The pendulum swings back to “paid for” content

It looks like the swing towards “ad funded everything” is quickly coming to an end, and there is a trend back in the direction of selling products and services to users. 

“Ad funded” for many businesses really meant “shareholder funded in the hope of later monetization”.  Meanwhile, people actually selling things were ignored – that was thought too “dirty” or “difficult”.  However, in difficult economic conditions, remember the Yorkshire expression: “where there’s muck there’s brass”.

It was interesting to see the announcements about Google’s apparent shift towards becoming an e-Commerce business.  They will be selling music and games direct to consumers on their YouTube site.

http://www.reuters.com/article/technologyNews/idUSTRE4970U820081008

This, and a glut of other recent announcements around music stores, music subscriptions, online games sales, and the various “app store” initiatives from Apple, Google, Blackberry(RIM) and others all indicate that we are seeing a return to the traditional model of “selling things to customers”.  For a few years, there has been a swing in the other direction.   “Freeconomics”.  The idea is that everything is free, you just get it by watching ads, so the advertised pays for whatever you need.

Looking at the world of TV, it seems the pendulum started swinging back to paid-for a year or two ago.  Ad funded TV companies (like ITV) are struggling against their “paid for” counterparts (Sky).  The latter are adding more and more options to buy content – ad-free as technology and consumer behavious changes.  Now that SKY has the technology in place they are making users pay to vote.

TV and radio shows are increasingly leveraging technology and mobile payment to sell participation in gameshows (votes cost money, entering games, bid-up auctions).

Now that belt tightening is on the increase, as people reduce their investments and feel concern about a potential recession, is the natural time for a move towards basic business.  Advertising will get cheaper to chase the customers.  Advertisers will get much sharper in their use of analytics and measurement to verify ROI.  Content owners will be more nervous about devaluing their offerings.  Increasing unemployment might reduce the demand for some forms of entertainment – although erotic content and teen spending on games seem in teh past to have been resilient to this – but advertising is sure to feel the pinch much more.

My prediction is that there will be amove back towards “value” over the next year or so, with paid for content moving to the front of the agenda.

Fortunately, the timing is right on teh technology and business front.  Most leading operators (Verizon,TIM and France Orange being teh notable exceptions) now embraced a paid for content model by opening up their billing systems and empowering innovation.  Device makers are supporting more innocation and opening up capabilities not they have a “green light” from the carriers.

Bango has seen a surge of interest in “mobile payment” interest at http://www.bango.com/payment  and we are working with a host of “app store” and “content store” developers targetting the fast growing SymbianS60, Blackberry and Windows app opportunities.

Companies who could benefit from this move could well be the older internet companies like Yahoo, who have platfomrs and the reach to leverage demand and a historic capability to sell things.  As a newcomer, Google might be able to succeed in this area, but only if it can embrace non-google avenues for payments and  take the risks necessary in being a “supplier” or “seller” rather than an ad channel.

“Revenue Leakage and” “Breakage Bonusses”

I recently read an interesting article about Revenue leakage over at MocoNews: http://www.moconews.net/entry/419-vodafone-fesses-up-on-faulty-reporting-content-companies-setting-up-own/

There are definitely inaccuracies in reporting, but it goes both ways:

A major carrier has outages in its billing system from time to time – usually no more than a few minutes.  When this happens, off-deck connectors into the billing system can’t collect money, so they don’t allow users to get the content (In fact Bango automatically switches to PSMS to keep revenues flowing) . 

We discovered that during such outages, the “on-deck” content is still sold (to provide good customer service) but ther fail over to “free mode” so all content becomes free during the outage. In this case however, it turned out that the carrier was simply not reporting the sales to the content provider, who was therefore subsidising the “good sevice”….  EEEEK!

Two ways we have seen content providers or aggregators benefit:

(1) Content providers sell content using a single or double opt-in Premium SMS system.  Unfortunately the user does not have WAP connectivity or the content does not work on their handset.  Provided the user does not claim a refund, the CP can detect that content has not been delivered, pocket the money (potentially for many months on a subscription service) and not pay any royalty.  For some CP’s and aggregators, this “breakage” accounts for their entire profit margin – everything else is break even!

(2) We discovered that a “top five” music publisher was allowing users to purchase from their WAP site by sending them a premium SMS and then routing them to a URL where the content was downloaded.  Between 10-15% of all the PSMS’s  failed to deliver revenue (user had run out of credit, barred by user, corporate account etc.). So, at the end of the month the company simply reconciled things and did not pay the artists any royalty on these sales.  Unfortunately, the end users had already been given teh URL for the content – so it had been supplied.  A back of the envelope calculation indicated that they potentially owed artists royalties to the tune of $450,000.  This was a strong motivator for them to sign up to Bango – where such leakage was eliminated!   There must be many other such situations.

Over in the UK this week the big “scandal” is about  the alleged $80million phone in fraud: http://www.theregister.co.uk/2007/04/24/gmtv_phone_scam_allegations/

Sobering!