Category: Research

The market for online content sales is growing, but contains the seeds of its own destruction. That’s my interpretation of the new online content sales report [PDF] from the Online Publishers Association. The report covers the first half of 2003. Here are the highlights, in my opinion:

• The core online content market grew a respectable 14% between the first half of 2002 and 2003. The OPA’s definition on “content sales” is still too expansive my taste. They include personals (up 77% since 2002), streaming audio and video, games, credit repair, fantasy sports, and greeting cards. Core online content, in my analysis, includes business content, research, and general news. This market was $255 million in the first half of 2003, or about a third of the OPA’s content market.
• General news is flat at about $35 million/year.
• Online advertising is an order of magnitude larger than online content. The Interactive Advertising Bureau hasn’t released their numbers for the first half of 2003 yet, but it’s likely to be more than $3 billion.
• Subscriptions dominate the online content market. About 88% of the market was subscription-based. Because the OPA doesn’t break this out by category, it’s hard to know how this applies to the core content market.
• Single payments under $5 are less than $15 million/year (8% of total single payments which are 11.5% of the approximately $1.5 billion/year market). The OPA calls these “micropayments”. I’d call them “minipayments”.
• Revenue per content buyer has been stalled at just under $25 for nearly two years. All growth in revenue comes from the conversion of Internet users into content buyers. This isn’t too surprising. It’s more than they pay for the daily newspaper. It’s about what most people pay for Internet access. It’s about half what they pay for local telephone, long distance, cable, broadband, or mobile service. Does anyone think that it will ever be greater than any of these?
• The average content buyer spent $.25 on single payment content in the first half of 2003.

Conclusions: The market for online content will stagnate if content sellers can’t continue to find new buyers. Publishers of general news and information are misguided if they think that selling subscriptions or archives will ever be a serious business. Meanwhile they risk conceding their core markets to free, advertising-financed competitors if they pursue it.

The International Telecommunications Union has released a report that says The US is 11th in broadband penetration worldwide, with only 7% versus nearly 21% in Korea. I added emphasis to a key paragraph below;

More than 10 million of the world’s high-speed Internet users are in South Korea alone, a rate of 21.3 broadband subscribers per 100 inhabitants. Hong Kong was in second place with 14.9 percent and Canada was third at 11.2 percent.

The United States was in 11th place in the per-capita broadband rankings at 6.9 percent, though it had the highest overall total with 19.9 million subscribers.

Japan was in 10th place, with 7.1 percent broadband use. But ITU experts expect Japan to move up because it is now offering the world’s fastest speeds and lowest prices. Broadband service that is about 520 times faster than a dial-up modem is available in Japan for about $24.19 a month.

…

[Taylor Reynolds, one of the authors] said a key reason why Japan and South Korea are so far ahead is because of heavy competition among broadband providers. The Japanese and South Korean governments have taken steps to encourage the use of broadband, such as requiring telephone companies to let competitors use existing lines at low cost.

The FCC has taken the opposite approach, granting monopolies to local phone companies in exchange for them granting citizens broadband access when it suits their purposes.

Meanwhile, Peterme points to a Business Week commentary that says we need to grant telcos a monopoly on DSL, subsidize their deployment, and improve content protection to increase broadband penetration. He notes correctly that more content isn’t what we need to create broadband demand. There’s now plenty of evidence in worldwide Internet penetration to show this is nonsense that only serves intellectual property owners.

Right now, there is more money to be made selling ads online than selling news.

With online advertising continuing to climb (Emarketer says online ad spending will be up 4.8% in 2003), and with online newspapers getting an outsized share of that growth, who is going to be willing to jeopardize their seat on the gravy train by charging for content?

The Online Publishers’ Association says that their members (all big publishers) are seeing a 38% growth rate in online advertising. This is consistent with what the big newspaper publishers are reporting.

company	Q2 revenue in millions	Y/Y growth
NY Times	$21.6	22%
Knight-Ridder	$19.3	36%
Tribune	n/a	15%
Lee Enterprises	$5.8	35%

It’s no surprise to anyone that the Web now dominates the real estate advertising market.

In response to the question, ‘What resources did you use in your home-search process,’ 65 percent of respondents listed the Internet, while 49 percent mentioned newspapers. Two years ago, 43 percent of respondents listed newspapers as a primary information source while 43 percent listed the Internet as a primary source.”

For the true believers (like me), it’s a bit of a surprise that the Web was never able to disintermediate the real estate agents’ MLS monopoly. However, no one should be surprised that the agents recognized the Web as not only a cheaper, but a superior method to promote houses (and their services).

Not only did newspapers abuse their local classified monopoly for decades, but they never were able to offer an efficient buy in a business where the only thing that matters are location, location, and location. Why advertise to an entire metropolitan area when you only want buyers who are interested in a single neighborhood?

Bay Area real estate advertising never recovered from its decline in the recession of the early 90’s because the advertisers in their desperation found newer and cheaper ways to sell houses. The business was already pretty damaged by the time the Web came along.

Given the poor prognosis for newspaper classifieds in general and employment in particular, I was startled to hear that the Conference Board is still promoting its help-wanted index as a measure of the employment market, saying “Because ad volume has proven to be sensitive to labor market conditions, this measure provides an important gauge of change in the local, regional and national supply of jobs.”

What decade do the Conference Board’s economists live in? These days, employment classified ad volume is a lot more sensitive to online competition than it is to labor market conditions.

The AeA (what you probably know as the American Electronics Association) says that broadband growth is slowing:

“Now, the limiting factor [to the growth of broadband] is access and price,” said William T. Archey, president of AeA, which was formerly known as the American Electronics Association. Only half of people living in rural areas have access to high-speed Internet service, and many others don’t want to pay $50 a month for it, he said.

The pressure on the broadband access duopolies to increase access and lower prices is growing. They’re not exactly a friend of the citizen, but the AeA should provide a political counterweight to the duopolies and make it clearer to everyone that they’re holding back the economy with their current approach to broadband access. [Thanks Poynter E-media Tidbits]

I hate media concentration as much as the next guy, but this baffles me. An “advocacy” group called Children Now says that the amount of kids’ television programs in Los Angeles fell sharply when one company owned more than one of the city’s TV stations.

Put aside their misuse of the word “duopoly” to describe one company owning two TV stations in the same market. My question is whether anyone really believes that kids are better off if there are more TV shows for them to watch.

The Online Publishers Association says its members, the largest online publishers, are reporting their online ad revenue is up 40.7% in the first quarter over the first quarter of 2002. Interestingly, total revenue was up 37.6%, suggesting that non-advertising revenue sources are not keeping up as a share of total revenue.

The members of the OPA are the largest online publishers, including of About.com, Bankrate.com, Belo Interactive, CBS MarketWatch, CNET Networks, CondeNet, COXnet, Edmunds.com, ESPN.com, Forbes.com, Hearst, Internet Broadcasting Systems, Knight Ridder Digital, Meredith, MSNBC.com, New York Times Digital, Scripps Networks, Slate, SportingNews.com, Tribune Interactive, USATODAY.com, Wall Street Journal Online, weather.com and Washingtonpost.Newsweek Interactive.

The number of broadband users grew 50% last year, according to the latest memo from the Pew Internet Project.

CyberAtlas is running an interesting chart based on Pew’s data that shows broadband users and experienced dial-up users are pretty similar in their online activities. Not surprisingly, they use a lot more streaming media. However, the only traditional Web activity whose use seems to be increased by broadband is reading news.

Pew predicts that the pace of broadband adoption is likely to slow as most ready buyers cannot get access.

Slowing growth rates for broadband adoption could lead to price cuts in the near future. Don’t sign any long-term contracts.

The Online Publishers’ Association has released a new survey of at-work Internet use by daypart[ PDF].
The Internet is the best way to reach your audience while they’re at work, and this study does a good job of showing the behavior of this audience.
I wish the study had spent less time wallowing in demographics, which are easy to collect but pretty meaningless, especially in this context. I also don’t understand why they’re looking at the at-work market as a consumer, rather than business, market.

PaymentOne’s new study concludes that security concerns are the main reason why consumers don’t buy more content online.

That seems a little weird to me: Not high prices, not the inconvenience of payment, but security.

But if you take a look at what content they’re buying online, 52% of it is advertising and another 9% is Internet services and communications. Only 12% of what they’re buying is news and information.

It seems to me that the value of classified ads and communications services are well established on the Net and that security (the principal bugaboo of all mainstream ecommerce) would be the main problem keeping consumers from buying them. But for news and information, the value proposition and ease of payment are much bigger issues.

Until we treat online news and information as a distinct market, most research into the “content market” will be useless to online publishers.