offer,” CEO Gerhard Zeiler told Reuters. “We experiment, we have to get this right, and we have to get the consumer to pay for at least some of the content.”
Many news and entertainment providers are looking for clues to publications like Pearson’s (PSON.L) Financial Times, which has increased online subscribers 22 percent to 122,000 in the past year and ft.com revenues by 30 percent.
The FT, however, like News Corp’s Wall Street Journal, is unlike most of the industry in that it has a highly motivated, affluent customer base which feels it cannot do without expert financial information.
“I may not read my local paper very much any more but I never miss reading the Journal,” Mike Fries, CEO of international cable operator Liberty Global, told Reuters. “I need this information. I don’t want it, I need it.”
Micropayments, something the FT also plans to experiment with by charging per article or for daily or weekly passes, may also be a way forward for publishers with less loyal readers.
In any case, providers of more general news need to lift their offering above the average if they want to charge -- something made all the more difficult by recent massive cost and job cuts -- and exploit the interactive potential of the Web.
“You have to forget you’re a newspaper when you go online,” David Montgomery, CEO of Mecom MEC.L and former CEO of Britain’s Mirror Group, told Reuters. “We’re not going to get there by simply dumping traditional newspapers online.”
The TV industry is in general further along the added-value path. Liberty Global, for example, offers broadcasters a share of revenues from making their programs available on demand, and other extra services that consumers are prepared to pay for.
Fries says cable companies like his can offer broadcasters a better alternative to putting their content online -- without the dangers of piracy, and with assured revenue streams.
“Our argument to broadcasters is: You can put your stuff online, go ahead. It’ll get stolen, you won’t get any ad revenue, and you’ll somehow dilute your brand,” he said.
“Cable television has always partnered with content providers, has always protected their content, and has always paid them,” he said. “The Internet does not protect your content, and it sure as heck doesn’t pay you.”
Additional reporting by Elisabeth O'Leary, Kate Holton and Nicola Leske in London, and Paul Thomasch in New York, Editing by Sitaraman Shankar