Are the Days of Free Over?

With online advertising dollars shriveling up and dying, more and more websites are returning to an old model that didn't work the first time: subscriptions. Is it desperation, or will it succeed this time? By Aparna Kumar.

The Web public is 7 years old. That may be a conservative estimate, but it still adds up to millions of spoiled children, used to getting something for nothing.

But if content companies get their way, it may become harder than ever to be a freeloader on the information superhighway. Feeling the pinch of slumping ad revenue, content providers of all kinds are experimenting with pay-to-play and paid-subscription programs.

And the trend isn't limited to online-only companies, or even to traditional media.

Days after Salon announced it was introducing a new "premium" subscription program, Major League Baseball said it was going to start charging people $9.95 to listen to audio broadcasts of its baseball games on the Web.

Earlier this week, the financial-news tracking site FreeEdgar sent an e-mail to its heavy users, informing them that their access to its free Watchlist service had been suspended. To continue receiving e-mail alerts for Securities Exchange Commission filings, those users will now have to become members of FreeEdgar's sister site, Edgar-Online, and pay a basic subscription rate of $10 a month.

And don't forget Napster.

In all those cases, subscribers would be paying for content that used to be free.

Companies following the free-to-fee trend insist that the Internet has matured to the point that consumers are becoming more willing to pay for content that's unique -- especially if they're getting something extra for their money, such as bonus content or customization features.

Still, most analysts say consumers won't pay for something they can get elsewhere for free. A survey published by the Consumer Electronics Manufacturer's Association last month found that 77 percent of consumers objected to paying for online news, driving directions, financial reports and other "commodity" information.

"I think lots of other companies are going to try the subscription model, but I don't think Salon will succeed and I don't think the others will succeed either," said Forrester analyst Dan O'Brien. "When you're talking about commodity information -- news, sports, stock quotes -- it doesn't matter how well it's done, there's just too much of it around that's free."

The thing is, every site seems to think its content is unique and worth paying for.

"We believe that people are willing to pay for quality services that are critical to their business," said Jay Sears, senior vice president of business development at FreeEdgar. "Most of our customers were depending on our services to do their job."

Added Salon chief Michael O'Donnell: "People pay for point of view. That's what's proprietary and valuable. Just like they may pay to watch The Sopranos on TV, loyal readers would pay to read Salon."

O'Donnell said his company's move reflects a broader shift in online media.

"I think we've all been reluctant to ask users to pay for content," O'Donnell said. "In this case, publishers are really a step behind users. People realize that they have to pay for quality content, whether it's for newspapers, magazines or cable TV."

In traditional publishing, subscriptions make up anywhere from 20 to 50 percent of a company's revenue. For most websites, it accounts for zero, O'Donnell said.

While a Forrester survey shows that the majority of consumers "are not at all likely" to pay for content online, the same research shows that those who would pay would be willing to go as high as 48 cents for a single news story or $2.83 for a monthly subscription. For music, they'd pay 51 cents per song, or $4.63 per month.

Looked at one way, sites that don't charge are missing out on money that consumers would willingly pay. The problem, of course, is getting enough people who would pay to sign up.

The most oft-cited examples of subscription-models failure are Slate and TheStreet.com, both news sites that experimented with paid content early on, but then went back to a free-content model. Neither site was able to generate enough subscriptions to turn a profit.

Slate, now part of the Microsoft Network, said it's not likely to go back to a subscription model after trying it in 1998. Its revenue has increased sixfold and its audience has grown tenfold since it stopped charging for content.

TheStreet.com, on the other hand, seems to be slowly edging back to subscriptions. The financial news site announced this week it would start charging readers for columns by two of its most popular writers, James Cramer and Herb Greenberg.

But even if consumers are ready to pay, the added revenue that is brought in generally isn't enough to cover the overhead of a labor-intensive operation like online news.

The Wall Street Journal's site, which seems to be the one prominent exception to the rule that subscriptions don't work, has yet to make a profit. In fact, the company announced Thursday that it would be laying off some of its staff in an effort to cut costs.

While subscriptions have yet to pay off from a business standpoint, new off-the-shelf software, such as Microsoft's Passport, has made it easier and more economical for sites to process and authenticate charges, increasing the temptation for companies to charge for what was once free.

So does that mean consumers can expect to be nickel-and-dimed to death?

"People are not going to be excited to pay $4.95 here and $18.95 there," said Ryan Jones, an analyst with the Yankee Group. "I think in the future you would pay one bill for music downloads, video, news and everything else due to consolidation. I think you're going to see a lot of consolidation across the board."